SMSF Limited Recourse Borrowings & Pension Phase
Can a SMSF engage in limited recourse borrowing while in pension phase?
While there may be good reasons for an SMSF which is in pension phase not to engage in limited recourse borrowing – for instance, if the borrowing arrangement will be cash flow negative – the issue is whether the SIS Act or Regulations prevent a SMSF in pension phase from engaging in a limited recourse borrowing.
It has been suggested that SIS Regulation 1.06(9A)(d) which states that “the capital value of the pension and the income from it cannot be used as a security for a borrowing” prevents a SMSF in pension phase from engaging in limited recourse borrowing.
Our view is that SIS Reg 1.06(9A)(d) is directed to the mischief of a member attempting to charge their pension rights rather than being directed to the trustee (or holding trustee) imposing a charge on the assets of the fund as permitted by s67A. The expression “capital value of the pension” means, for account pensions, the pension account balance rather than the assets underlying the pension.
Consequently, it seems that this prohibition does not preclude a SMSF from entering into or maintaining a limited recourse borrowing arrangement if one or more members are in pension phase or if one or more members convert to pension phase while the borrowing arrangement is on foot.
Should you require clarification on this or any other tax related matter, don't hesitate to contact A Grade Tax Accountants Penrith.
The Schoolkids Bonus is a payment from the Federal Government to a parent or carer receiving Family Tax Benefit Part A for a dependent child in primary or secondary education. It provides $422 a year for each child in primary school and $842 for each child in secondary school. This year, from 1 January 2015, payments will be subject to an income test and will only be payable to families with an adjusted taxable income of $100,000 or less. You can find out more about eligibility at the Department of Human Services website.
Assistance for Isolated Children
If you have a child at primary or secondary school-age who can’t go to a state school because of geographical isolation, disability or health reasons, the Assistance for Isolated Children scheme may provide tax-free payments exempt from income and assets tests. Find out more at the Department of Human Services website.
Please ring for an appointment to complete your Income Tax Returns with either Donna, Tynna or Max.
It is important that anyone considering an investment proposal seeks our advice with regard to the taxation consequences and options available to minimise taxation. For example there can be very significant tax advantages available by purchasing an investment property within a Self Managed Super Fund rather than your own name.
We provide a full range of taxation services including:
- Advice regarding the best tax structure for the formation of new businesses. It is always best to discuss your new business proposal with us before committing to any new venture.
- Company and Personal Tax Returns.
- Formation and administration of Self Managed Super Funds.
- Investment property tax advice.
- Our mobile mortgage broker offers a wide range of finance options for home and investment loans plus vehicle financing.
Please review our attached Personal Checklist and tax tips to assist with the preparation of your income tax returns, prior to your appointment with A Grade Tax Accountants Penrith.
The Australian Taxation Office (ATO) has announced changes to the number and types of tax deductions available to investment property owners, including a clarification of which items in a rental property can be claimed as depreciating assets.
The changes are contained in a Taxation Ruling, which offers an updated list of more than 150 individual rental property assets that can be classified as ‘depreciable’, provides the depreciation rates of these assets, and specifies how non-listed items should be treated.
In particular, the ruling takes a stricter approach to which items can be classified as depreciable and which must be treated as part of the building. This means a key area of the draft ruling is determining which assets in a residential rental property fall within Division 40 (for depreciating assets) and which are subject to Division 43 (for capital works) of the Income Tax Assessment Act 1997.
In the draft ruling the number of assets that can be claimed as a tax deduction (based on assets normally found in residential properties) has increased, and in some instances there have also been changes made to the period of time over which deductions can be claimed for those assets.
Depreciation of an asset allows a tax deduction for the cost over the asset’s life.
However, while the changes may benefit some investors, others may find that assets they have claimed for in the past are no longer eligible under the new depreciation rates, or else should not have been claimed for in the first place.
The ATO has also introduced a recommended useful life for dishwashers (10 years) and freestanding outdoor furniture (5 years), while other items have had their recommended effective lives changed, including hot water systems (reduced from 20 years to 12 to 15 years) and washing machines (increased from 6 2/3 years to 10 years). The changes to useful lives apply to assets acquired on or after July 1, 2004.
Looking to Buy Property?
The ATO says it is increasing its focus on rental property deductions. It says common errors made by rental property owners include:
Claiming rental deductions for properties not genuinely available for rent;
Incorrectly claiming deductions for properties only available for rent part of the year such as a holiday home;
Incorrectly claiming structural improvement costs as repairs when they are capital works deductions, such as re-modelling a bathroom or building a pergola;
Overstating deduction claims for the interest on loans taken out to purchase, renovate or maintain a rental property.
The ATO has also released a series of short videos which explain the tax implications of buying, owning and selling a rental property.
- In the May 2014 Federal Budget, the government announced the super guarantee rate will increase from 9.25% to 9.5% from 1 July 2014.
- The rate will remain at 9.5% until 30 June 2018 and then increase by 0.5 percentage points each year until it reaches 12%.
For more information click here or call us at A Grade Tax Accountants Penrith on 4731 1405.
The Australian Tax Office (ATO) are contacting businesses in the building and construction industry who have not yet lodged their 2012-13 Taxable payments annual reports. Businesses will be contacted by phone or letter.
If construction industry clients have not yet lodged a 2012-13 Taxable payments annual report, they should do so immediately. Penalties for not lodging may be applied.
If you are not required to report, you can advise the ATO by sending an email to NilReportTPAR@ato.gov.au with the following information for each client:
- The reason for not lodging the 2012-13 annual report, either: the business is not in the building and construction industry, or the business did not pay contractors for providing building and construction services.
For more information go to: Building and Construction Industry . If you require any assistance please contact us at A Grade Tax Accountants Penrith on 4731 1405.
Owning business premises inside a Self Managed Super Fund (SMSF) can provide a tax effective outcome and also business continuity security. With certain Capital Gains Tax concessions available, moving premises that are already owned outside of super into a SMSF can be quite attractive.
But, there a number of rules and requirements that must be met before the business real property exemptions can be applied. It is important to also understand the key risks and opportunities from a Capital Gains Tax point of view both on the transfer of the property into the SMSF and on the eventual sale of the asset by the SMSF.
At A Grade Tax Penrith, we can take you through the fundamental issues around business real property and how to minimise the risks and maximise the outcomes under the Capital Gains Tax and superannuation systems.
This is good news for property buyers and homeowners, who are taking advantage of low interest rates to get ahead. There has been a lot of activity in property markets across the country, with high auction clearance rates a feature during the busy autumn selling season and investors leading the way amongst buyers.
One of the major factors influencing the RBA to keep the cash rate unchanged at its historically low level is the high Australian dollar, which is impacting our export markets and general economic recovery. Analysts agree that we can expect interest rates to remain low as long as this situation continues.
In light of the low interest rate environment, there is a lot of competition in the loan market. Lenders are offering some great deals to those looking to purchase their first home, invest or refinance. To find out more about how the low interest rates could help you get ahead, give us a call at A Grade Tax Penrith to arrange an obligation free appointment in the comfort of your own home with our mobile finance broker.
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