Why do we remind you about?

Insurance

Last month, we had a very challenging meeting with a client that had recently been declared unfit for work for his $150K/year employment.  After a medical procedure, the client suffered permanent physical damage which means the 48-year-old will never be able to work again.  He asked me if his SMSF had any life or TPD insurance that would cover him for his loss of income?  Unfortunately, when he started his SMSF, he did not establish any life insurance products.  He did not think that paying for insurance was worth it, because at the time he was fitting fit.  He now faces a future where he doesn’t have independent wealth and will need to rely on the generosity of his elderly parents.

If a life/TPD insurance policy was in place under the above scenario, the SMSF would have been able to receive a large payout from an insurance company and would be available for the member to use for any purpose.

Yes, getting life insurance costs money, and going through the process can take some time, but without it, you may be left with debts to pay and no way to pay them.

To add to that, it’s a compliance requirement to “consider” insurance for the members in your investment strategy document. This doesn’t mean you have to take it up, but you must consider it and document why the members are not taking up insurance.

Investment Strategies

An SMSF investment strategy is the “business plan” for your SMSF. The investment strategy that we create in the establishment documentation is a template designed for you to meet your initial compliance requirement.  It is required to be replaced by “your” strategy which is unique and suits your plan. To make this easy for you, we created an investment strategy builder on our website (search “investment strategy” on our website).  Alternatively, your Financial Adviser can create this strategy for you and review it regularly during the annual review process.

Investment strategies are designed to provide guidance to you – the Trustee, about how to invest your money and what to do when things do or don’t go to plan.  It should document the general and specific risks that you are taking on certain investments and how you can mitigate those risks with certain strategies.

The strategy covers members liquidity & post-retirement lifestyle requirements. Your SMSF can be the most important part of your retirement savings, so being clear about members requirements in retirement and the SMSF’s response to those needs is vital.

We have had several SMSF’s where the annual audit has picked up investment strategies that don’t meet legal standards. This is not fatal and won’t cause long term issues, however some work needs to be done to fix it up.  The first thing to do is identify what investments are causing the auditor problems.  From there you can address the matter in the investment strategy document. The next time your investment strategy document is prepared with the amendments made, it will pass audit.

Property Valuations

The ATO has sent out communications to the SMSF Auditors that they need to be strict on asset valuations. The want SMSF financial statements to correctly reflect the value of the assets.

Asset values create the dollar value of a member’s balance.  Member balances now dictate how much members can contribute to Superannuation and how much money can be in pension phase.  If members balances are artificially low, they may take advantage of various incentives designed for lower balance holders trying to improve their situation.

RP data provides Supervision with one free residential property valuation (per property) a year. We pass this free report to you.  Unfortunately, due to the unique nature of commercial property, we are unable to receive the same service from RP data.

Commercial properties can pose difficulty when it comes to valuation.  Finding recent sales of similar properties can be difficult.  Without similar sales, the valuation will need to examine other factors such as lease term, annual income and special use of the property to extract a value.

Your SMSF will not be required to provide a sworn/licenced valuation each year, however if a long term lease is going to be entered into, it is in your best interests to have an authority (valuer/agent) assess the value of the property and provide a written report.

After this has been provided, then each year the SMSF Trustee can provide an updated valuation based on your observations and evidence of properties in similar circumstances.  If you need help with this, we can support you to provide Trustee valuations.

It is not permissible for the Trustee to get one valuation and leave it unchanged over the medium term, or leave the value at cost.  

Depreciation Schedules

If you own a property in your SMSF, a depreciation schedule can save tax each year until the building has been completely written down to zero.  Depreciation expense is the amount that the ATO allow you to claim as a deduction based on the allocated to wear and tear on the building.

This means that if you have spent money on capital works on your property asset during the year, it may be possible to increase your deductions with the use of a depreciation schedule.  Depreciation schedules are provided by specialists and the ATO will accept the deductions based on this report.

We recommend Asset Reports as our preferred supplier of depreciation reports.  They offer a discount for Supervision clients, so please mention that we have sent you. https://www.assetreports.com.au/