Buying a business is a big decision and can cost a LOT of money. It is not decision that is taken lightly, however in the excitement of it all, key considerations may be overlooked. This information sheet is designed to give you a broad overview of the key areas that need to be thought about when buying an existing business.

The first thing you need to ask yourself is WHY are you buying a business? Is it so you will have a job? Or for a better quality of life? Or purely for investment purposes?

Buying a business is a big decision and can cost a LOT of money. It is not decision that is taken lightly, however in the excitement of it all, key considerations may be overlooked. This information sheet is designed to give you a broad overview of the key areas that need to be thought about when buying an existing business.
The first thing you need to ask yourself is WHY are you buying a business? Is it so you will have a job? Or for a better quality of life? Or purely for investment purposes?

Read our article for more info!

Buying a Business? (Downloadable version)

Whether you are a fan of Chinese Astrology, or you think it is a load of new age codswallop, it is hard to ignore the parallels in today’s business world.2007 was the year of the Pig – a chance to get fat, build comfort and security whilst enjoying some indulgences in earthly delights.  During this time, we enjoyed the good times of the boom we didn’t realise that we were having, with a sense of contentment, but perhaps naivety about how long this sense of security would continue (think of a pig getting ready to go to the butchers).

2008 was the year of the Rat – things that come to mind include lies, deception, greed, excessive risk taking and showiness.  The term “You Dirty Rat” could be used to describe how the business world was affected during 2008 when the GFC threatened financial Armageddon.

2009 is the year of the Ox – if you think of a farming environment, the Ox is used for the preparation of the ground – so the seeds can be sown for future benefit.  This is a time when we have needed to go back to basics and get the groundwork done so we can be in a position to move forward and rebuild strength from a solid base.  It has had a feeling of slow, laborious and methodical work – somewhat “shackled” by the economic conditions, with a heads down and tails up approach.

2010 is the year of the Tiger – representing speed, strength, purposefulness, determination and self reliance.  Tiger Woods comes to mind  – who is extremely focused, has a strong sense of his personal power and rarely allows obstacles or difficulties to keep him down – he expects (and creates) his future. The lyrics of the song used in Rocky III, “Eye of the Tiger” signify rising up to the challenges with human spirit to keep our dreams alive.  It also represents using adversity to become stronger with an iron clad will, gained through “guts and glory” and a strong sense of personal belief.  It is a choice to not stop until victory is in sight – having travelled the distance and come too far to turn back.    A tiger in the wild does not rush around trying to create its next meal, but simply sits quietly, knowing that it will be ready to take fast and powerful action when the opportunity arises.

In the business context, we need to start thinking like a Tiger now to be ready to embrace the stronger economic opportunities of 2010.

This means:-

1. Holding a strong and clear vision for what we want to create and keeping the dream alive with passion and energy
2. Being willing to take confident, bold action with the opportunities arise
3. Applying the lessons from adversity to become stronger with greater levels of personal confidence
4. Speeding up the process – expecting things to start happening quickly and planning accordingly with high energy levels
Bring on the Tiger

Author:  Naomi Smith
Business:  Shine Human Capital Development
Contact:  naomi@shinehumancapital.com.au or phone 0423 936090
Website:  www.shinehumancapital.com.au

Shine Human Capital is a specialist Workplace Employee Development Training Organisation dedicated to delivering results focused programs which are designed to “tune up” organisations’ key assets -their staff.  SHINE training programs address the underlying factors contributing to issues such as staff burnout, high turnover, poor motivation, low employee morale, disengagement, extended stress leave, ineffective interpersonal relationships, lack of leadership and poor productivity to assist organisations to build robust and successful workplace cultures.

In the 2009 Federal Budget the Government introduced a bonus tax break for small business owners.Small businesses with a turnover of less than $2 million can now claim a bonus tax deduction of 50 per cent (increased from the previous 30 per cent) of the cost of NEW eligible assets acquired between 13 December 2008 and 31 December 2009, and installed by 31 December 2010.

Small businesses only need to invest a minimum of $1,000 per asset in order to qualify for the tax break. They can also amalgamate their expenditure on batches and sets of assets in order to meet this threshold.

All assets must be NEW used principally in Australia for the principal purpose of carrying on a business and meet certain eligibility criteria.

Eligible assets include computer hardware and business motor vehicles, and to make capital improvements to existing machinery and equipment.

All other businesses can continue to access the tax break at 30 per cent for eligible assets contracted for prior to 30 June 2009 and 10 per cent for eligible assets that they commit to investing in between 1 July 2009 and 31 December 2009. For other businesses, a minimum expenditure threshold of $10,000 applies to be eligible to claim the 30% or 10% deduction.

