If this were the new gadget for 2014, would you buy it? If you are in small business, How would it change the way you do business?
iWatch Concept from Todd Hamilton on Vimeo.
Small Business
SMSF Insurance – Don’t get fined!
With almost 500,000 Self Managed Super Funds (SMSF) being set up in Australia, there is an increased concern within government and industry that some clients may not know the extent to which they need to be compliant.
One area in particular that is of concern is that of adequate protection within your SMSF. When moving super out of the retail funds such as industry funds, the automatic insurance that was linked to the account is lost. To some, this may not worry them, but if borrowing within the super fund, like so many have done thus far, the area of ‘Liquidity‘ becomes a very important factor.
If you have borrowed within your super fund, and you are the main ‘guarantor’ on the loan, then on your death or permanent disability, the bank will ‘Call the Loan’, simply because they want to make sure they are paid when you are no longer here.
What happens when the bank calls the loan on your death?
In order for you, your family or your estate to pay the loan back to the bank, you need money. This seems simple enough.
But where is that money going to come from? You can do one of two things:
1) Sell the asset in your super fund at that time (This would be at a fire sale rate as the funds are needed immediately, potentially selling for under market value) or;
2) SMSF Insurance – Take the proceeds from a life insurance benefit to pay out the lender, retaining the asset (property, etc) within the fund, to be paid to your estate/beneficiaries, etc)
If you have more than one person or a couple within your SMSF:
If you have other family members within your SMSF, and the fund needs to pay your portion of the estate out, the remaining members share will drop dramatically. Insurance for the amount needed to ‘buy out’ your share of the SMSF for your estate is vital in keeping within the laws.
The law says you ‘Must consider life insurance within the fund’. It is not mandatory as far as considering insurance, but taking into account the points above, you may find that by not taking into account liquidity issues actually impacts on your compliance of the fund and you could find yourself in big trouble with a very expensive story to tell to the regulator.
How do you know if you are complying with this part of the regulations?
Firstly, speak with your accountant, who is ultimately responsible for the advice you receive on your SMSF, but also contact us if you have any doubts. We can give you some points to consider and some figures to determine whether you can afford Not to have protection within the fund.
For more details on SMSF, see our other post on SMSF’s https://www.jarickson.com.au/self-managed-super-fund-trustee-which-to-choose//
Call 1800 674 435
Life insurance and step children
There are more and more blended families in Australia. Superannuation is generally not of concern within this family category, but there is one cause for concern which needs to be considered when looking at life insurance inside of super.
In most cases, a step child will be considered a “child” for SIS purposes and can therefore directly receive superannuation death benefits from a step-parent. However, the SIS Act and regulations do not define the term “step child” and the ATO have confirmed that:
a step-child ceases to be a ‘child’ of a step-parent, if the natural parent dies or divorces the step-parent.
In this case, to be a dependant, the individual would need to be a financial dependant or in an interdependency relationship with the member or an adopted child of the member.
What does this mean for you?
Where someone separates with a partner as a result of death or divorce and a step child is involved, it will be essential to review all superannuation nominations (This is the beneficiary form you fill out on the super declaration with your employer) to ensure all the nominated beneficiaries are still SIS dependants.
Quick Case Study
Ken and Barbie had been married for 25 years when Ken passed away recently. They have one child (Jenny) who is 22 and Ken
also had two daughters, Megan (30) and Heather (33) from a previous marriage. The three girls all lived with Ken and Barbie
until they left home.
Barbie always considered the three girls as her daughters and after Ken died, she changed the BDN on her super fund to
nominate Jenny, Megan and Heather as equal beneficiaries in the event of her death.
Two years later, Barbie dies. Her superannuation fund deemed that her Beneficiary Nomination was NOT valid as 2 of the nominated beneficiaries
(Megan and Heather) were not SIS dependants as the child relationship ended when Ken passed away. The trustee
determined that 100% of the death benefit should be paid to Jenny – the only SIS dependant. This was not the result Barbie
had wanted.
