Claiming Depreciation On An Office Fit-Out

So for guidance with a fit-out for the actual construction and fit-out of a building (so things you can’t move, like walls, glass panels, and reception desks that are built out of the ground, that sort of thing) unfortunately we’ve got to claim them over forty years because they’re fittings, rather than things like air conditioners or dishwashers and stuff like that where they do have an effective life of a lot less than forty years.
So if you are looking to spend on fit-out, these rules don’t apply. It’s more so the equipment and that sort of thing.

Watch the full Federal Budget Debrief at https://hubs.ly/H0BXp-G0

Is there any tax on transfer of listed shares to the SMSF?

If you own shares, let’s say you own shares in your personal name and you transfer them to your SMSF, that is deemed to be a disposal of the shares in your own name, so you will have CGT implications when you transfer them in.
So the answer is, yes. You’re not guaranteed tax – If you haven’t made a gain, there won’t be any tax, but if you have, you will.

Keep in mind you also get a tax deduction if it’s a concessional transfer (or concessional contribution) of funds into your SMSF. We can weigh that out and see whether it’s worth it from a tax perspective.

Need to speak to an accountant? Book a ZERO cost 20 minute strategy call with an Inspire Accountant at https://inspire.accountants/chat

The 2 Ways To Pass Assets To Beneficiaries

There are two ways to pass assets on to beneficiaries:

Lawyers call this the “I love you” way, where you pass assets directly to the person – so someone dies and it goes straight to that person under the will (I don’t know why they call it that).
The “testamentary trust” is the other alternative, where instead of passing it directly to the person, it goes into a testamentary trust, and then this person controls that testamentary trust.

Now this is perfect for a couple of reasons. If this person is your risk taker, they will want to own nothing in their own name. So if you’ve got $1,000,000 here, and you give it to them in their own name, you’ve just lost asset protection.

So that’s an example where we want testamentary trust to protect.

The other one is if you’re giving your inheritance to your children. Lets say you don’t trust their judgment in terms of the choices they make from a relationship perspective, or you don’t know because they might be kids at the moment – If you put it into a testamentary trust, the assets in that trust are protected from relationship breakdown that may happen down the track, or if your spouse remarries, or has a relationship in the future, It protects what you built together from that.

The other benefit of a testamentary trust is that if your beneficiaries have a child, normally when we distribute income to a child under 18 we can only give them about $416, but from a testamentary trust we can give them a lot more. They’re taxed like an adult on that income because someone has died to create a testamentary trust.

So there are a number of good reasons why we would recommend testamentary trusts when you’re doing your wills. In fact, every single client who’s done one with us through the process has built this mechanism in. It’s marginally more cost to set up, but I’ve just explained the pretty cool benefits of it all.

Learn more in our next Wealth for Life workshop (next year) at https://info.inspire.business/wealthforlife

Why You Should Setup A Slush Fund

This is a philosophy that is shared with a lot of different people who speak and write about this topic. The guy I initially listened to on this topic was a guy called Dave Ramsey, and he wrote a book called “Total Money Makeover”. But if you’ve read “Barefoot Investor” it’s a similar sort of concept, or “Richest Man in Babylon,” which was written decades and decades ago.
The concept is, instead of operating out of one account, we want to operate out of multiple accounts.

Some people say “withdraw cash and put them into envelopes”. That’s not for me.
What Stevie and I did was set up multiple accounts for different purposes. Each week, I pay myself a weekly salary/wage or drawing (depending on how you’re taking money out of your business) and that’s a set regular thing. We’ve been doing that for years now, and it is so much better than just taking money out as and when you need it. Even for my own head.
The day after that gets paid in there, I’ve set up direct debits to go into other accounts. So I’ll give you some examples of accounts that we use. The first one is my favourite – It’s the slush fund. Stevie and I have a separate slush fund. She likes essential oils and buying endless things for Rose, and I have other priorities or values. I’ll go out for a beer, or go and have fun on the boat, that sort of thing.

So that’s my slush fund. Set one up for you, and your spouse will have a separate account too. This is for you to spend as you wish – there’s no judgment from the other person. It’s your play money. I think “Barefoot” calls it the splurge.

I’d recommend it’s the same amount for each of you each week. I prefer these things happening weekly, because that’s the most consistent sort of thing I can get. You can do it monthly if you want, or fortnightly – depends on what your pay cycle is as well, If you’re employed. But as soon as that money comes in, that’s where we need to put it in its categories. Otherwise we’re just going to see $5,000 there and go “oh yeah, let’s go and book a holiday.”

Can You Only Withdraw Profit From SMSF After You Turn 60?

If you’re a member, drawing a pension is only possible where you’ve met preservation age. Now there are so many rules around this, but preservation age depends on when you were born.
So if you’re born after 1964, which maths is suggesting you are born after that day, your preservation age is 60. If you’re born before 1960, your preservation age is 55. But your preservation age is when your super is accessible, as long as you meet some additional conditions.

Let’s take the most common one, which is retirement. So if you’re over 60 and you retire, or you cease employment (which is actually the way it’s written) then you can access some of your super. You don’t have to be retired when you hit preservation age to draw a transition to retirement pension. You can access up to 10% maximum of your fund per year, under a transition to retirement pension. Then once you hit 65, you don’t need to be retired to necessarily draw down on your super, which is pretty cool. So there’s a whole heap of layers there.