For more information on this initiative go to the Tax Office website www.ato.gov.au.

Our clients often ask us what the most tax effective way to purchase a motor vehicle is. Should they buy it outright, lease it or undertake a hire purchase/chattel mortgage arrangement.This information sheet aims to set out the different options and the pros and cons of each.

Business motor vehicle purchases over $1,000 made between 13 December 2008 and 31 December 2009, and installed by 31 December 2010 are eligible for the bonus tax break the Federal Government has introduced for small business owners.

What this means, is that small businesses with a turnover of less than $2 million can claim a bonus tax deduction of 50 per cent of the cost of the vehicle.

This is subject to various conditions. More information is available on the fact sheet Federal Government tax incentives for small business.

Definitions
Lease – leasing provides the customer with the benefits of owing a motor vehicle while the financier maintains actual ownership. The customer pays the financier a fixed regular fee (usually monthly) for the term of the lease.

When the lease expires the customer has the option of paying a final amount and taking ownership of the vehicle, trading it in for another vehicle or refinancing the residual and continuing the lease.

Hire purchase – very similar in payments to a lease in that a regular fee is paid to a finance company that purchases the vehicle on behalf of the customer. As with a lease, there is also an optional payout at the end of the hire purchase agreement to the customer will own the vehicle. However from a legal and taxation point of view it is viewed that the car is purchased and the facility is a loan.

Chattel mortgage – an agreement whereby a finance company lends money to a customer to purchase a chattel (in this case, a motor vehicle). The customer takes ownership of the vehicle at the time of purchase and makes regular repayments to the finance company.

However, the finance company also takes out a “mortgage” over the vehicle by way of an ASIC-registered Fixed and Floating Charge to provide security for the loan.

When the term of the loan expires the customer has the option of paying a final amount and taking ownership of the vehicle, trading it in for another vehicle or refinancing the residual.

Before making a decision as to how to purchase a motor vehicle, talk to a finance broker regarding specific repayment requirement and interest rates, as these may differ depending on which option you select.

There are different tax implications for each, as the Tax Office considers a lease arrangement to be the same as a rental, but a hire purchase and chattel mortgage are seen as legally owning the asset with an option to payout a residual and own it at the end of finance.

All options have a residual at the end of the term.  Leases are less flexible in this regard, where as you can negotiate the residual with a hire purchase and chattel mortgage which can make repayments higher or lower depending on cash-flow requirements.

Combination of interest and accelerated depreciation rates on assets usually means that hire purchase and chattel mortgage more tax effective than leases.

Features	Buy outright	Lease	Hire purchase / chattel mortgage
50%/30% small business owners investment allowance	Yes	No	Yes
Upfront GST claim on cost of asset	Yes	No	Yes (No if GST on cash basis)
Ongoing GST claim on repayments	No	Yes	No (Yes if GST on accruals basis)
Deductible monthly tax payments	N/A	Yes	No
Deductive interest on finance	Yes	No	Yes
Depreciation on asset	Yes	No	Yes

Here is an example:Nathan buys a car for $55,000 on 30 June 2009.

If Nathan pays cash for the car and his GST is registered under the accrual basis, he would have a $5,000 GST credit, and a $25,000 investment allowance deduction in his 2008-09 tax return.

If Nathan leases the car he has no tax advantages in the 2008-09 year.

In the 2010 year, if leased, Nathan would have GST credits of $1000 over the year, and $10,000 in lease repayments deductions.

If Nathan uses hire purchase or chattel mortgage he would have no GST credits but would have tax deductions of approximately $4,500 interest and $10,000 depreciation.

Buying a motor vehicle (Downloadable version)

Accounting is one of the essential elements of any business. And implementing a few simple ideas can really help your business financially. Outlined below are Morris Accounting’s top 7 tips to use accounting to grow your business.

1. Set some financial goals
Ideally you will have a business plan that includes financial goals, such as expected growth, turnover, projected staffing increases, what your business strategy is (eg growth, acquisition, winding up the business etc). Your goals should be measurable over a period of time, for example, to increase turnover in the next 12 months. Ideally you will review these quarterly. If you are not sure where to start with setting some financial goals, then speak to Morris Accounting and we can help you out.

