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End of year strategies and opportunities for business owners 2012 End of year strategies and opportunities for business owners 2012

Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement options 3. The self-managed super fund option 4. Opportunities for small business 5. The small business retirement exemption 6. Other matters 2

Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement options 3. The self-managed super fund option 4. Opportunities for small business 5. The small business retirement exemption 6. Other matters 3

Choose your tax rate Individual 45% Company 30% Super 15% Pension 0% • 45% Choose your tax rate Individual 45% Company 30% Super 15% Pension 0% • 45% - Top marginal rate + 1. 5% Medicare Levy • Discount of 50% on capital gains • 30% Company tax rate • No CGT discount • 15% on earnings and deductible contributions • 10% on capital gains - CGT discount of 33 -1/3% • Tax free earnings within super when drawing a pension • Tax free pension payments once you turn age 60 • 15% tax offset on pension payments if over 55 and under 60 4

Super is a tax structure not an asset class No greater investment risk when Super is a tax structure not an asset class No greater investment risk when investing through super – you can invest in same assets – Cash is an option Bankruptcy protection Low tax environment Insurance Super Property 5

Who can contribute to super? Anyone under 65 Between 65 and 74 (‘work test’ Who can contribute to super? Anyone under 65 Between 65 and 74 (‘work test’ required) Age 75 and older (only Mandated employer Super Guarantee contributions) 6

Tax deductions for small business owners A Company contributing on behalf of employees – Tax deductions for small business owners A Company contributing on behalf of employees – 9% SG contributions – Salary sacrifice arrangements Self-employed Partnership Sole traders Tax deductible contributions are referred to as “concessional contributions” and are taxed @ 15% 7

Maximise your deductible contributions More important to start salary sacrificing earlier than ever before! Maximise your deductible contributions More important to start salary sacrificing earlier than ever before! – 9% compulsory super counts towards cap *Transitional arrangements for over 50’s Proposed legislation to allow continuation of $50, 000 cap for over 50’s where super balance less than $500, 000 Deductible contribution cap 2011/12 2012/13 Standard cap $25, 000 *Transitional (Over 50’s until 30 June 2012) $50, 000 $25, 000 8

Personal contributions can help plug the gap Case Study Brad (age 55) Employed on Personal contributions can help plug the gap Case Study Brad (age 55) Employed on a package of $180, 000 plus SG Was sacrificing up to $50, 000 cap. From 1 July 12 may only have $25, 000 cap Note: Assumes a return of 7% after fees and tax 9

Who can make a non-concessional contribution? Individuals within the partnerships can – treated as Who can make a non-concessional contribution? Individuals within the partnerships can – treated as personal after tax contribution (nil tax applies on contribution) Sole traders can – treated as personal after tax contribution (nil tax applies on contribution) Employees can – treated as personal after tax contribution (nil tax applies on contribution) A Company cannot – always taxed as concessional (15% tax) 10

Maximise your personal contributions No deduction is claimed Personal contributions capped at $150, 000 Maximise your personal contributions No deduction is claimed Personal contributions capped at $150, 000 pa If under 65 you can bring forward 2 years of cap and contribute up to $450, 000 $150, 000 30 June 2011 $150, 000 30 June 2012 $450, 000 30 June 2013 $0 $150, 000 30 June 2014 $0 11 $450, 000 $150, 000 30 June 2015 $0

Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement options 3. The self-managed super fund option 4. Opportunities for small business 5. The small business retirement exemption 6. Other matters 12

Lump sum tax on super Tax free component Taxable component 55 to 59 Tax-free Lump sum tax on super Tax free component Taxable component 55 to 59 Tax-free First $165, 000: Tax-free* Balance: 15% tax, plus Medicare levy 60 and over Tax-free Note: Applies only to withdrawals from a taxed fund and only to the taxable component of the payment * For Financial Year 2011/12 13

