The Experts

Graeme Colley
+ About Graeme Colley

Executive Manager, SMSF Technical & Private Wealth, SuperConcepts

The million $ franking credits question

Friday, February 15, 2019

If you’ve got pre-conceived ideas and plans about franking credit refunds before the Federal election, you need to think again and tread very carefully.  I’ve seen people putting plans in place already, before they even know what’s really going to happen.  How irrational is that?  It’s a bit like being in a coal mine with the lights off and trying to find your way around – not easy.

Besides, before the franking credit proposal becomes law, you need to see a change of party in government and what the legislation will really say.  You also need to see whether it will get through a parliament, where no single party is likely to have a Senate majority. 

Based on what we know, most individual taxpayers and the vast majority of SMSFs will not qualify for a refund of any franking credits, which are in excess of tax payable.  There are some carve outs, but they apply only to those eligible under the ‘pensioner guarantee’, charities and similar organisations. 

The first thing is that the proposed ‘pensioner guarantee’ will apply to Australian government pensioners and allowance recipients.  They will continue to receive cash refunds for excess dividend imputation credits.  The cash refunds will apply to:

·       Recipients of Australian Government pensions or allowances who have individual shareholdings. This includes anyone receiving the Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart and Sickness Allowance.

·       Self-managed Superannuation Funds with at least one recipient of an Australian Government pension or allowance as at 28 March 2018.

Let’s try to make sense out of whether going on Centrelink will provide any benefits just so you can get a refund of excess franking credits.  There may be some advantages if superannuation is not counted for Centrelink purposes, as it will reduce the assets and deemed income that is counted for means test purposes.  But don’t forget, once you or your partner start receiving a pension, you’re your super, it will be included and once you or your partner are of age pension age super is also included.

You may find that withdrawing amounts from super and investing in your own name may not help get a franking credit refund.  Depending on your age, you may end up paying no tax on your income because of the tax-free threshold, low income earners tax offset, Senior Australian’s Pension Tax Offset and so on.  This may result in you having a tax-free income of at least $18,200 and it could be much more depending on the circumstances.  If, say, just $18,200 represented a return equal to 3% of the amount invested, the total investment would be just over $600,000.  This may disqualify you for Centrelink benefits or if each member of a couple had $600,000 each then neither may be eligible for Centrelink benefits.

There may be some flexibility in qualifying for Centrelink benefits if one member of a couple is under age pension age.  One strategy that is commonly used is for the member of the couple who wishes to qualify for Centrelink may be able to withdraw their superannuation and gift it to their partner to reduce the impact of the assets or income tests.  This could allow the pensioner to qualify for a cash refund of franking credits.  However, the balance is a bit like a high wire act and needs to be examined carefully to see whether there is a real benefit.

Don’t forget to qualify for the maximum Centrelink benefit, your income (including deemed income) must be less than $172 per fortnight or $304 per fortnight for a couple.  Once you earn more than that, the amount of the benefit reduces by 50 cents for each additional dollar you earn.  And if you qualify under the income test, there’s always the shot across the bow from the assets test, depending on whether you own a home.  But for most people, it’s the income test that impacts on qualifying for benefits due to the operation of deeming and any qualifying super you may have.

When it comes to SMSFs, it would appear that the door is closed.  To qualify, it seems from the announcement, that the fund was required to have a member in receipt of a nominated Australian Government pension or allowance as at 28 March 2018.  So those thinking of shopping around to find a Centrelink pension or allowance recipient to add to their SMSF just to access franking credit refunds, will need to think again.

You could always take your money out of super if you qualify and move to a more expensive home, which is exempt from the income and assets tests.  This strategy may qualify you for Centrelink benefits, but you need to ask yourself – will I just end up with a great place to live in and a lot less to live on?

Where to now?

Some strategies may provide a more effective way of using franking credits.  However, don’t get too clever as you really need to wait and see what the legislation looks like before making any decisions.  Any change in investments, whether personally or in your SMSF, need to consider the net after tax return of what you are doing and not just whether you are using any available franking credit more efficiently.


