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ATO quarterly statistical report

The total value of SMSF assets has climbed to $892 billion during the 12 months to March, according to the latest ATO statistics.

The ATO’s SMSF Quarterly Statistical Report indicates there were 605,469 SMSFs at the end of March — an increase of 17,631 funds since March in 2021.

Total members of SMSFs jumped from 1,102,313 members in March last year up to 1,135,026 in March this year.

Total Australian and overseas SMSF assets increased $95.96 billion up to $892.04 billion over the 12 months to the end of March 2022.

The top asset types held by SMSFs in terms of value continue to be listed shares, which account for 28 per cent of total estimated SMSF assets and cash and term deposits at 17 per cent.

SMSFs slightly reduced their allocation to cash in the 12 months to March, however, with the total assets held in cash dropping from $149.29 billion down to $146.96. Assets in listed shares increased 12.6 per cent to $245.26 billion.

Over the past five years, the amount SMSFs have invested in overseas shares has seen a significant jump, with the asset class doubling in total value.

Collectables have also seen a sizeable jump over a longer five year period, increasing from $355 million back in March 2017 up to $525 million in March this year.

To view the ATO’s SMSF quarterly statistical report, click here

Source: SMSF Adviser

Younger trustees driving establishments

SMSF trustees aged below 50 have shown a strong interest in gaining control of their retirement savings, leading to an upturn in the total number of SMSFs, according to a long-running survey of the SMSF sector.

The 2022 “Vanguard/Investment Trends SMSF Report” revealed a spike in SMSF establishments during 2020 and 2021 driven by a ‘COVID cohort’ of younger trustees seeking control of their superannuation.

Data presented in the report showed net SMSF establishments had been declining since December 2012, when they represented 8.7 per cent of all SMSFs, down to 3.6 per cent in December 2019.

However, this turned from 2020 when the annual rate of establishment was 3.7 per cent and then surged to 4.8 per cent in December 2021, while annual wind-ups decreased from 17,098 in December 2019 to 10,210 in December 2021.

Speaking at a media briefing in Sydney today, Investment Trends head of research Irene Guiamatsia said: “On a net basis, we are certainly seeing a spike in the establishment rates, which then leads us to now over 600,000 SMSFs that are operating in the market.

“The latest figures show about 29,000 SMSFs were established last year. This is the highest [number] in the past three or four years.”

Guiamatsia added the research also examined the average age and balance at time of establishment from 2020 to 2022 and found both of those were at their lowest points since 2005.

“The key data point shows that the average age of establishment is the lowest that we have seen compared to some of the previous generations [of trustees],” she said.

“Now the average at which an SMSF has been established is 46 years of age and at an average balance of about $340,000.”

In comparison, the average starting balance for an SMSF established between 2015 and 2019 was $440,000 and the average establishment age was 50, while from 2006 to 2014, those figures were 51 years old and $530,000.

The last set of equivalent figures dates from before 2005 when the average age at establishment was 46 and average balances at the time of establishment were $380,000.

The 17th annual investor report from Vanguard and Investment Trends gathered information from 2430 SMSFs and was conducted between March and April 2022.

Source: smsmagazine.com.au

 

Stocks, crypto and property a big focus for younger SMSF investors

Millennials and Generation Z SMSF investors are mainly focused on investing in stocks, property and cryptocurrency, according to a survey by a social investing network.

A survey of Millennials, aged between 26 and 41, and Generation Z, aged between 18 and 25, involving over 1,000 respondents, including SMSF investors, revealed that younger investors are highly engaged with super, with just over a third of Millennials in the survey contributing between $5,000 and $10,000 annually to their SMSF each year.

Half of the Generation Z respondents in the survey contribute around $1,000 to $5,000 per annum.

A third of the respondents stated that they believed they could get a better return managing their own super than with a traditional superannuation fund.

The data found that a large majority of Millennials and Gen Z with an SMSF are focused on generating a diversified SMSF portfolio, filled predominately with stocks, crypto, and property.

Of Millennials invested in stocks, 45 per cent prefer the ASX market and 32 per cent opt for US markets, while the opposite is true for Generation Z, who favour US markets over the ASX.

Tech, energy, real estate and financial were the industries of choice for both cohorts, with healthcare a priority sector for Millennials and materials sectors a focus for Generation Z. 

Conversely, young investors shy from instruments with higher perceived risk like CFDs, options and FX. 