 

2. Review your record keeping systems
Make sure you have a simple but accurate way of keeping your financial records. For some people this might be in a shoebox, but I would recommend a simple filing system – either two-ring binders or manila files in a filing cabinet. Remember, having an accurate record keeping system will make life much easier at tax time – and probably save you bookkeeping and accountant fees! Your record keeping systems should include:

▪ keeping a record of all invoices and when they are paid
▪ keeping a record of all income and when it is received
▪ regular review of financial statements, including reconciliations of bank statements, and review of income and expenditure

3. Develop a budget – work out what business expenses you can claim
Developing a budget can help you decide what your financial goals are and help you achieve them. The easiest way to develop a budget is to write down a list of all your income and all your expenses. Consider splitting your expenses into two groups:

i. the must haves – such as rent/mortgage, electricity/gas bills, insurance, salaries, office and plant equipment, etc
ii. the nice to haves – updating office furniture, computer equipment, etc

Regularly review and monitor your costs. Look to see how you can cut costs, find better suppliers, negotiate better deals with suppliers, reduce unnecessary purchases etc.

Set cost control systems so that you have a process whereby you or someone in an executive position approves all purchases – or all purchases over a certain amount. Encourage your employees to validate all purchase requests.

There are a lot of easy to use budget planners on the web – type budget planner into Google, or go to the links section ofwww.morrisaccounting.com.au for a link to an easy to use budget planner. While these are for personal use they can easily be converted for a small business.

4. Be tax compliant

Micro businesses (defined by the Tax Office as those with turnover under $2m) pay 11% of the tax collected by the ATO and employ nearly 22% of all people employed in Australia, and are comprised of nearly 1 million sole traders, consultants and contractors, 700,000 companies and 420,000 partnerships – it should not therefore come as a surprise that these businesses fall under the tax office’s radar in terms of tax compliance!

You need to keep copies of all records for five years. This includes records of sales (including sale of the business) and purchases, payments to employees, and payments to other businesses.

Morris Accounting has developed systems and checklists to help our clients claim the maximum tax deductions possible, providing them with the best possible tax return. As well as lodging your annual tax returns, Morris Accounting also offers advice on salary sacrificing, establishing self-managed super funds, bookkeeping services, assistance with BAS and PAYG.

5. Don’t be scared to outsource!
If you are too busy to keep your books then hire a bookkeeper or accountant to help you. You will probably find it a lot cheaper than you think (many charge an hourly rate), not to mention the time if will free up for you to spend doing the more interesting things in your business. Services a bookkeeper or accountant can take over include paying salaries, coordinating and handling accounts receivable and payable, balancing ledgers and bank accounts and organizing financial information required for business plans, loan proposals, cash-flow statements, etc, etc, etc.

6. Protect yourself from fraud
Invoice fraud is one of the biggest types of fraud that small business is susceptible to, and small business owners juggling lots of demands can make easy targets for scammers.

According to the Queensland Office of Fair Trading (OFT) invoice fraud is common. This occurs when a business is sent a fake invoice requesting payment, usually for advertising in bogus directories or publications. The invoice looks legitimate and is often paid by businesses who don’t check they are genuine. To avoid being scammed, OFT recommends traders:

▪ do not approve purchases over the phone – get it in writing first
▪ request previous editions of any publications you are considering advertising in
▪ do not pay an invoice unless you have paper work to show you ordered the goods or services
▪ check the publication’s circulation (Audit Bureau of Circulation at www.auditbureau.org.au)
▪ check for scam alerts at www.fairtrading.qld.gov.au orwww.fido.asic.gov.au.

(Source: www.fairtrading.qld.gov.au)

7. Look at how you can leverage any profit
Once your business starts to make a profit you need to think about how you can turn this into more wealth. One of the best ways to create wealth is through leverage, which can offer great tax breaks in the accumulation of capital growth assets. By leveraging your existing cash balances or cash flow to hold as many capital appreciating assets as you are comfortable with, you will increase your wealth. One example is to consider purchasing a premises (rather than renting).
About Morris Accounting

Morris Accounting works with a large cross section of individual and business clients, based throughout Australia and around the world, on advisory issues such as tax minimization, wealth creation, business management, and business expansion planning. Morris Accounting also helps clients with business valuations, acquisitions and sales.

Contact us today to find out how we can help your business grow.

Phone: 07 3105 5926
Email: info@morrisaccounting.com.au
www.morrisaccounting.com.au

Need assistance in saving for your deposit on a first home?  Not only does the First Home Owners Grant (FHOG) help, but First home saver accounts (FHSA) can also be a tax effective way of getting your first home.First home saver accounts (FHSA) are part of the Federal Government’s 2007 election commitment to provide a simple, tax effective way to help first home buyers to save for their first home. These accounts will be available from financial institutions (including banks and super funds) on 1 October 2008. 

These accounts are the first of their kind in Australia, and will help Australians aged over 18 save for their first home, using a combination of government contributions and reduced taxes.