Is an SMSF the right choice for you?

Friday, August 04, 2017

By Graeme Colley

When you see the figures about SMSFs, they speak for themselves. There are just over one million Australians who belong to the 590,000 SMSFs that are in existence today. There are over 20,000 SMSFs established each year. However, the question you should ask if you are thinking about an SMSF is, is an SMSF right for me?

Before embarking on an SMSF, there are a number of issues to consider to determine whether an SMSF will meet your goals and objectives.

When considering an SMSF, the first thing to do is talk to someone who already has one. Then, make sure you do your research on the benefits of having an SMSF, as well as any potential pitfalls you could face. There are a few questions that you should ask yourself to work out whether an SMSF suits your circumstances.  

You should be able to answer the following questions as an absolute minimum:

What level of control of your superannuation are you after?

How much do you have in superannuation, or are prepared to contribute to commence and operate an SMSF?

Are you prepared to act as trustee of an SMSF?

Do you understand your role and responsibilities as trustee of an SMSF so that you are able to run your SMSF with confidence?

How much do you know, or are prepared to find out, about being a member/trustee of an SMSF?

Do you understand what is required with the investments of an SMSF?

How will the fund be managed on an ongoing basis - what will you do and what will you get others to do?

How much will it cost to establish and run an SMSF?


Control means different things to different people.

It is important to determine whether you wish to:

make all decisions and be regularly involved in the management of the SMSF; or

make key decisions, such as investments, without heavy involvement in the daily management of the fund and compliance issues.

Often, your answer will help you evaluate whether an SMSF is suitable, and the level of services you are seeking.

How much do you need to start an SMSF?

When thinking about how much you may need to start an SMSF, it is important to consider:

the initial level of assets as a starting point; and

how much may be contributed to the fund in the first few years of its existence.

There is probably a minimum amount necessary to justify the establishment of an SMSF. However, the actual amount is a complex issue due to a number of competing factors, such as how much you have in super now and what you think will be contributed over the next few years.

Many would consider it more prudent to commence an SMSF when superannuation benefits exceed $200,000. However, the right amount depends on the level of contributions being made, and how quickly it will grow.

Member/trustee knowledge

Given the level of responsibility undertaken by SMSF member/trustees, the level of knowledge about your potential role and responsibilities as trustee must be considered.

If you have a limited level of knowledge, then further information about being an SMSF trustee should be investigated before setting up the SMSF.

The trustees of an SMSF are ultimately responsible for the fund and should have a minimum level of knowledge about their legal and administrative responsibilities. There is plenty of information on SMSFs which is freely available. The ATO has a series of fact sheets and other publications on their website, including access to free online SMSF trustee courses to help you fully understand your obligations.

After you have considered your obligations and responsibilities for an SMSF, there may be other types of superannuation funds that may suit your circumstances, such as a small APRA fund or public offer master trust.

Fund membership and profile

The membership of the fund, and profile of fund members, may have a significant impact on the cost of operating the fund. For example, consider the differences between:

a single member SMSF in the accumulation phase; and

an SMSF with two members in their retirement phase, each receiving monthly pension payments.

Investment strategy considerations

Ensure that the proposed investment strategy will be consistent with regulatory requirements and appropriate to meet current and projected cash flows (particularly pension liabilities).

For example, high levels of direct property assets are often popular but may cause liquidity difficulties for SMSFs, particularly those paying pensions.

Style of administration

The style of administration used for an SMSF may also have an impact on the ongoing administration expenses. For example:

a comprehensive administration service that can provide trustees with regular updates and online access to member records will generally cost more than;

administration services comprising of an administration and compliance service provided after the end of the tax year.

Ongoing fund management

Will the fund be professionally managed? If not, how will the member/trustees ensure that the fund is properly managed and all required record keeping accurately maintained?