The survey also indicated some of the barriers to entry with setting up an SMSF, including not knowing where to begin, not knowing how it works and preferring someone else to manage their super on their behalf.

eToro Australia’s managing director Robert Francis said that despite stereotypical perceptions, Millennials and Gen Z Aussies are increasingly taking their superannuation and finances into their own hands.

“They are realising the importance of investing younger than their parents – many as soon as 18 – in order to put themselves in an advantageous position for a comfortable retirement,” said Mr Francis.

Source: SMSF Adviser

Director IDs and Corporate SMSF Trustees

If you have a self-managed super fund (SMSF) with a corporate trustee, then you need to be aware of the new requirement to apply for and obtain a Director Identification Number (Director ID).

The introduction of Director IDs is part of ongoing attempts to modernise and streamline record-keeping systems used by the government, including details on directors of companies. Essentially this new system is designed to improve the integrity of records that are kept.

The measure is also part of a wider government crackdown on illegal activity. It is hoped that recording the identity of company directors will increase the transparency of companies and discourage illegal activity.

While all directors of companies and registered Australian bodies are affected, this article will focus solely on how these changes relate to SMSFs with a corporate trustee and the process required to comply with the new requirements.

Keep in mind that all members of an SMSF with a corporate (company) trustee are required to be a director of that company.

Also note that the same registration requirements apply if you are acting as a trustee (director) in place for another person under an authority given to you (such as an enduring power of attorney or guardianship arrangement), or where you are acting as an alternate director for a company.

What is a Director Identification Number?

A Director ID is a unique 15-digit identification number given to a director after they have verified their personal information and identity with the Australian Business Registry Services (ABRS).

As mentioned earlier, a Director ID will then be used to verify the identity of directors when dealing with government departments. Overall, it should assist in streamlining the process to identify an individual.  

Once issued, the Director ID then ‘attaches’ to the applicant and will remain in place throughout their life. So only the one Director ID can be applied for and issued per individual.

A Director ID will remain attached to your records even if you resign as a director or leave Australia.  

When do you need to apply?

This will depend on when you were appointed as a director of the corporate trustee for your SMSF.

Before 31 October 2021: If you were appointed as a director before 31 October 2021, you will need to apply for your own unique Director Identification Number by 30 November 2022.

Between 1 November 2021 and 4 April 2022: If you were/are appointed as a director between these dates, you will need to apply within 28 days of being appointed.

If you are setting up an SMSF with a corporate trustee after 4 April 2022, then you will need to apply for and obtain your own unique Director ID before the SMSF and corporate trustee can be established. 

It is important to note that you will need to go through the Director ID application process yourself. No one else can complete the application process for you. If you have a professional that assists you with your SMSF, such as an accountant or tax agent, then they are not allowed to apply for a Director ID for you. It would however be prudent to inform your accountant or tax agent once you have obtained your Director ID.

How to apply

Applications can be made using one of the following processes:

  • Online through the ABRS website
  • Telephone
  • Paper application form.

The information required to complete the application will depend on which process you use. Details of these requirements are provided below.

Online application through the ABRS website

This is the quickest way to apply for a Director ID, but you must have a myGovID account already set up. Note that this is different to a myGov account. 

myGovID is an app that you can download to your phone or tablet designed to confirm your identity with different online government departments. 

Step 1: If you don’t have a myGovID set up, click here first and follow the required process. Once completed, go to Step 2.

Step 2: If you already have a myGovID set up, click here. You will then need to login to myGovID and follow the required process under ‘Apply now with myGovID’.

Step 3: Provide relevant details and supporting information.

Information you will need to have at hand:

  • Your Tax File Number (TFN)
  • Details of your residential address
  • Two sources of identity verification documentation including:
    • Bank account details (BSB and account number) where interest has been earned or where a tax refund has been paid into by the ATO
    • An ATO notice of assessment from the last five years. You will need the date of issue and the reference number. See the top right of the assessment
    • A dividend statement from the last two years. You will need your investor reference number
    • A Centrelink payment summary
    • A PAYG payment summary.

Telephone application

Step 1: Phone 13 62 50 from within Australia. If you are overseas, phone +61 2 6216 3440.

Step 2: Provide all relevant information as requested during the call.