Now, if you’re 30 – a lot of our younger clients say, “Hey, why would I contribute to super? I can’t touch it for another 30 years.”

Well, yes and no.

So we’ve talked about ways where you can fund other projects, like developing properties. You can develop property, especially if you’ve got another unrelated business partner, there’s ways you can access your super balance there to fund outside of super property development.

There’s some really cool things we can do to not necessarily access the money to spend personally, but access it to grow our wealth. There’s the distinction.

So yes, you can’t just draw the money out, but to say it’s completely untouchable and it’s just useless to you, is a misconception of super when you’re young.

Need to speak to an accountant? Book a ZERO cost 20 minute strategy call with an Inspire Accountant at https://inspire.accountants/chat

Use Your SMSF To Become and Angel Investor

Investing in private companies – there’s a few different layers here.

Let’s put our ‘angel investor’ hat on. Let’s say we’re the sharks off ‘Shark Tank’ and we’ve got people asking to invest in their business for 5, 10, or 20% holdings. You can actually be an angel investor with your SMSF. There are also rules around this.

You must be a minority, or 50% or less ownership in that entity, and you can’t be seen on paper to have control, or even have effective control or persuasion over the board. Your decision can’t be the final decision when you own that business or that stuff through Super.

We have clients, and I have even personally invested in businesses that meet these conditions. The benefit of this is that the profit that business, or that investment earns, goes to Super and you’re taxed at 15% or 0% (depending on your circumstances) and it’s fantastic.

You do need to keep in mind that issue of control, especially if you’re looking to go into business and own through Super, you need to keep in mind that you need to relinquish absolute control of that.

So yes, there’s definitely different ways you can do it, and you can invest in friends, businesses, all sorts like that.

Buying Commercial Or Residential Property In Super?

The ones you can do is you can buy an established property.
So let’s say there’s a house down the street, residential or commercial, you can buy that with bank funds or that limited recourse borrowing, you can do that.

You can also buy off the plan property because you go for finance on that when the thing is completed or built. It’s just that you can buy it a year or two in advance before it’s even been constructed with a deposit in your super, and then the bank funding comes in when it’s complete.

What you cannot do though, is buy a block of land and build a house. The house building part cannot be done with borrowed funds – It’s a really weird rule. They call it something along the lines of the ‘single asset’ – you only can borrow money to build a single asset. Even then, there’s been some certain cases where an SMSF has borrowed money for an apartment purchase where the car parks are on a separate title to the apartment, and that’s considered as two separate assets. But if it’s one contract with two assets, that, in a weird way, breaches the rules of SMSF. We need to make sure whatever you’re looking to buy there with bank-funded or self-funded money, we need to make sure it’s all legit.

We cannot fund a build with bank money, but we can fund the block of land through the bank if a bank will lend for that, and then you can use your super fund money to actually build the house on it, as long as you’re not using borrowed money to construct. That’s the rule.

Can You Access Part Of Your Super for Short Term Business Cashflow?

The answer to that is: Yes.

You need to document the loan, and you need to make sure that it doesn’t go above 5% of your fund balance at any one day.

Let’s say we’re back in February 2020 (before things hit the fan) and you had a million dollar super fund balance, and you lent $50,000 to a family member or a company or trust. Then you’re right on that 5% line, right?

Then let’s say in March/April (when the stock market shat itself) you lost 30% of your fund balance, so your million dollars went down to $700,000. At that time, you’ve got that loan that’s above 5% of your fund.

So there goes the alarm bells and the warning sirens of non-compliance.

So do it with caution, please. It needs documentation. We don’t love them, but in the right circumstances, we can document them and work them out.

How to Save $5,500 A Year With One Simple Change

I’m going to just explain a bit of a personal story about this – it was a couple of grand a year we saved by not spending so much on coffees.
Stevie and I, at the time, we’re drinking two cups a day, each. We both drink a long black with a dash of cold milk. Usually that’s about $4.50. So it’s $4.50 per coffee X 365 days a year, because I don’t think there was one day where we didn’t have that – It’s probably not a great idea to leave me without a coffee.

That comes to $6,500. That’s no joke because we didn’t have a coffee machine at home, and I can’t stand instant coffee. So what we did is… Does anyone use a credit card with points on it for business expenses? The points rack up pretty quick. We had a whole heap of points I didn’t even realise, so we went and got one of those Breville coffee machines off the awards site. It cost us nothing.

So we got the coffee machine for nothing, and we went through maybe a bag of beans, a fortnight. $40 for a bag of coffee X 26 weeks comes to $1,000.

So we saved $5,500 a year by just switching that one thing. That’s a fair amount of money.

The Rules For Lending Money With Your SMSF

The general rule is that you can actually loan money with your SMSF. This means a loan to another person is considered an investment. What you need to do is make sure you’re charging an appropriate interest rate, appropriate term and the appropriate security for that loan as well.
Now, there’s a couple of distinctions, if I was using my SMSF to lend money to pretty much everyone I know apart from family members, then I don’t really have a maximum amount that I can do before I start breaching rules.

I will say that loans are high-risk in terms of high-risk investments, especially if you don’t have security on the loan. So if your gearing of your super fund is so heavily weighted towards lending money to other people, you may have a diversification issue in your fund. There’s technically no max but you do need to consider diversification. I wouldn’t set up an SMSF with $100,000 in it, and then $99,000 is lent to other people. You need to consider diversification.