There are many things that an SMSF trustee must do during a year.This may involve preparation of BAS returns, PAYG instalments, PAYG withholding, etc. In addition, investments usually need to be reviewed regularly. A major consideration is whether records will be able to be kept in a manner that will efficiently facilitate the necessary actions.


An SMSF can be cost competitive compared to other types of superannuation funds, but that is usually not the determining factor for having an SMSF. There are costs involved in establishing and maintaining an SMSF. These costs include establishment and ongoing costs, professional adviser fees, accounting, administration, audit, investment and actuarial fees. The cost can depend on what you are prepared to do for your fund. This could include making decisions about the fund’s investments or the fund’s accounting.

It may be useful to work out the total ongoing expenses as a percentage of the total superannuation assets and compare this to the equivalent expense of other alternatives, such as publicly offered personal superannuation funds, master trusts and industry funds. The cost is only part of the SMSF decision tree and should always be balanced with the other reasons for having an SMSF.

Set up costs

The costs involved in establishing an SMSF need to be carefully compared with the cost of alternatives.

Costs incurred in the establishment of an SMSF may include:

professional advice costs (such as financial, investment, tax and accounting advice) obtained in relation to the use and establishment of an SMSF,

legal costs associated with the preparation and execution of the fund’s trust deed and other legal documentation, including all associated consultations,

the cost of setting up a corporate trustee, if required,

registering the fund as a complying superannuation fund with the ATO and obtaining the ABN and TFN, or

the cost of training or education to get you up to speed with running an SMSF.

Investment costs

The type of investments used by the fund may have a significant impact on the costs associated with operating the fund. For example, consider the differences between and SMSF that invested in:

a single managed fund;

a number of direct property investments;

a range of direct equities; and

a selection of the above.

Fund complexity and costs

The complexity of the SMSF may have an impact. For example, an SMSF which has a number of different types of pensions will generally be more expensive than an SMSF which is administered on an accumulation basis.

Cost of professional service providers

The cost of an SMSF can be influenced by the use of professional service providers that provide assistance with the ongoing operation and management of the fund. This will be determined by the level of service provided and the number of features available.

Ongoing expenses

In addition to the costs associated with establishing the SMSF, there are ongoing costs involved in the day to day management of the fund. Typical fees include:

accounting and taxation fees;

investment management and brokerage fees;

administration fees;

legal fees;

annual audit fees;

actuarial fees;

costs incurred in the buying and selling of fund assets (stamp duty etc.); and

the cost of additional specialist advice, if and when required.

The actual ongoing costs incurred by an SMSF will vary substantially and are influenced by your level of involvement in running the fund.

First things first

Starting an SMSF has many things that need to be considered. Before commencing an SMSF you should always consider:

your goals and objectives for establishing the fund,

the level of control you are seeking on an ongoing basis,

the level of overall costs and whether they are reasonable,

whether you are prepared to accept the responsibilities involved as a fund trustee,

the type of professional advice required to assist with the management of the fund, and

how the fund will be administered/managed on an ongoing basis.

Once you have that bedded down and you have clear answers to each of the above things, you will be well on your way to building wealth for your retirement.


The benefits of running your own super fund

Friday, June 09, 2017

By Graeme Colley

There’s been a lot of talk about the upcoming super changes, whether you can make non-concessional contributions, moving super between pension and retirement phases, and resetting the CGT cost base of the fund’s investments.

While there is a lot happening, things haven’t changed to any great degree for anyone thinking of starting a self-managed superannuation fund (SMSF). 

The basic considerations for having an SMSF remain the same as they have for many years. In other words, ‘the more things change, the more things stay the same’.