Pensions – income/payments Investment return in pension account Pension income that you receive 55 Pensions – income/payments Investment return in pension account Pension income that you receive 55 to 59 Tax-free Assessable – 15% rebate 60 and over Tax-free Note: Applies only to withdrawals from a taxed fund and only to the taxable component of the payment 14

Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement options 3. The self-managed super fund option 4. Opportunities for small business 5. The small business retirement exemption 6. Other matters 15

SMSF market* 450, 498 funds registered with the Government 33, 600 new funds established SMSF market* 450, 498 funds registered with the Government 33, 600 new funds established last financial year 126, 000 new funds in last 4 years Total super assets are $1, 280 billion SMSF assets $400 billion (31%) 853, 700 members $835, 000 average fund size (member account size is $440, 000) 69% of funds have no more than 2 members * ATO stats as at June 2011 16

Age profile of SMSF members As at March 2011 < 25 years > 64 Age profile of SMSF members As at March 2011 < 25 years > 64 years More than half of SMSF fund members are age 55+ (nearing and post retirement age). These members would have higher average balances and as they move into pension draw down the growth in assets will slow. 55 -64 years 17 25 -34 years 35 -44 years 45 -54 years

Customer drivers for SMSF Advantages Disadvantages Control of investment decisions Full trustee responsibilities Direct Customer drivers for SMSF Advantages Disadvantages Control of investment decisions Full trustee responsibilities Direct Investments options Lack of Knowledge Investment returns Time consuming to run Lower Costs Tough penalties for breaching rules Ability to Gear May be uneconomic for low balances Tax Management Extra legal responsibilities Flexible retirement pension options Potentially higher costs Flexible estate planning / protection options Maximum of four members 18

The investment strategy Trustees are required to prepare and implement an investment strategy, and The investment strategy Trustees are required to prepare and implement an investment strategy, and regularly review it. As trustees you must consider: – Risk involved, likely returns and fund objectives – Composition of a fund’s investments, diversification – Liquidity requirements of the fund – Ability of the fund to discharge present and future liabilities – Penalties: $220, 000 and possible 12 months gaol for trustees 19

The fund’s investment flexibility Shares Managed Funds Abalone Licenses Stocks Property Trusts Stamps etc The fund’s investment flexibility Shares Managed Funds Abalone Licenses Stocks Property Trusts Stamps etc Bonds Private Trusts Options Fixed Trusts Futures Art works Notes Special Objects Mortgages Life Office Policies Rental Property Taxi Plates 20

Investments you cannot make within a SMSF You cannot: Lend to members/relatives Acquire assets Investments you cannot make within a SMSF You cannot: Lend to members/relatives Acquire assets from a related party however: – Few exceptions include; listed shares, widely held unit trusts, business property Exceed 5% in-house asset rule – An investment in a related party – A loan to a related party – A lease to a related party 21

How can a SMSF acquire an asset? 1. Outright purchase from a member if How can a SMSF acquire an asset? 1. Outright purchase from a member if SMSF has sufficient cash or SMSF could borrow – not treated as a contribution 2. Transfer asset in-specie to SMSF trustee – will be treated as a contribution 3. Purchase from a third party Issues to consider: Asset locked into super until retirement CGT implications on transfer of ownership Stamp duty Contribution caps for in-specie contribution method Financial planning strategic advice will be critical 22

Case study – shares in-specie transfers David, aged 59 (self-employed) wishes to make contributions Case study – shares in-specie transfers David, aged 59 (self-employed) wishes to make contributions to his SMSF. He does not have cash but. . . Owns $200, 000 worth of listed shares Solution/strategy: Transfer shares In-specie to the SMSF trustee. Realises personal capital gain of $20, 000 (after claiming the 50% discount). Meets eligibility to deduct personal contributions to super Claims a tax deduction for $20, 000 of the amount contributed. Remaining $180, 000 is a non-concessional (limited to $150, 000 pa or $450, 000 'bring forward' 2 years contributions) Important notes • You need to take into account the appropriate value for the purposes of the contribution caps that apply under super Legislation at the time • Note that a self managed superannuation fund is only able to accept an in specie contribution if it is allowed under the trust deed of the fund. 23

Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement Agenda 1. Overview of super rules and legislative changes 2. Your super fund retirement options 3. The self-managed super fund option 4. Opportunities for small business 5. The small business retirement exemption 6. Other matters 24

Opportunities for small business owners Business owners may hold business property tax effectively in Opportunities for small business owners Business owners may hold business property tax effectively in SMSF The benefits to business owners: Source of income and growth for the SMSF Business stability – SMSF trustee is the landlord Rental income taxed at maximum of 15% If property sold for either business succession or retirement CGT maximum of 10% or 0% if sold in pension phase SMSF may provide asset protection Assets in super don’t count towards Net Tangible Asset test for Small Business CGT Concessions Able to transfer business premises in-specie into the fund 25

How an SMSF can acquire property Purchase at arm’s length (or deemed market value) How an SMSF can acquire property Purchase at arm’s length (or deemed market value) Via contribution (business real property only) Combination of contribution and purchase Tenants-in common option – where fund has insufficient assets to purchase outright residential or commercial Related unit trust structure which is ungeared Unrelated trust or company (geared or ungeared) Borrowing option - where fund has insufficient assets to purchase outright residential or commercial 26

SMSF borrowing rules Loan must be used to purchase a single acquirable asset The SMSF borrowing rules Loan must be used to purchase a single acquirable asset The asset must be held in trust for the SMSF- SMSF has beneficial interest in that asset SMSF has the right to acquire the asset following the SMSF making one or more payments Lender’s recourse is limited to rights relating to the asset in the event of default or exercise of rights by the trustee Rules are complex and extreme care should be taken in setting up properly 27

Case study John and Jane are 55, live in their $1. 5 million dollar Case study John and Jane are 55, live in their $1. 5 million dollar home. They have $750, 000 in cash and shares. The couple have a motel business. Their motel ($2. 5 million) is security for business loans ($500 k). The couple wish to purchase another motel at $1. 2 million and do Repairs and improvements - spend $1 million. Strategy: Purchase motel via SMSF and lease the property to their business for $200, 000 pa What are their options? 28

Related trust option John and Jane contributes $750 k to Smith’s SMSF Smith’s Motel Related trust option John and Jane contributes $750 k to Smith’s SMSF Smith’s Motel $2. 5 M Business loan( $500, 000) Equity $2, 000 SMSF and couple acquire units Smith’s Unit Trust New motel $2, 250, 000 Distributions to unit holders Lease tax deductible Access transition to retirement pension at 55+ Smith’s Motel Business 29

Agenda 1. Overview of super rules & legislative changes 2. Your super fund retirement Agenda 1. Overview of super rules & legislative changes 2. Your super fund retirement options 3. The self-managed super fund option 4. Opportunities for small business 5. The small business retirement exemption 6. Other matters 30

Capital gains realised on moving business assets to super may be reduced Small business Capital gains realised on moving business assets to super may be reduced Small business capital gains tax concessions 15 year exemption - $0 assessable 50% active asset reduction Small business roll over Retirement exemption Must meet eligibility criteria: – Small business entity or $6 M net asset value – Active asset – Additional requirements for company or trust – Requirement for each concession 31

Increase super via CGT exempt contribution Assessable for CGT 50% active asset reduction (optional) Increase super via CGT exempt contribution Assessable for CGT 50% active asset reduction (optional) 50% general exemption CGT Exempt Component Up to $500 k Nonconcessional contribution Up to $450 k for under 65 s Cost base 32 Super fund

Agenda 1. Overview of super rules & legislative changes 2. Your super fund retirement Agenda 1. Overview of super rules & legislative changes 2. Your super fund retirement options 3. The self-managed super fund option 4. Opportunities for small business 5. The small business retirement exemption 6. Other matters 33