Information you will need to have at hand:

  • Your Tax File Number (TFN). This is optional but using your TFN can expedite the application process
  • Details of your residential address
  • Two Australian identification documents including:
    • One primary document: Australian full birth certificate, Australian passport, Australian citizenship certificate, ImmiCard or Visa
    • One secondary document: Medicare card, Australian driver’s licence
  • Confirm your identity by responding to two questions based on information already known about you
  • Acceptable identity verification documentation including:
    • Bank account details (BSB and account number) where interest has been earned or a tax refund has been paid by the ATO
    • An ATO notice of assessment from the last five years. You will need the date of issue and the reference number. See the top right of the assessment
    • A dividend statement from the last two years. You will need your investor reference number
    • A Centrelink payment summary
    • A PAYG payment summary.

Paper application form

Step 1: Go to the ABRS website and download this form.

Step 2: Gather the information specified on the form.

Step 3: Complete the form with all required information.

Step 4: Sign the declaration at the bottom of the form.

Step 5: Send the form with certified copies of required documents to:

Australian Business Registry Services
Locked Bag 6000
ALBURY NSW 2640
Australia

Final thoughts

The Director ID system does not replace any of the existing requirements around updating company records. The existing requirements to inform and update ASIC on changes to company details will continue.

You may want to consider applying for your Director ID before the required ‘due date’ as there will be a large number of applications around those dates. It would be prudent not to leave your application to the last minute.

Source: Superguide.com.au

ATO statistics reveal pandemic’s impact on SMSF investments

The financial impact of COVID saw the majority of SMSFs record either zero or negative returns for the 2019-20 income year, according to the ATO’s latest statistical overview.

The ATO has released its annual statistical overview of SMSFs for the 2019-20 financial year based on SMSF annual returns.

In response to feedback, the ATO stated that it had revised its approach to the way it calculates SMSF investment performance or return on assets (ROA).

The Tax Office stressed, however, that the investment returns data in the overview is only an indicator of performance across the SMSF sector and is not a direct comparison to APRA fund investment performance as the data inputs and methodology used are different.

 

The ATO statistics indicate that the average return ROA for SMSFs was 0.7 per cent for the 2019-20 financial year.

This was a decrease from an average return of 7.3 per cent in 2018-19 and 3.7 per cent in 2015-16.

The median ROA for SMSFs was -1.6 per cent, down from 4.3 per cent in 2018-19 and 0.2 per cent in 2015-16.

The statistics indicate that while the proportion of SMSFs recording a zero or negative return on assets had improved from 48 per cent in 2015-16 to 26 per cent in 2018-19, it then “plummeted to 61 per cent in 2019-20”.

This drop in 2019-20 is most likely due to the effect of COVID-19 on financial markets during the last quarter of the 2020 financial year,” the ATO explained.

The proportion of funds with a ROA of greater than 5 per cent increased from 18 per cent in 2015-16 to 46 per cent in 2018-19 but then dropped to 16 per cent in 2019-20.

SMSF expenses see dip in 2019-20

The ATO statistics indicate that SMSF expenses saw a slight dip in the 2019-20 income year, with the average total expense ratio sitting at 1.16 per cent or $15,300, down 4 per cent from $15,900 in 2018-19 and up 10 per cent from $13,900 in 2015-16.

Median total expenses were $8,200, the same as in 2018–19 and up 16 per cent from $7,100 in 2015-16.

The ATO noted that SMSFs in the retirement phase incurred lower total expenses on average than funds solely in the accumulation phase. Total expenses on average for retirement phase SMSFs were $14,300, while accumulation phase funds incurred total expenses of $16,100 on average.

“Average operating expenses were $6,200, down from $6,400 in 2018-19, and the same as 2015-16,” the ATO said.

The ATO stated that while the average total expense ratio is highest for lower-balance SMSFs, the total dollar value of average and median expenses increased as fund size increased.

“For example, in 2019-20 in the $1 to $50,000 asset range the average total expense ratio was 17.6 per cent, average expenses were $4,400 and median expenses were $2,000,” the Tax Office stated.

“In the greater than $2 million asset range the average total expense ratio was 0.7 per cent but average expenses were $28,600 and median expenses were $15,900.”

Source: SMSF Adviser

ATO checklist for SMSF management

The ATO has released a range of checklists designed to help trustees manage their SMSF through different stages of the fund.

The new ATO checklist provides guidance covering SMSF management requirements and obligations for trustees.

“Running an SMSF takes time and effort. There is a lot to do and keep track of at every stage of your fund. Use these checklists to help you manage your fund and meet your SMSF obligations,” the ATO said.