Reasons for having an SMSF

The main reason for having an SMSF is the greater control the trustees/members have over their retirement destiny. Other reasons include:

  • Investment choice: Trustees decide the fund’s investment strategy to suit the investment and superannuation needs of the fund’s members. The investment choice can include direct shares, managed funds, real estate, cash and term deposits. There are some investments which are unique to SMSFs;
  • Cost: The cost of setting up and running an SMSF may vary depending on the circumstances. It is possible for the costs of running the fund to be lower than fees you may pay on other funds;
  • Transparency: Monitoring and controlling the fund’s transactions is directly done by the trustees/members, which provides greater visibility of the fund’s investments and their performance at any time;
  • Tax control: It is possible for an SMSF to provide greater control over the tax payable by the fund. This mainly relates to the timing of the purchase and sale of investments which may optimise the tax position of the fund;
  • Estate planning: Having an SMSF provides the flexibility to plan who receives the member’s death benefits, when they receive it and how they receive it, such as a pension or lump sum; and
  • Pooling of investments: Family members may be able to pool their superannuation in the one SMSF, which may invest in certain assets for the benefit of the family business. This may include business property and some direct and indirect investments in family business entities.

The statistics about SMSFs are impressive by any standard. SMSFs make up the biggest segment of the $2.3 trillion superannuation investments. Over the last decade, SMSF assets have trebled in size to $674.7 billion, which represents nearly 30% of total superannuation assets in Australia. It is expected that SMSFs will continue to grow by 5% each year.

SMSFs are continuing to attract a younger demographic. Of the funds established in the December 2016 quarter, 43% of new trustees were under the age of 45. This proportion has increased steadily year by year. This demographic is after greater control of the member’s retirement savings and innovative admin solutions with real time access, as they are more tech savvy than older generations.

Here are some advantages of using an SMSF:

  • Holding business premises in the SMSF: Many small business owners have their business premises owned by the SMSF. This provides tax effective strategies as the premises can be leased to the member’s business and may receive a tax deduction for the rent paid on the property. The fund would be taxed at 15% on the net rent received. In some cases, the SMSF may wish to enter into a limited recourse borrowing arrangement, where the fund borrowing to have a property purchase is held in trust on behalf of the fund. You may need to obtain advice on how this could advantage the fund. Assets held by the SMSF are protected from bankruptcy, as creditors are unable to access a member’s superannuation benefit if they are facing bankruptcy;
  • Ability to buy or sell the fund’s investments quickly: Trustees/members of an SMSF can quickly change their investments, or the asset allocation of the fund, within the limitations of the fund’s investment strategy. This allows the fund to gain optimum access to tax benefits, as well as investment opportunities as soon as they arise;
  • Ways of investing differently: SMSFs can hold direct property, unlisted shares, artworks and other exotic or boutique investments;
  • Manage or eliminate CGT: Capital gains on investments held to support pensions are generally tax free because there is no CGT payable;
  • Buy assets that members could not otherwise afford: An SMSF allows up to four people, usually family members, to pool superannuation assets to purchase assets which may be unaffordable if purchased by members individually; and
  • Flexible payment of death benefits: Benefits from superannuation are not subject to the same payment restrictions as if they are paid from a person’s estate. There is no requirement to wait until probate has been granted.

There are some things that trustees/members of SMSFs may need to pay attention to. 

These include:

  • Time involved: Some trustees may like to spend a lot of time reviewing their SMSF. This needs to be taken into account in working out the total effort required in operating the fund;
  • Knowledge of trustees: SMSF trustees need to make sure they know the superannuation rules and they update themselves of any changes to determine the impact on the operation of the SMSF;
  • Investment Risk: Taking greater risk or lacking investment diversity may impact on the returns of the SMSF, or may not provide enough cash flow to allow benefits to be paid to members when required; and
  • Costs: Before establishing an SMSF, a comparison of costs should be made. If the SMSF is small, it may turn out to be more expensive than other types of funds.

The decision to have an SMSF requires a number of considerations, some of which may seem to be in conflict. However, there are many benefits of having an SMSF, which include control and flexibility over investment decisions, including timing investments to take advantage of taxation and estate planning.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.