1 | P a g e
Assessment Task 2
Due date Week 12, Friday, 5 pm AEST.
Weighting 40%
Length 2000 words (approx).
Preliminary Information
Assessment task 2 requires you to answer a number of questions in relation to the O’Reilly
Family Superannuation strategy. This includes setting up a Self-Managed Super Fund
(SMSF), drafting an appropriate investment strategy, considering the in-house asset rules
that relate to self-managed superannuation funds, borrowings, who can be a
trustee/member, payment of pensions and contributions to the fund.
TASK – CASE STUDY
Consider the following case study and respond to the questions which follow:
Gerry O’Reilly is a self-employed dentist aged 58. Gerry is married to Mary aged 45 and
together they have 2 young daughters aged 13 and 11. Gerry also has a son, Hamish aged
23 from a previous marriage. Hamish works with Gerry in their dental practice.
Gerry draws an income of $310,000 from the business. In addition to this he makes the
maximum concessional contribution to super each year.
Gerry and Mary own the following assets:
Assets
Jointly
owned
Gerry
Owned
Mary
Owned
Cash $ 55,000
Fixed Term Deposits $ 110,000
House and contents $ 990,000
Cars $ 110,000
Art collection $ 35,000
Investment property $ 850,000
Listed share portfolio
($100,000 unrealised
capital gain) $ 215,000
Business Interest $ 415,000
Business Property $ 550,000
Total $ 1,480,000 $ 965,000 $ 885,000 $ 3,330,000
REST
Superannuation Fund
Gerry
Account
Balance
Mary
Account
Balance
Combined
Total
Amount $ 750,000 $ 720,000 $ 1,470,000
Grand total $ 4,800,000
Gerry’s super fund comprises $500,000 taxable and $250,000 tax free component. Mary’s
REST account comprises $300,000 taxable and $420,000 tax free component.
Mary’s investment property is a residential property located in Redcliffe currently rented to
her mum. The unit is managed by a professional property management group at a
2 | P a g e
commercial rate. Costs for the property include: Body Corporate $6,500, Rates $3,200,
Water $1200 cleaning costs $3,500, agents fees of $1800. Rental income is $525 per
week.
Gerry and Mary’s financial adviser has advised the couple to establish a SMSF. Gerry and
Mary would like to arrange for their respective REST superannuation balances to be rolled
over to their SMSF.
Gerry & Mary have no debt.
Question 1
a) How do Gerry and Mary go about setting up the SMSF ie what key steps are
involved? What key documents need to be put in place and what do they need
from the ATO?
b) What are the options available to Gerry and Mary regarding the trustee structure
of the fund? Which option would you recommend? Why?
c) Gerry and Mary wish to roll over the balance of their REST super accounts. What
are the tax effects of the rollover (if any)? What will be the tax components of
their new SMSF accounts?
d) Under the superannuation covenants and operating standards, the trustee of a
superannuation fund is required to formulate, regularly review and give effect to
an investment strategy. Detail an outline structure suitable for Gerry and Mary’s
SMSF.
Only 12 months has elapsed since the establishment of the SMSF and Gerry and Mary
have now decided to separate. Mary has decided to relocate to Belfast and intends to
spend the next 3 to 4 years working overseas. Gerry and Mary intend to enter into a
legally binding financial agreement which will provide for the following division of assets:
Assets
Jointly
owned
Gerry
Owned
Mary
Owned Total
Cash $ 55,000 $ 35,000 $ 20,000 $ 55,000
Fixed Term Deposits $ 110,000 $ 55,000 $ 55,000 $ 110,000
House and contents $ 990,000 $ 300,000 $ 690,000 $ 990,000
Cars $ 110,000 $ 55,000 $ 55,000 $ 110,000
Art collection $ 35,000 $ 35,000
Investment property $ 850,000 $ 850,000
Listed share portfolio
($100,000 unrealised
capital gain) $ 215,000 $ 215,000 $ 215,000
Business Interest $ 415,000 $ 415,000
Business Property $ 550,000 $ 550,000
Total $ 1,480,000 $ 1,625,000 $ 1,705,000 $ 3,330,000
O’Reilly Family
Superannuation Fund
Gerry
Account
Balance
Mary
Account
Balance
Combined
Total
Amount $ 750,000 $ 720,000 $ 1,470,000
Grand total $ 2,375,000 $ 2,425,000 $ 4,800,000
3 | P a g e
In drawing up the financial agreement Gerry was determined to retain ownership and
control of his business and commercial property and despite wanting to retire in the near
future was prepared to trade off other assets to achieve that.