The guidance provides a detailed checklist for setting up an SMSF. It also focuses on trustees reporting obligations such as valuing the funds’ assets at their market value at 30 June, making sure the fund has paid any minimum annual income stream payments required under super laws.

It also outlines the ongoing SMSF compliance obligations across investing, contributions and rollovers, paying benefits and record-keeping requirements.

The ATO also outlined the importance of the investment strategy along with the need for regular review and consideration of all circumstances of the fund, including risk, diversity, liquidity and member’s circumstances.

Trustees must also make sure all benefit payments made by the fund have been made in accordance with the super laws and the proper and accurate records have been maintained for required time frames.

The new guidance also provides updated information on SMSF rollovers to align with the new SuperStream requirements.

Funds must make sure to engage an SMSF messaging provider offering SuperStream rollover services and obtain their electronic service address.

The checklist guidance also outlines additional steps to consider when starting to pay an income stream, along with considerations when winding up a fund.

The checklist can be viewed here.

Source: SMSF Adviser

SMSFs see millennial and Gen Z surge

Despite market uncertainty in recent years, the next generation of Australians is seeking to take greater control of their financial future by opening SMSFs, according to AUSIEX.

Recent data from AUSIEX (Australian Investment Exchange Limited) has revealed during the first quarter of FY22 (July to September) that there was a 9.3 per cent increase in new SMSF accounts opened compared to FY21 Q1.

Gen Y or millennials (born 1981-1996) represent the fastest-growing segment of new SMSF accounts. The year 2020 onwards has seen a new pattern emerge, with this group representing 10 per cent of all new accounts – double the rates seen from 2016 to 2019.

During FY21, there was also an emerging trend in SMSF accounts opened by Gen Z (born 1997-2012). The number of SMSF accounts owned by Gen Z investors has doubled in the past 12 months. 

 

AUSIEX CEO Eric Blewitt said recent years of government and regulatory reviews of the super system has most likely prompted greater awareness of super among younger Australians.

“SMSFs have traditionally been the domain of those with higher fund balances and those approaching the decumulation phase,” Mr Blewitt said.

“SMSFs may be appealing to younger people due to the fact they provide greater control over investments.”  

Mr Blewitt said the data was consistent with AUSIEX’s report, Australia’s Trading Transformation, released in June, which found a 250 per cent increase in self-directed investors under the age of 25 trading during the initial COVID lockdown in Australia through to March 2021.

“All of this data is painting a picture of much greater interest from younger people in taking control of their financial goals,” he said.

In recent years, female SMSF account holders have increased, with the male to female ratio for new SMSF account holders now 1 to 1.33. One in three Gen Y/Gen Z investors is female. This is consistent with data published in Australia’s Trading Transformation report, which showed 52 per cent of new trading accounts opened in the 12 months to March 2021 were by women.

Increase in active traders but less so in ETFs 

The AUSIEX SMSF book has grown by an average of 5 per cent for each of the last three years and is made up of 53 per cent Advised (advised and advised platform), and 47 per cent directly held accounts. Advised SMSF new accounts have seen a renewed increase since June 2021, with September 2021 representing a 16-month high.

Over time, AUSIEX has found that SMSF accounts are 30 per cent more likely to trade compared to non-SMSF accounts. SMSF accounts activate faster than non-SMSF accounts, with more than half trading within 90 days of being opened (54 per cent) compared to only 42 per cent of non-SMSF accounts.

SMSF accounts have executed 20 per cent of all AUSIEX trades since 1 January 2020. Since SMSFs are 10 per cent of all AUSIEX accounts, trading is double the expected amount compared to size.

The top 10 most traded stocks for the SMSF segment are heavily weighted towards blue chips, with BHP, Westpac, CBA, NAB, Woodside Petroleum, CSL, ANZ, Fortescue Metals, Macquarie Bank, and Telstra making the list.

However, SMSF accounts are less invested in ETFs compared to other accounts. New accounts held by Gen Z surprisingly have the lowest percentage of ETF investments (19.23 per cent) in their SMSF compared to all older generations, who sit between a range of 27 per cent to 32 per cent.

Those that traded ETFs tended to favour Australian Equities or US Equity ETFs, such as Vanguard US Total Market Shares Index ETF (VTS), iShares Core S&P 500 ETF (IVV), and BetaShares Nasdaq 100 ETF (NDQ). 

