Sam, a friend of Ken and Anna (married couple) has recommended that they set up a Self Managed Superannuation Fund (SMSF), as it will provide them with “better returns”. Sam has suggested that the SMSF purchase a property and that Karunesh and Asha can live in that property and pay the rent directly to the SMSF by making tax-deductible salary sacrifice contributions.
1. Does an SMSF provide better investment returns than an industry or retail fund? Provide a detailed explanation for your answer and quote and explain any relevant statistics that you may have sourced to support your argument.
2. List the amount and type of fees that Ken and Anna pay, in the first year, to set up and maintain their SMSF. What is the amount of GST that will be applicable on these fees? Cleary show all your workings.
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3. Ken and Anna seek your advice on the recommendation provided by their friend Sam. In relation to this, what advice would you provide to them and why? Clearly list any breaches of relevant codes and/or legislations.
4. Tren, another friend of Ken and Anna, suggest that they should purchase an investment property via an SMSF structure. The property can be rented out to a tenant. Tom suggests rolling over all their existing superannuation’s and setting up an SMSF. The property is listed on the market for $550,000. Tren further suggests, that they set up another company as a corporate trustee to assist in this process. Assuming that they purchase it for that price
i. Clearly list and place an approximate dollar value on all other relevant incidental and additional costs associated with purchasing this property via the SMSF structure described above
ii. Explain to Ken and Anna, how they could go about this process – i.e. how to purchase the property via the SMSF via a loan etc. Support your explanation with a diagram or flow chart depicting the process.
5. What are the pros and cons of setting up a corporate trustee as opposed to Ken and Anna being individual trustees of their SMSF?
6. In relation to the above:
i. Explain LBRA to Ken and Anna
ii. What interest rate could their SMSF obtain for the property loan and how does this compare with a loan for a similar property that was the outside superannuation? (You will need to research existing home loans and interest rates for this purpose – clearly provide your sources and references!)
7. Assume the property generates a rental income of $600 per week net of associated costs. Based on their personal incomes and other details provided in the fact find:
i. Calculate the amount the clients would receive net of tax, if the property was acquired in their personal names (in joint ownership).
ii. Now calculate this with how much they would receive if the property were acquired via their SMSF.
Assume this is for the period July 1 2019 to 30 June 2020 only.