Who is eligible for a FHSA?

You can open an account if you meet all of the following criteria:

▪ are aged 18 or over and under 65
▪ have not previously purchased or built a first home in which to live
▪ you are an Australian resident for tax purposes
▪ do not have, or have not previously had, a First Home Saver Account
▪ provide your tax file number to the provider.
▪ If you open an account but are not eligible to do so, penalties will be imposed.

What are the contribution arrangements?
Account holders and other parties (such as an employer) on behalf of the account holder may make contributions to the account. Contributions will be made from after-tax income.

The Government will make additional contributions which will be paid directly into the account, after the individual has lodged their tax return and the provider has submitted the relevant information to the Tax Office.

The Government will contribute 17% on the first $5,000 (indexed) of individual contributions made each year. This means an individual contributing $5,000 will receive a Government contribution of $850.

No minimum annual deposit is needed to keep the account open. The account can remain open for as long as necessary or until the account holder turns 65, at which time it must be closed.

What is the tax levy on FHSA accounts?
▪ Contributions will not be subject to tax when contributed to an account. ▪ Investment earnings (or interest) will be taxed at a rate of 15%.
▪ Withdrawals will be tax free.
▪ FHSA balances will be exempt from the income and assets test.

Is there a limit to how much money I can have in my FSHA?
Yes, the overall account balance will be limited to $75,000 (indexed). If an individual reaches the account balance cap, no further individual contributions will be able to be made. Earnings and any outstanding Government contributions will still be able to be credited to the account after this time.

Contributions that exceed the limit will be returned to the account holder.

How do I withdraw my money?
To withdraw your funds, you must have made a minimum contribution of $1,000 every year for at least four separate financial years.

If you (as the account holder) are purchasing a property with another individual(s) who also holds an account, only one account holder needs to meet the four-year requirement. If one person meets this, then the other individual(s) can also withdraw their funds.
Withdrawals for a first home purchase
You will be able to withdraw your account balance tax free to buy or build a first home in which to live. The full amount will need to be withdrawn and the account closed. You are required under the conditions of the FSHA to live in the home for at least 6 months within the first 12 months of purchase or completion of construction.

You can close your account and contribute the full amount to your superannuation fund at any time.

Penalties will apply to individuals where they fail to meet the withdrawal or occupancy criteria.

Other circumstances
If your circumstances change during the life of the account so that you no longer wish to purchase a first home, you will not be able to access the account but you can transfer the balance into superannuation and close the account. Penalties will apply if funds are withdrawn and not used to purchase a first home in which to live.

If you move overseas, you can continue to make contributions into the account, but you will not receive any Government contributions.

You will be able to access your funds tax free once you reach age 60, which is consistent with superannuation.

Early release provisions
By transferring the account balance into superannuation, you may apply to access the superannuation early release provisions of severe financial hardship, compassionate grounds or terminal illness.

Who can I open a first home saver account with?

The following financial institutions will be able to offer first home saver accounts:
▪ public-offer superannuation providers
▪ life insurers
▪ friendly societies
▪ banks
▪ building societies
▪ credit unions.

Banks, building societies and credit unions will be able to offer deposit accounts and superannuation providers, life insurers and friendly societies will be able to offer investment-linked accounts.

Source: The first home saver account website,

Morris Accounting – Call us today so we can help you set up a first home saver account
Phone: 07 3105 5926
Email: info@morrisaccounting.com.au
www.morrisaccounting.com.au

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The economic stimulus package benefits everyone in Australia.  Individuals may be eligible for cash payments and Businesses increased tax breaks.

Individuals
The Australian Government has reintroduced a revised package of six Bills to implement the proposed stimulus package. The revised Bills take account of the reduction in the tax bonus payments from $950 to $900 and the single income family bonus from $950 to $900, that were agreed in the Senate.

 

The back to school bonus, training and learning bonus, and recipients farmer’s hardship bonus all remain at the original $950. The Bills were passed by the House of Representatives without amendment and were debated and passed without amendment in the Senate. They now await Royal Assent.

What you need to do – to enable you to receive your amounts as quickly as possible, please contact the ATO on 1300 686 636 to update your bank account details and address.  If you do not do this the payments will be made via tax agents with unfortunate processing delays.