AUSIEX also saw some initial interest amongst SMSF investors in newer MegaTrend ETFs, such as ETFS Semiconductor ETF (SEMI), ETFS Hydrogen ETF (HGEN) and very strong interest in BetaShares’ Global Cybersecurity ETF (HACK).

“The long-held view that Australians do not actively engage with their super until they near retirement looks to be changing,” Mr Blewitt added.

“However, this data raises questions whether advisers and fund managers might need to pivot to attract and retain clients who appear to be paying much more attention to their super and the investments within.”

Source: SMSF Adviser

New rules to reduce choice complexity for SMSFs when calculating ECPI

The government has made new changes in its recent legislation to simplify choice for SMSFs when calculating exempt current pension income (ECPI).     

Recently the government introduced to the lower house the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021 that includes six measures, of which five relate to superannuation.

Schedule 5 to the bill introduces the measure that was first announced as part of the federal budget in 2019 to allow SMSF trustees to choose how to calculate exempt current pension income (ECPI) where the fund has both retirement phase and non-retirement phase interests and a period of “deemed segregation”.

In a recent update, Accurium said that the draft legislation in this schedule is quite different from the exposure draft legislation that was released by Treasury on 21 May 2021, which raised a number of concerns. It appears that the main concerns from the previous exposure draft legislation have been addressed. 

There are two methods for calculating ECPI, the segregated method and the proportionate method. Since the 2017-18 income year, a fund may have to use a combination of the segregated and proportionate methods to claim ECPI in the same income year. Generally, this occurs when there is a period of deemed segregation during the income year, as well as a period where there is both retirement and non-retirement phase balances.

An SMSF that does not have “disregarded small fund assets” (DSFA) must use the segregated method to claim ECPI for a period of “deemed segregation”, while ECPI is claimed using the proportionate method for the pool of assets that supports both retirement phase and non-retirement phase interests.

Provided the SMSF has only account-based pensions, it will only require an actuarial certificate to claim ECPI using the proportionate method for the unsegregated pool of assets.

“The bill amends section 295-385 ITAA 1997 so that superannuation trustees can choose to treat all of the fund’s assets as not being segregated current pension assets for an income year if all of the fund’s assets are held solely to discharge liabilities in relation to retirement phase interests for part of that income year,” Accurium said.

“That is, where the fund has a period of ‘deemed segregation’ and does not have DSFA, the trustee can choose to treat all of the fund’s assets, held during this period, as not being segregated current pension assets.

“This is a positive change from the original exposure draft legislation where it appeared that trustees had to make a choice in relation to each and every asset held during a period of ‘deemed segregation’ as to whether they were to be or not to be treated as a segregated current pension asset.

Under the bill, Accurium noted all assets held during a period of ‘deemed segregation’ will be segregated current pension assets, unless the trustee chooses for all of them not to be, that is, there is only a requirement to make a choice where the trustee does not want assets held during a period of ‘deemed segregation’ to be segregated current pension assets.

Further, making the choice apply to all assets held during the ‘deemed segregation period’, rather than each individual asset, is also a positive outcome.

“This ECPI calculation choice measure has two exceptions. Where all of the fund’s superannuation interests are in the retirement phase for all of the income year, the fund is unable to make the choice not to treat fund assets as segregated current pension assets,” Accurium explained.

“That is, the fund will use the segregated method to claim ECPI. There should be no issue with this exception as it results in the same outcome – 100 per cent of the eligible income claimed as ECPI.

“Furthermore, if the fund has DSFA, it is precluded from using the segregated method, and therefore there is no choice to make. The fund must use the proportionate method for the entire income year to calculate and claim ECPI.

“Just note the change from 1 July 2021 to remove the requirement for SMSFs and small APRA funds to obtain an actuarial certificate when calculating ECPI, where all members of the fund are fully in retirement phase for all of the income year. These funds are permitted to use the segregated method to calculate ECPI, despite having DSFA.”

By choosing to treat an SMSF’s assets as not being segregated current pension assets, during a period of “deemed segregation”, a trustee can use the proportionate method when calculating all of the fund’s ECPI for the entire income year. Accurium said it is expected that allowing this choice will minimise the complexity for trustees and reduce the associated reporting costs for funds. In effect, this allows trustees to apply the pre-2017-18 industry approach to calculating and claiming ECPI.

In relation to the SMSF trustee making the choice, the Explanatory Memorandum (EM) to the bill states that trustees will choose which method to use and calculate ECPI before submitting the fund’s SMSF annual return, according to Accurium.