Review asset & family protection Providing insurance cover (Super or Non-super? ) Insurance in Review asset & family protection Providing insurance cover (Super or Non-super? ) Insurance in super is owned by the fund and covers the life of the members The fund can insure members for: – Life Insurance as a result of death – Total and permanent disability – Income protection Provides cover where your cash flow is short Life and total permanent disability premiums are a tax deduction for the fund Provides cash liquidity for payment of disability and death benefits to members and beneficiaries Provides protection for any borrowings within the fund 34

Review SMSF & estate planning In the event of death of a member the Review SMSF & estate planning In the event of death of a member the SMSF can pay death benefits in the form of: – A lump sum to beneficiaries – A pension to a SIS spouse dependant or child dependant beneficiaries – A reversionary pension to spouse for existing pensions Super death benefits do not form part of your estate unless the estate is nominated as beneficiary under binding or non-binding death benefit nomination form If structured correctly the SMSF can be an efficient way to pass assets to beneficiaries bypassing the estate 35

Katz v Grossman [2005] NSWSC 934 SMSF with $1 m of assets Mr and Katz v Grossman [2005] NSWSC 934 SMSF with $1 m of assets Mr and Mrs Katz had 2 children – Linda & Daniel (adults) Mrs Katz died a few years earlier and Mr Katz appointed Linda as co-trustee of SMSF Mr Katz made a binding nomination that death benefit ($1 m) be paid to equally children Mr Katz died Linda appoints her spouse as co-trustee Guess what happened? Daniel challenged the appointment of her husband but the NSW supreme court determined that his appointment was valid under the trust deed and trust law. Ultimately Daniel received no benefit from the super fund and the court ordered that the costs of the court action be paid by the fund. 36

Review business overheads, key person insurances and succession planning Ensuring business stability in the Review business overheads, key person insurances and succession planning Ensuring business stability in the event of death or disability – Replace revenue – Pay off loans – Fund business overheads expenses – Replace and train key person Plan business succession and exit – Legal transfer agreement (buy/sell agreement) – Provides certainty when an owner leaves the business – Provide funding for remaining owner to purchase the departing owner’s share – (Commonly entered into where two or more persons control a business together) 37

Transitioning to retirement for 55+ Boost your super without affecting your lifestyle or Reduce Transitioning to retirement for 55+ Boost your super without affecting your lifestyle or Reduce work hours Make tax deductible contributions Start a non-commutable income stream You Pre tax contributions Tax free income stream at 60+ 38 Super

Transition to retirement example Current Proposed Gross salary Less tax $150, 000 $ 46, Transition to retirement example Current Proposed Gross salary Less tax $150, 000 $ 46, 450 Assessable income $150, 000 Pre-tax contribution $ 50, 000 Net salary $ 103, 550 Net salary $100, 000 Pension income (age 55) $40, 065 Tax & ML Super tax @15% $ 36, 516^ $ 7, 500 Net income $103, 550 Benefit in Year 1 $ ^ Includes Medicare and Flood levy 2011 -12 financial year 39 2, 435

Where to from here? Choose what tax rate your want to pay Explore super Where to from here? Choose what tax rate your want to pay Explore super and business opportunities Review estate planning arrangements Review business insurances and business succession 40

Asgard Capital Management Limited ABN 009 279 592, AFSL 240695 (Asgard). Information current as Asgard Capital Management Limited ABN 009 279 592, AFSL 240695 (Asgard). Information current as at 1 January 2012. This publication provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This presentation contains general information only and does not take into account your personal objectives, financial situation or needs. You should therefore consider whether information or advice contained in this presentation is appropriate to you having regard to these factors before acting on it. You should seek personalised advice from a financial adviser and your accountant before making any financial decision in relation to matters discussed in this presentation. The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. Consider our disclosure documents which include our Financial Services Guide available on www. asgard. com. au. © Asgard Capital Management Limited 2012. 41