Businesses – Investment Allowance

The Federal Treasurer has announced three important changes to the 10% temporary investment allowance tax deduction that was initially announced in December 2008. The Treasurer’s press release indicates the following changes (yet to be confirmed by the legislation). These three important changes are summarised below:

1. Tax deduction increased from 10% to 30% on assets ordered by 30 June 2009

The investment allowance rate has been increased from 10% to 30% for eligible assets that are acquired, or construction commenced after 13 December 2008 and before I July 2009 and installed by 30 June 2010. Note that the Treasurer’s press release was not entirely clear whether this only applied to small business of less than $2 million turnover but we have received verbal confirmation from Federal Treasury that the increase from 10% to 30% is not restricted to small businesses i.e. businesses with more than $2 million turnover are also eligible for the 30% rate of investment allowance.

2. 10% investment allowance extended to 31 December 2009

The cut off for acquiring or commencing construction of assets for the investment allowance has been extended from 30 June 2009 to 31  December 2009 (and installed ready for use by 31 December 2010) but the rate of investment allowance for assets acquired or commenced construction between 1 July 2009 and 31 December 2009 will remain at 10%.

3. Small business asset threshold decreased from $10,000 to $1,000

To be eligible for the investment allowance as previously announced, assets had to have a value of over $10,000. The press release says this has been relaxed to $1,000 or more per asset for small businesses that have an annual turnover of $2 million or less. For other businesses the threshold remains at over $10,000 per asset. This means small businesses can get the investment allowance on individual assets costing $1,000 or more; whereas other businesses only get the investment allowance if the individual asset value is over $10,000.

Earlier Announcement

• Additional tax deduction equivalent to 10% of the cost of acquiring or constructing the new asset.
• Available for expenditure over $10,000 on individual assets.
• Applied to assets acquired under a contract made or construction commencing between 13 December 2008 and
  30 June 2009.
• Asset must be installed ready for use by 30 June 2010.

New Announcement

• Small businesses (turnover less than $2 million) can claim an additional deduction of 30% (in lieu of 10% under the previous announcement) on assets costing at least $1,000.
• All other businesses can claim an additional deduction of 30% (in lieu of 10% under the previous announcement) on assets with a purchase price exceeding $10,000.
• In both cases, the same asset acquisition rules apply. The assets must be acquired under a contract made or construction commencing between 13 December 2008 and 30 June 2009 and the assets must be installed ready for use by 30 June 2010.
• In addition, a deduction equivalent to 10% of the purchase price of assets may be claimed on assets acquired between 1 July 2009 and 31 December 2009 where the assets are installed ready for use by 31 December 2010. Small businesses can claim on all assets with a value of at least $1,000 whilst all other businesses can claim on assets with a value in excess of $10,000.

Types of Assets

• The allowance can be claimed for spending on new assets and new expenditure on existing assets (acquisition of second hand assets is excluded).
• The allowance applies to tangible assets used in Australia in carrying on a business for which a depreciation deduction is available.
• The allowance will apply to most new tangible depreciating assets. This includes plant and equipment (i.e. Subdivision 40B assets). It excludes capital works, such as land and buildings, trading stock, and intangible assets and rights. It appears software will not be eligible.Source: ATO TaxFlash – February 2009 2

Calculating the Allowance

• The allowance is claimed as a tax deduction through the income tax return of the taxpayer for the year the cost is incurred. It is not a cash payment from the Tax Office.
• The investment allowance applies at a rate of 30% or 10% of the asset’s cost (depending on the date acquired as discussed above).
• Cost is defined as the first element of capital allowance cost (cost of acquiring the asset excluding GST).
• Where the allowance is being claimed for new expenditure on an existing asset, the allowance will be claimed on the second element of capital allowance cost (e.g., improving or changing an existing asset).
• The investment allowance is in addition to the normal capital  allowance (depreciation) deductions.

Worked Example
Below is a worked example that was included in the press release:

A landscaping business entered into a binding contract to acquire a new backhoe on 20 May 2009 at an all inclusive cost of $60,000 (we assume this is excluding GST). The backhoe is delivered and ready for use on 20 June 2009 and has an effective life of 9 years.

The business will be entitled to claim the 30% deduction because:

• A backhoe is a depreciating asset for which the business would be entitled to claim a deduction under the core provisions of Subdivision 40-B of ITAA97
• The business started to hold the asset between 13 December 2008 and the end of June 2009
• The asset was installed ready for use before the end of June 2010.

The deduction will be 30% of the asset’s first element of cost under Subdivision 40-C, which is $18,000.

When lodging its 2008/09 income tax return the business will be able to claim this deduction in addition to the usual depreciation in respect of the asset.

If the business had delayed this investment until after 30 June 2009 – for example, until 1 September 2009 – and had it installed ready for use before the end of December 2010, the 10% rate would apply. It would be able to claim a deduction of $6,000.

