» SMSF

What happens when a business owner’s SMSF owns their premises?

BMT team — Tue, 19 Oct 2021 23:20:38 +0000

A strategy some business owners use to improve business while investing in their own future is to rent their business premises from their self-managed super fund (SMSF). The superannuation industry is highly regulated, so how does this work with all the red-tape? And how does the business owner and SMSF claim tax deductions for this scenario, including depreciation? What is an SMSF? An SMSF is a type of private super fund that can hold up to six members. It has the same purpose as any other super fund – to set the members up for retirement. This type of super fund differs from traditional retail or industry funds as the members are often also trustees. This means members have many responsibilities to ensure their fund is managed in compliance with strict superannuation laws. One of the same; SMSF member and business owner A business owner can be an SMSF member while running their own business separately to the fund. However, this is on the condition that any dealings between the SMSF and the business are done on an arm’s length basis. This means the business and SMSF can’t exploit the system by purchasing and selling assets to each other at a rate that is well below market value. The purchase or sale of a fund asset (e.g. property, shares) must always reflect the true market value of the asset. Any income that is earned as a result of a non-arm’s length transaction on the SMSF’s behalf will face a higher tax rate on the income source. A business owner can use a commercial property that is owned by their SMSF as their business’s premises. The SMSF can even purchase the property from the business and rent it back out to them to improve the business’s capital position – as long as it is done through an arm’s length transaction. Case study – business operating from an SMSF propertyAnthony is a chef and runs his own restaurant. He is also a member of an SMSF.The property he operates his restaurant from is owned by the SMSF he is a member of. He moved his business to this property following its acquisition by the SMSF. Therefore, Anthony rents this property at market rates from his SMSF, giving him security over the lease term for the business while benefiting his future through his SMSF owning the property as it receives a steady income. How does depreciation work in this scenario? Depreciation is the natural process of wear and tear, it happens to most assets including property, vehicles and furniture. An SMSF can claim this depreciation on any eligible property it owns under the fund, while business owners can take advantage of depreciation of the assets they use for business purposes. In this scenario, depreciation is still split into two parts as per the case study below: Case study – continuedAnthony will be able to claim only the fit-out he owns in the property against his business’s taxable income. This includes assets like restaurant furnishings, kitchen equipment and point of sale systems.Meanwhile, the depreciation available on the on the structure of the property and fixed assets owned by the owner (in this case, the SMSF) must be claimed separately and under the SMSF’s tax assessment. This means depreciation deductions will be against the concessional SMSF tax environment of 15 per cent. Businesses and SMSFs must ensure depreciation claims remain compliant Depreciation can shave thousands off a tax bill every year, so these claims are often, and understandably, looked at in detail by the Australian Taxation Office (ATO). Businesses and SMSFs alike can ensure they maintain full compliance and avoid ATO scrutiny with a tax depreciation schedule. This schedule is a document that lasts the lifetime of a property. It outlines all depreciation deductions that are available each financial year and is used by an accountant at tax time. BMT Tax Depreciation specialises in these schedules for all types of property, both residential and commercial, and whether they are owned by individuals or entities. SMSF members and businesses are encouraged to discuss their depreciation option with BMT on 1300 728 726 or the team can contact them once they Request a Quote.

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SMSF – choosing the right auditor