“This choice is not a formal election and does not have to be submitted to the ATO. However, it is expected that trustees will keep a record of any choice they make and the details of the calculation they use,” Accurium explained.

“It appears that effectively, SMSF trustees will be able to make their choice of the ECPI calculation method on a retrospective basis, that is, as part of the preparation of the annual financial statements and SMSF annual return.

“If the trustee for an eligible fund does not make a choice then, consistent with the ATO’s current view on the application of the existing law, the fund’s ECPI will be calculated using the segregated method for any period (less than the whole income year) of ‘deemed segregation’, provided it does not have DSFA.

“In practice, an SMSF will only be able to exercise this choice if all of the interests in the SMSF are in retirement phase for some, but not all of the income year along with all of the income derived from the SMSF’s assets is supporting retirement phase income stream benefits payable from an allocated pension, market-linked pension or an account-based pension, and the SMSF does not have ‘disregarded small fund assets.”

Source: SMSF Adviser

Self-managed super attracts new members seeking tax benefits

Nobody wants to pay a $150,000 + tax bill if they can avoid it, but this is becoming increasingly common among property investors, and is one of the reasons why more Australians are starting self-managed superannuation funds – including a rising number of people aged under 40.

SMSFs are a legal way to avoid paying hundreds of thousands of dollars in capital gains tax, but industry experts warn people to beware of property spruikers operating in this space.

New data from the Australian Taxation Office shows SMSF member numbers have grown at their fastest rate in five years, with 43,000 more people signing up in 2020-21 to take the total past 1.11 million.

SMSFs require more work than many super fund members are comfortable with, but offer more choice, control and potentially huge tax benefits.

Let’s crunch the numbers. If a median-priced property of $667,000 is bought by a typical investor and sold a decade later for double the value, their capital gains tax can be $157,000. If it eventually doubles again in value, the tax bill climbs above $300,000.

But if that property is held in a SMSF member in retirement, Australia’s superannuation rules cut the CGT to zero after age 60.

These generous tax rules also apply for shares, cryptocurrencies and other investments.

SMSF Association CEO John Maroney says self-managed super funds can now have six members, following rule changes in July, and can become a lifetime family savings vehicle.

Business owners are big users of SMSFs, but Maroney says “it’s got to be part of your strategy, not just because other small businesses or friends at a barbecue are doing it”.

He says renewed interest in SMSFs reflects greater interest in super since Covid hit, and younger people having bigger super balances thanks to years of compulsory employer contributions.

“It’s the cheapest option once you get to a certain size,” he says.

The SMSF Association says combined assets of $200,000 can make running costs comparable with other forms of super, while others say balances above $500,000 are preferred.

You can borrow money within a SMSF to invest in real estate, but beware of property spruikers who overemphasise the benefits of this.

“We encourage people to get professional advice from someone who doesn’t have a financial interest in selling the property,” Maroney says.

“You would need to think carefully about setting up a self-managed super fund just to finance the property side.”

SMSF Loan Experts managing director Yannick Ieko says the costs of borrowing within super to buy property have been dropping, and he is seeing more people aged under 40 set up SMSFs.

“You have the freedom to manage things yourself or appoint a professional to assist you,” he says.

“You have complete control over your own super.”

Big banks stopped providing SMSF loans in 2018, but current lenders include Bank of Queensland, La Trobe Financial and Reduce Home Loans, with rates as low as 3.6 per cent.

Paul Dugdale, 39, and wife Kat, 36, set up their SMSF for several years ago to invest in residential and commercial real estate.

“Our annual concessional super contributions, together with the incoming rent from tenants, means that our mortgages can be reduced at a rapid rate and our properties are cashflow positive,” Dugdale says.

“We can also invest in shares and other assets to diversify our portfolio risk.

“Running a SMSF certainly takes more time and effort than an industry super fund and SMSFs definitely aren’t for everyone.”

SMSF PROS AND CONS

For

• Control where your money is invested.

• Ability to invest in property directly.

• Lower costs when SMSF expenses are spread over bigger balances.

• Lower taxes while saving, and no tax in retirement.

• Can borrow to invest.

Against

• Managing a SMSF can be time-consuming.

• A high level of financial literacy is required.

• Auditing, insurance and other costs must be managed.

• No government protection if money is lost through fraud or theft.

• Complexities around maintaining or selling property.