Morris Accounting – Call us today so we can help you make the most of the stimulus package and tax planning for 2009!
Phone: 07 3105 5926
Email: info@morrisaccounting.com.au
www.morrisaccounting.com.au

Superannuation is your investment for your retirement and can be a great way to invest money. Did you know you can take control of your own superannuation to increase your wealth?Superannuation is your investment for your retirement and can be a great way to invest money. There are four basic types of super funds and the rules of the fund control who may join it:

1. Corporate funds – available by people working for a particular employer or organisation
2. Industry funds – open to people under a particular industry award or in a particular industry. Some industry funds are open to anyone.
3. Retail funds – open to anyone, generally run by financial institutions
4. Self-managed super funds – only open to you and up to three other people.

This information sheet focuses on self-managed super funds.

Australia has over 300,000 self managed superannuation funds, with this number growing by around 2,500 a month (source: Australian Tax Office).

Self managed super funds provide the same function as other super funds – they invest contributions and make them available to its members on retirement. However unlike other super funds, the members of self-managed super funds are also the trustees, and they decide what the contributions are invested in and how benefits are paid. As all the members are trustees, they are all in a position to ensure their interests are protected.

What is a self-managed super fund?
A self-managed super fund is just what it says – a super fund that is managed by the people who invest in it. Like other super funds, the assets and money in a self-managed super fund are solely for retirement benefits. It cannot be used to run a business, renovate a house or benefit you before retirement.

Under guidelines from the Australian Tax Office, a superannuation fund is generally a self managed super fund if (with a few exceptions):
▪ it has a trust deed that meets the requirements of the Superannuation Industry (Supervision) Act 1993 (SIS Act)
▪ it has four or less members
▪ each member of the fund is a trustee
▪ no member of the fund is an employee of another member of the fund, unless they are related, and
▪ no trustee of the fund receives any remuneration for their services as trustee.

Who can set up a self-managed super fund?
Anyone can set up a self-managed super fund – it is not just for people over the age of 40, or those approaching retirement.

The maximum number of people who can be in a self-managed super fund is four. They do not need to be related however it is useful if they have similar investment goals and styles.

Is a self-managed super fund right for me?
Self-managed super funds are not for everyone. Because it is self-managed, you need to do some work. This includes sitting down with your accountant and the other trustees and working out an investment strategy that will grow in value to meet your investment goals.

As you will be a trustee of your own fund, you will be legally responsible for the decisions made, regardless of the professional advice you may seek. It will be your responsibility to ensure the fund is correctly structured, keeps thorough records, and meets all reporting requirements (such as income tax and regulatory returns).

Morris Accounting can help you understand with the legislative requirements and administrative responsibilities of running a fund.

What are some of the benefits of a self-managed super fund?
Perhaps the biggest benefit of a self-managed super fund is that you control what you invest in. And depending on what you choose, there are also opportunities for increased financial gains in short and long term.

Setting up fund with up to three other people also allows you to pool funds together to increase investment and effective diversification

What can my self-managed super fund invest in?
Self-managed super funds can provide significant opportunities to create wealth. Traditionally self-managed super funds invest in listed shares, but there is no need to limit yourself to this. They can use most forms of investment and wealth creation including shares, property, cash (such as term deposits), public and other trusts as well as a number of other options.

There are new laws around self-managed super funds that now allow most forms of borrowing, as long as rules are met.

What does a self-managed super fund cost?
Self-managed super funds generally have upfront and annual fees, however these can often be offset with greater gains than normal superannuation accounts with lower returns and % based fees.

Talk to Morris Accounting for more information on costs and how much you should have in your fund to make it viable.

How do I set up a self-managed super fund?
Talk to Morris Accounting! As well as being accountants, we are also qualified to discuss financial matters and therefore authorized to help you set up a self-managed super fund as well as advise you on what your fund should invest in.

We can do a lot of the hard work for you!

Morris Accounting – Call us today so we can help you set up a self-managed super fund
Phone: 07 3105 5926
Email: info@morrisaccounting.com.au
www.morrisaccounting.com.au

The Australian Tax Office (www.ato.gov.au) and the Australian Securities and Investments Commission (www.fido.gov.au) can also provide information on self-managed super funds.

Self-managed superannuation funds (Downloadable version)

Superannuation is your investment for your retirement and can be a great way to invest money.  Did you know that you can take control of your own superannuation and use it as an effective tax saving and wealth creation tool?A self-managed super fund (SMSF) is just what it says – a super fund that is managed by the people who invest in it. Like other super funds, the assets and money in a self-managed super fund are solely for retirement benefits. It cannot be used to run a business, renovate a house or benefit you before retirement.