Solution
In this case, to ensure her three daughters all received equal shares of her superannuation, Barbie could have nominated:
– Her legal personal representative as the beneficiary and the super funds would be distributed via her will;
– Jenny to receive 33% of the death benefit with balance to go to her legal personal representative;
– Jenny as the sole beneficiary under a BDN and Megan and Heather to receive other non-super assets via the estate.
If you are in a family structure where step-children are involved and would like advice on the matter, please Contact Us
and we can help with structuring your insurance so it meets your needs. We can also put you in touch with our trusted legal advisers.
Small Business Company tax rate out the window
We knew that the Labor Party wouldn’t be putting their hands up to help small business, but we now learn that the Libs wont be doing anything better, axing their plans to reduce the company tax rate.
Opposition Leader Tony Abbott has consistently said he would fund a $3.3 billion parental leave scheme by raising company tax a further 1.5% on the biggest 3,200 companies while introducing a cut of the same size for other businesses.
In net terms, this would have resulted in companies outside the top 3,200 having a company tax rate of 28.5%, down from the current 29%.
But now, sources have told The Australian Financial Review a 1.5% tax decrease was still possible, but unlikely. This would mean the top 3,200 companies are slugged with an extra tax but other businesses would receive no relief.
A spokesperson for Shadow Small Business Minister Bruce Billson told SmartCompany commitments can only be made based on the latest information.
“As of the last budget we believe that we can introduce a modest cut to company tax,” he says.
“Unlike the Government we will not make reckless spending promises without taking into account changing budget forecasts and a deteriorating budget position.”
The move, if it is accurate, is sure to disappoint businesses. The business community reacted negatively last year to the Government’s announcement it would abandon a company tax cut for SMEs.
Abbott yesterday reaffirmed his commitment to the paid parental leave scheme and said it would be funded by increasing the company tax rate for Australia’s largest 3200 companies.
“It’s been a signature policy of ours since early 2010 and I want this important reform to be one of the things for which an incoming Coalition government is remembered,” he said.
“I want to stress that this isn’t just a women’s issue, it’s not just a families issue, it’s an economic issue and if we can get more women productively into the workforce, that’s good for the economy as well good for families as well as good for society.”
Earlier this year SmartCompany investigated the policy changes small business leaders wanted to see this year and a cut in the company tax rate was a regular feature.
SmartCompany contacted the executive director of the Council of Small Businesses of Australia, Peter Strong, but he was unavailable to comment prior to publication.
Executive director of the Australian Retailers Association, Russell Zimmerman, previously told SmartCompany changes to the current tax system are needed.
“If there are good reasons to make changes, changes that make more economic sense, then surely we should make those changes,” he said.
Chief executive of the Australian Industry Group, Innes Willox, was quoted in The Australian Financial Review as saying there were “deep concerns” about Abbott’s parental leave scheme.
He said the proposal would, “put a huge additional cost on bigger companies”.
“At times like these businesses need reductions on cost burdens, not new ones”.
The move comes alongside an admission from the Opposition the budget may not return to surplus for some time, with Opposition Treasurer Joe Hockey signalling a longer than expected wait.
“We are not going to go down the path of austerity simply to bring the budget back to surplus because it would end up being a temporary surplus, depending on how big the deficit is that we inherit,” he said yesterday.
Earlier this year Hockey pledged on ABC Radio’s AM program the budget would be returned to surplus in the first year of governing, “and every year after that”.
Article by SmartCompany.com.au
Business Partnership Insurance
If you are in a partnership in your business, you need to consider protecting your ‘other half’ so to speak.
What happens when your business partner is no longer able to work in the business?
- Do you have the money to buy out their share of the business?
- Will your creditors continue working with you if they know a core part of the company’s success is no longer there?
- Will your new business sales or service levels decrease?
- What impact will this have on your profit?
All these things are very real problems faced by business owners who lose a partner or key person. Not to mention the impact on the surviving members of the family as the business is generally the family ‘nest egg’.
You can always call us on 1800 674 435 or Email for more information.