Summary: This article provides answers on what are reasonable SMSF accounting fees, how pensions are treated when a partner dies, indexed pensions versus lump sums, asset protection for corporate trustees, and on what non-concessional contributions amounts can be made over several years.
Key take-out: A true fee-for-service provider should not charge for accounting, tax and audit services on a percentage basis. Services should be charged on an hourly rate.
Key beneficiaries: SMSF trustees. Category: Portfolio management.
What are reasonable fees for an SMSF for accounting, tax and audit services?
Can you give us some guidelines on what are reasonable fees for an SMSF for preparing the annual tax return and the audit fee? I also pay a quarterly fee for financial advice. Perhaps you could explore what would be a reasonable range of fees for say a $1 million fund that has the usual mix of direct shares, fixed interest securities, term deposits and some managed funds. I think I'm paying too much and I’ve only seen Eureka quote fees as a percentage of the fund balance.
A true fee-for-service provider should not charge for accounting, tax and audit services on a percentage basis. In other words the cost for performing these services should relate to the time taken, charged at an hourly rate, which depends on the expertise of the person performing the work.
This means a fund in accumulation phase that does not have many investments, no matter whether it has $200,000 or $2 million, its fees should be less than a fund with many different investments with members both in pension and accumulation phase. The cost of tax and accounting for a fund also increases where there are more direct investments such as shares and rental properties.
A reasonable range of fees for the tax, accounting, and audit of an SMSF, for a fund such as yours, should be between $2,000 and $2,500. This fee will not include any advice in relation to tax planning for the members and investment advice for the super fund.
Financial advice is often charged as a percentage of the funds under management but there are advisers who also charge on a pure fee-for-service basis. Just as is the case with the other services the more hours required to provide the tax and investment advice the higher the fee should be. This means the cost for an annual review should be less than for someone that requires either half yearly or quarterly reviews.
There are many SMSF trustees who don’t pay a combined fee as you are doing and only get investment and tax planning advice when they require it. On the basis of the tax, accounting and audit work for your fund costing $2,500 this means you are paying $2,500 for the financial advice.
If you are at least getting an annual meeting with your adviser that includes a detailed review of your tax and financial situation, suggestions for rebalancing the investment mix of your fund, and investment recommendations, the fee would not be that excessive. If you are not getting this you should be looking for a new accountant and adviser for your fund.
How are super fund pensions payments treated for a surviving partner when one person dies?
If a super fund trust deed provides for a pension to be paid to a surviving partner, I understand that the deceased person’s pension is still in existence as it transfers its benefits and obligations to the surviving partner. If this is so, is there still a need to pay pro-rata pensions during the year rather than one final payment?
If the pension is a reversionary pension it ceases upon the death of the member and is effectively a new pension, with the same make-up of taxable and tax-free components for the person named as the reversionary beneficiary.
If the original pensioner has been receiving lump sum pension payments, and dies before a pension payment was received by them, that member will not be regarded as having been in pension phase. This would mean that as no pension was being paid at the time of death it could not automatically revert to the named beneficiary. In addition to this problem the value of the assets related to this pension will not be classed as being eligible for tax-free status as the member will not be regarded as being in pension phase.
This is why, when a person commences a pension from a super fund, it is good practice to have pension payments made regularly, if not monthly or at least quarterly. This means in the event of the death of a member there can be no question as to whether the member that dies was in pension phase.
Should I take an indexed pension or a lump sum?
My concern or dilemma at the moment is that when I retire I will receive a lifetime indexed pension. If I die prematurely I would lose a significant amount of money. Am I wiser to take the lump sum or take the guaranteed pension that is indexed yearly in contrast to securing the lump sum and invest it at the market value via shares or cash over the long term of approximately 20 years?
The other option that I am considering is to take 50% lump sum and the remaining amount in a pension. From a purely dollar perspective, what is your experience in people living long enough to ensure they receive the maximum benefit. The other concern is that a future government can change the rules relating to existing super arrangements and I will be worse off.
As to whether you will take the full indexed pension or choose the 50% option depends on many considerations. Some of these are your family’s health history and your personal state of health, whether you have dependents, and what your financial goals are. You should seek advice from a fee-for-service adviser that specialises in tax and retirement planning.
Are there asset protection benefits relating to having a corporate trustee?
I am looking at the issues relating to the choice between a corporate trustee versus individuals when setting up a SMSF, and specifically the asset protection benefits of the corporate trustee structure. Could you explain the asset protection benefits and support this with any precedents where this could afford protection? In addition, I assume this doesn’t absolve you of any director-related liabilities, and if so, can you see tangible asset protection benefits as a result?
I do not understand why you are concerned about asset protection when it comes to your SMSF fund. Where individuals act as trustees for an SMSF, if those individuals become bankrupt or the subject of a legal claim, the assets held in superannuation are protected. The same applies where a company acts as trustee for a super fund. The main benefits of having a dedicated trustee company for an SMSF is it makes it easier to differentiate between personal investments and super fund investments, and in the event of the death of a member the fund can continue operating.
What non-concessional payment amounts can I make, covering 2012 to 2014?
If I contribute a total of $370,000 in 2012, made up of $145,000 for year 2012, $135,000 for year 2013 and $90,000 for year 2014 to my SMSF, can I then in 2013 contribute another $75,000 to my SMSF, making up of $15,000 for 2013 and $60,000 for 2014? Then in 2014, can I contribute another $300,000 to my SMSF, making up of $150,000 for 2015 and $150,000 for 2016.
If you made a non-concessional after-tax contribution of $370,000 in 2012, and you had not exceeded the $150,000 non-concessional contribution limit in the previous two years, $150,000 would be counted for the 2012 year, $150,000 for the 2013 year, and $70,000 for the 2014 year.
This would mean you could make another non-concessional contribution of $80,000 between July 1, 2012 and June 30, 2014. If you had contributed $75,000 in 2013, and then contributed $300,000 in 2014, you would have paid tax at 46.5% on an excess contribution of $295,000.
Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs.
Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.
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