Self-managed super funds provide the same function as other super funds – they invest contributions and make them available to its members on retirement. However unlike other super funds, the members of self-managed super funds are also the trustees, and they decide what the contributions are invested in and how benefits are paid. Perhaps the biggest benefit of a self-managed super fund is that you control what you invest in.

This information sheet provides a simple guide on setting up a self-managed super fund and then using it to invest in property.

For more general information on what a self-managed super fund is, read the information sheet Self-managed superannuation funds.

Who can set up a self-managed super fund?
Anyone can set up a self-managed super fund – it is not just for people over the age of 40, or those approaching retirement.

The maximum number of people who can be in a self-managed super fund is four. They do not need to be related however it is useful if they have similar investment goals and styles.

What does it cost?
Setting up a SMSF costs around $2000 if set up with individual trustees or around $2200 if it is set up with a corporate trustees (the additional cost is due to higher government fees and charges). There are also annual costs of around $2000, depending on how many different investments your SMSF has.

Apart from the dollar costs, you also need the time and skills to manage your own super fund, both of which can be burdensome.

What is the difference between a corporate trustee and individual trustees?
A corporate trustee is when a company is the trustee. Each director of the company is a member of fund, and each member of the fund must also be a director of the company.

When a fund has individual trustees, each member of the fund is a trustee.

The main difference is that it is easier – and cheaper – for fund members to change (ie new members join, other members leave) if the trustee is a company. For example a new member may join if the fund is established by mum and dad and their child wants to join once they start making superannuation contributions.

Regardless of which method is chosen, all members of the fund are required to be trustees, which ensures each member is fully involved and has the opportunity to participate in the decision making process of the fund.

How do I set up my own self-managed super fund?
There are a few steps involved in setting up your own self-managed super fund.

Action that needs to be undertaken

1. Check with your employer that you can change your super fund – some employers, such as the Queensland Government, have a requirement that a specific fund is used. Who does this – SMSF members
2. Complete an application form requesting Morris Accounting setup the fund. This can be downloaded fromwww.morrisaccounting.com or by calling 07 3105 5926. Who does this – SMSF members
3. Decide whether you want to set up the fund with a corporate trustee or with individual trustees. Who does this – SMSF members
4. Return the completed form and relevant the fee to Morris Accounting. Who does this -  SMSF members
5. The fund documentation is prepared – called the Trust Deed. Who does this -  Morris Accounting
6. Apply to the Australian Tax Office (ATO) for the fund to be regulated, and to obtain an ABN and tax file number.
This process can take around two weeks. Who does this -  Morris Accounting
7. Once the ABN and TFN has been obtained, the paperwork needs to be reviewed and signed by each of the SMSF members. It is recommended that each member of the SMSF keep a copy of this paperwork for their records. Who does this -  Morris Accounting
8. Contact your existing super funds to arrange for any monies to be rolled over into the new SMSF. This process can take up to 6 weeks. Who does this -  Morris Accounting
(please note that in some instances Morris Accounting will not be able to do this on your behalf, however you will be notified if this is the case)
9. Prepare an investment strategy. This needs to consider the risk, return, diversification, cash flow, asset allocation and the ability to discharge existing and prospective liabilities. Who does this -  SMSF members – can be done in consultation with Morris Accounting
10. Establish a bank account for your super fund. This can be set up at a financial institution of your choices with your own choice of bank. The account name needs to be the same as the name of your super fund. Who does this -  SMSF members
11. Advise your employers of the details of your SMSF so super can be paid directly into the new fund. Who does this -  SMSF members
12. Monies are transferred into your super fund bank account and it is ready to commence receiving your own super contributions and make investments!

What can the super fund invest in?
Strict rules govern what the super fund can invest in.  The main rule is that the fund cannot invest in or purchase from any members of the fund.  This is called the In house Asset test.  Here is a short list of what your fund can and cannot  invest in.

Allowed
Cash/Bank Accounts/Bonds
Public Company Shares (ie listed on Stock Exchange)
Commercial Property
Residential Property (let out to 3rd party tenants)
Loans to 3rd Party companies, business,

Not Allowed
Residential Property (members home or holiday)
Loans to members or non-arms length parties
Private Company Shares

Also remember that the general rule is that Superannuation funds are not allowed to borrow.  So that all investments are normally made in cash.  This means that previously property was generally not an investment option as most property is purchased using finance.