Chan Naylor Team — Thu, 12 Jan 2017 00:56:07 +0000

It is important to ensure that service providers are aligned with your firm’s culture, values, management, staff, clients and operations, therefore there are many issues to consider when choosing a SMSF auditor. While the most common question will be in relation to price, it is definitely not the most important. The thought of having to select a new SMSF auditor for any practitioner can be overwhelming. The relationship between the SMSF auditor and accountant is a unique one that has to be built on mutual respect and professional trust. This checklist is provided as a starting point only, to which you can add your own list of customised questions to complete your due diligence. Then you will be able to make an informed choice and select the SMSF audit firm that is right for you. The following checklist should help you assess and select the right SMSF auditor. Checklist Questions/Issues: Are they in order Y/N Is your SMSF auditor registered with ASIC? Individuals are registered with ASIC, not the firm. Does the firm’s website show the names of their approved auditors? Do you know who you are dealing with? Is the person on ASIC’s banned and disqualified SMSF auditor list? Are you outsourcing audits to a SMSF audit firm who will then outsource your SMSF audits to another firm? Do your research on the firm you intend using. How long have they been operating? Who are the Directors/Principals? Do they have a good reputation? Will your SMSF audits be processed offshore? There is an obligation under APES 110 to inform clients if their work is not processed in Australia. This responsibility should be addressed in the initial terms of engagement letter between the client and the Accountant. Will you have to reissue a terms of engagement letter to your client? Do you have to email your documents to the firm? Does the firm have systems in place to ensure your information remains confidential? Does the SMSF audit firm provide access to an audit portal or client portal? Do you know in which country your client’s confidential information is being held or transited through? How secure is the portal? What platform is used to receive and store documents? Cloud-based systems have been hacked several times over the past couple of years – is your client’s sensitive financial information secure? Does the firm have an outsourcing agreement? The agreement should set out the firm’s approach to providing their services and should be developed in accordance with APES 110, APES 320 & APES 325. Will they provide an SMSF audit checklist? Do you know what documents are required for the audit? Is there a record of documents already provided and/or uploaded to the portal? This can save a lot of time and discussion between parties if there is a breakdown in the audit process. What is the turnaround time to complete work? Are they proactive or reactive to your practice’s workflow requirements? What is the turnaround time during peak periods? Will you miss your lodgement deadline? When you provide fund documents, are you emailed back a signed audit report almost immediately? As there will almost always be additional documents required for the audit, this may indicate that the audit is not being undertaken in line with professional standards and legislation. Are management letters provided? Best practice is that a management letter is always provided, even if there are no additional comments addressed to the trustees. Do they provide SMSF technical advice and assistance? Does the firm provide SMSF advice that will assist in rectifying breaches? Do you have to pay extra for this service? Is the firm a dedicated SMSF audit firm? Do they provide any other services? Will independence be an issue? Are property title searches undertaken annually? This confirms that the trustees have been correctly registered on the title and also ensures that there are no mortgages or encumbrances on the property. Are bank audit certificates obtained? What if the cash component is material? Once again, confirmation of correct title ownership is important, which may not be shown by the bank statements alone. BACs can also highlight other issues, such as whether there is an encumbrance or lien on the investment, whether the bank account went into overdraft, etcetera. If you would like to know more about how Chan & Naylor Audit Services can help you and your business, please go to the Chan & Naylor website and ask for a FREE ten minute phone call with one of our Auditing Team. Alternatively please call 1300 250 122.

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Key things to know and consider before setting up an SMSF

Chan Naylor Team — Thu, 22 Dec 2016 01:35:26 +0000

Rather than pool their retirement funds with thousands of others and trust superannuation companies to invest their money, some people prefer to take their future wealth creation into their own hands and set up a Self-managed Super Fund (SMSF). This can bring some great benefits, but also comes with a lot of responsibility, and requires considerable skill to ensure it works to the advantage of members. Here are few important things to know about SMSFs, and what to consider before you decide to set up your own fund. Six basic things to know about SMSFs An SMSF is essentially a legal tax structure that is regulated by the ATO. SMSFs can have up to four members, who all act as trustees or directors. The funds in an SMSF must be used only for the purposes of future retirement. In an SMSF, members have the option of deciding where to invest their funds, which may include shares, property, or even collectibles such as artwork, antiques or jewellery. The members are entirely liable for all the decisions made in an SMSF – even if they outsource some of the functions or obtain professional advice. SMSFs are subject to annual auditsby a qualified SMSF auditor to check for compliance. Some of the benefits of an SMSF include access to a wide range of investments, being in control of your own retirement funds and the ability to borrow from a lender to invest in property – although this last one comes with some pretty stringent rules. Four considerations for setting up a super plan 1/ Funds: For an SMSF to be viable, it needs to have a considerable sum for investment, although it can be started with a small amount and added to as members roll over their funds into it. SMSFs need to cover numerous costs, and it’s important to have some liquid assets in place to meet these. 2/ Time and skills: Administering an SMSF requires considerable time, such as for researching investment options and making decisions on behalf of members. Skills in managing finances are also required, as well as a full understanding of super tax laws and how superannuation funds work. 3/ Retirement goals: Before setting up, it’s important to have goals in place for retirement as these will help to guide and direct your actions. 4/ Investment rules: Trustees need to understand comply with investment rules, such as recognising that the fund’s assets must not provide any members or their related parties with a current benefit. This means for example that if your fund invests in property or artworks, neither you as a member or your related parties can use these assets for private purposes. There’s certainly a lot to think about when it comes to establishing your own super fund. The good news is you don’t have to go it all alone – there is always the option of employing a professional accounting firm that has in-house licensed financial advisers, to assist you in managing your investments. To find out more about SMSFs, or for independent financial advice, get in contact with our SMSF experts at Chan & Naylor Wealth Planning (Australia-wide service) – go to www.chan-naylor.com.au/wealth-planning. Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer. Article provided by Chan & Naylor originally published online at www.chan-naylor.com.au/key-things-know-consider-setting-smsf/

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