Written by Anthony Keane, Personal Finance Writer. 
Published in The Australian, 13th September 2021
Source: SMSF Association

SMSFs getting increasingly comfortable with crypto

SMSFs have now seen an over 90 per cent increase in cryptocurrency trading across the year, with advisers urged to start getting acquainted with crypto as it becomes a growing alternative asset for clients, according to a report.

The BTC Markets’ Investor Study Report 20-21 has unveiled the data analysis of the crypto exchange platform’s 325,000 users to explore the “what’s” and “why’s” of their crypto investments.

Findings from the report found that the growth of SMSFs trading on the BTCM exchange during FY20-21 rose by 95 per cent.

Based on the data, there has been increased demand from SMSF investors driving crypto investment in a rapidly maturing market.

“We have noticed that SMSF investors are comfortable making significant purchases outside of the more well-known cryptocurrencies into projects such as Ethereum Classic (ETC) and Bitcoin Satoshi Vision (BSV) – indicating their confidence and commitment to research,” BTC Markets CEO Caroline Bowler said.

“Further, companies that invest and trade with us are generally in the small to medium-sized enterprise category and are invariably organisations where the founder is still involved.

“This is interesting because founders and entrepreneurs usually have a healthy appetite for risk and tend to be nimbler when it comes to decision-making – a trait that is beneficial for investing in crypto given its dynamic nature.

This result also indicates a longer-term investment timeline whereby Australians are looking to cryptocurrency to build and provide for their future, rather than using it as a “get rich quick” investment, according to Ms Bowler.

“It’s worth noting that cryptocurrency investments are being used for overall portfolio diversification. This is a role traditionally held by alternative assets such as REITs, hedge funds, art, precious metals such as gold, and other collectibles,” she noted.

“This indicates that cryptocurrencies are coming of age in playing an increasingly important role as an alternative asset in the portfolio construction process.”

Looking forward, BTCM said it expects more companies to follow suit in adding digital assets to their balance sheets, whether as a natural hedge against fluctuating fiat currencies or as part of a corporate strategy to embrace modern, open technologies.

Ms Bowler believes there is a clear avenue for SMSF accountants, financial advisers, tax lawyers and to lift their game in getting acquainted with the nuances of crypto, not only for their own business but also for their clients.

Nearly a quarter (23 per cent) of investors surveyed cited cryptocurrency as the only investment they held and 63 per cent were not deterred by its volatility, rather embracing it as a “risk they understood.”

“In order to stay relevant to this investing cohort, it is time for professional services to catch up with the comfort levels of these investors, rather than waiting for them to be convinced of the benefits of more traditional investment assets,” she stated.

While financial advisers may be investing in digital assets in a personal capacity, regulation prevents them from supporting their clients who are doing the same, as cryptocurrency is not considered a financial product in Australia.

“This lack of professional financial advice can be conducive to investors falling prey to unscrupulous scams and ‘finfluencers’ if they don’t do their due diligence.

“Further building the case for regulation of cryptocurrency in Australia, 28 per cent of respondents said that a lack of regulation was a challenge when investing, while 32 per cent said a lack of understanding on the tax treatment of crypto investment was a hindrance.”

Once crypto becomes a regulated financial instrument, which is currently being addressed by Senator Andrew Bragg’s select committee, Ms Bowler said investors and their advisers would likely gain greater confidence about operating in the crypto sector.

“In the meantime, educating professional services will be crucial,” she concluded.

However, this comes as the ATO had recently fired warning shots for advisers new to cryptocurrencies to be aware of the components that comprise a crypto asset’s cost base, and to encourage their clients to keep immaculate records.

Speaking at a cryptocurrency forum hosted by the Knowledge Shop on Tuesday, ATO assistant commissioner Adam O’Grady stressed the importance of “getting the cost base right,” which he said has emerged as a leading pain point in the tax treatment of cryptocurrencies.

One often overlooked element of a crypto asset’s cost base, Mr O’Grady said, are instances where an investor has borrowed money to invest in cryptocurrency.

“Generally, that is actually part of the cost base,” he said. “Unlike shares that are earning dividends on the way, those interest expenses may be claimable immediately as a deduction in the cryptocurrency space.”

“Because they’re generally not earning income alone, it does actually form part of the cost base.

“But a lot of other cost base elements such as your brokerage fees, or transfer costs, all those sorts of things are ones that you’d be familiar with.”

Source: SMSF Adviser