How can I use my super fund to invest in property?
Following legislative changes in 2007, SMSFs can now borrow for residential and commercial property investments providing strict rules are met.
SMSF loans are fairly straightforward to arrange, and need to adhere to the following rules:
▪ The loan is non-recourse – meaning it can only be used to borrow against the secured property asset, not other assets of the super fund (ie if the loan is to purchase property A, it cannot then be used to pay for shares)
▪ The SMSF is the beneficial owner of the property until the loan is paid out
▪ The trustees of the SMSF have effective operational control of the property – ie the trustees determine the rent, select the tenants, pay for maintenance etc
▪ SMSF loans can only be used to fund the purchase of income producing property – it cannot be used to buy a vacant block of land that will not generate an income.

The basic steps involved are:
Action that needs to be undertaken
▪ Select a property to purchase.  Who does this - SMSF members
▪ Create a bare trust and loan document within the SMSF. Who does this - Morris Accounting
▪ Select the loan product (ie the lender, whether it is interest only or principle and interest, fixed or variable rates etc) Who does this -SMSF members
▪ The financial institution lends money to the bare trust, which legally owns the property on the loan. Who does this -Financial institution
▪ The SMSF provides the deposit and the monies to meet the loan repayments. Who does this -SMSF
▪ All income generated from the property is also paid into the SMSF.

Morris Accounting strongly recommends that a financial or mortgage broker is engaged to select the loan product – Nathan can provide referrals if necessary.

Note that finance broker and accountant setting this up need to communicate to ensure that the correct documentation drawn up to meet the requirements of the financiers.  This is crucial especially as each financier have their own internal policies and rules for this borrowing.

Experience has shown that it is better for one person to undertake all the legal documentation – ie Morris Accounting.   Legally we are not allowed and do not prepare the documentation ourselves, this is outsourced to the relevant legal practice to prepare.  We manage this process for our clients using our experience and QA checklists to ensure that all matters are being taken care of.

So whilst there are a lot of rules in relation to the superannuation environment, Morris Accounting manage those for our clients so that they can get on with the easy party of managing their own superannuation money and getting far greater results for their long term wealth creation strategy.  Contact Morris Accounting today to take control of your own super!

A guide to using a self-managed super fund to invest in property. (Downloadable version)

Negative gearing is one of the most effective ways to reduce the amount of tax you pay. Negative gearing most commonly occurs when you borrow money to purchase an asset (such as an investment property or shares) and the income generated is not enough to cover the interest on the loan. This can be a very effective form of leverage, and often results in lowering taxable income.Negative gearing does not necessarily mean negative cash flow. For example, depreciation deductions and other non-cash costs associated with an investment property can result in the property being cash flow positive, but for tax purposes, negatively geared. This can help generate a large tax return.

Depreciation means the general wear and tear of an asset over the time that you own it, for example, carpet wearing out, light fixtures needing replacement etc.

Accurate depreciation of an investment property can provide you with a lot of savings at tax time. And it is important to note that both new and old properties can attract some depreciation deductions.

There are two areas under which depreciation can be claimed:

1. capital works – this can include the original construction costs if the building is under 40 years old, as well as renovations, extensions, alterations and improvements of a structural nature (such as a new roof). The rules in this area are quite complex and specific information about your individual circumstance should be sought from your accountant.

2. other depreciating assets – these are assets with a finite life and lose value over a period of use. Examples include air conditioners, hot water systems, kitchen appliances, carpet, light fittings and furniture. In newer properties these can add up to some significant savings – for example if the value of your depreciated assets is $10k, then that is a savings of $3k in tax if you are in the 30% tax bracket.

If you want to claim depreciation costs it is VERY IMPORTANT that you get a property surveyor to prepare a depreciation report for your property. There is a number of property surveyors I can recommend – contact us if you would like a referral. If you have an investment property then I cannot emphasise enough how important a depreciation report is!

If you have not been claiming depreciation on your investment property then fear not! If you have not been claiming or maximising tax depreciation deductions, the previous two financial year’s tax returns can generally be adjusted and amended.

Make sure you keep ALL the paperwork associated with your investment property, including:

▪ all your rent and/or rental statements
▪ body corporate fees
▪ rates
▪ gardening, cleaning and pool maintenance
▪ insurance
▪ bank statements for loan accounts
▪ land tax assessment
▪ pest control fees
▪ property agent fees and charges (generally found on rental statements)
▪ general repairs and maintenance, including large capital purchases, renovations etc.
▪ incidentals, stationery, postage, travel, water, other items

Try and keep a good track of your investment property income and expenses – such as filing all items in the one folder. This will make it easier for you (and your accountant!) at tax time. And it will make it easy to see what you may have forgotten to include.

Morris Accounting
Phone: 07 3105 5926
Email: info@morrisaccounting.com.au
www.morrisaccounting.com.au

Negative gearing – real estate (Downloadable version)