Question 2
Mary has decided to resign as Trustee and member of the O’Reilly Family Super Fund and
will rollover her balance to a new fund. Gerry would like to retain the SMSF.
a) What are the capital gains tax considerations on splitting the fund into two SMSFs?
b) What are the options available to Gerry regarding the trustee structure of the
fund? Which option would you recommend? Why?
c) Gerry’s accountant has suggested that Gerry transfer the commercial property
where Gerry’s business is located into his SMSF. Is this permissible under the SIS
Act? What are the key considerations?
Question 3
Mary likes the concept of a SMSF and intends to establish her own SMSF by rolling over
her existing superannuation balance into her new SMSF prior to moving overseas.
a) What options are there for Mary regarding the trustee structure of the fund? What
issue does Mary need to be careful of given her temporary absence from
Australia.
b) Mary intends to use some of the funds available in her SMSF to purchase pieces of
art. Would Mary’s SMSF be permitted to invest in pieces of Art? If, so what
conditions would apply?
c) Would Mary’s SMSF be permitted to acquire her existing $25,000 Art collection?
What are the key issues under the SIS Act that allow or disallow this?
d) Mary would like to transfer the residential property into her SMSF. Is this
allowable? What are the key issues under the SIS Act that allow or disallow this?
e) Assuming Mary does not make contributions to her SMSF while she is overseas,
will her fund be classified as a resident fund in the next two financial years and
beyond? What difference would it make if she contributes to her SMSF while
overseas? What is the impact of becoming a non resident fund?
Question 4
Gerry intends to retire when the girls are independent but does not want to sell his
commercial property. On his death he would like to ensure the commercial property is
transferred to Hamish with any remaining superannuation balance in the fund to go to his
two other children.
a) Following separation and in the time leading up to retirement (7 years) Gerry’s
super fund account balance grows at the rate of 8% p.a. (4% growth and 4%
income) plus his normal concessional contributions each year. What is his account
balance at the end of year 7? How much tax on earnings and contributions will the
fund pay in year 7? (assume earnings and concessional contributions are credited
annually at the end of the relevant year, capital gains are not realised and tax is
deducted annually at the end of the relevant year)
b) What other super strategy might Gerry be able to use in the lead up to
retirement? What are the benefits of such a strategy?
c) Assume Gerry retires after 7 years (age 65) and decides to convert his fund into
an Account Based Pension. Using your account balance calculated in Question 4a
what would be Gerry’s minimum pension payment? Are there any limitations to
how much pension that can be drawn in any one year?
4 | P a g e
d) Gerry’s mother is single, 80 years of age and has assessable financial assets of
$280,000. These assets are financial assets for income test purposes. Gerry’s
mother has personal effects to the value of $12,000. What is her age pension
entitlement? Why? Assume single homeowner, no dependents. Use Centrelink
data provided below.
5 | P a g e
Assets test limits for allowances and full pension
Homeowner Non-homeowner
Single $258,500 – $564,000 $465,500 – $771,000
Couple (Combined) $387,500 – $848,000 $594,500 – $1,055,000
Some assets are deemed to earn income, while certain assets are not included in the
assets test.
• For pensions, assets over these amounts reduce pension by $3.00 per fortnight
for every $1,000 above the amount (single and couple combined).
Income test for single, couple combined, illness separated (couple
combined)
Single
Fortnightly income up to $172 over $172
Reduction in payment none – full payment 50 cents for each dollar over $172
Couple combined, illness separated (couple combined)
Fortnightly income up to $304 over $304
Reduction in
payment
none – full
payment
50 cents for each dollar over $304
(combined)
Deeming rates
Single Person – 1.75% for the first $51,200 of the total investments with 3.25% for
any balance above $51,200.
Payment rates for Age Pension
The payment rates for Age Pension are updated on 20 March and 20
September each year.
Maximum payment rates of Age Pension
Family situation Pension rate per fortnight
Single $916.30
6 | P a g e
Family situation Pension rate per fortnight
Couple
$690.70 each
Includes Pension supplement and clean energy supplement.
Submission Please submit this Assessment Task electronically through Blackboard.
See Assessment Submission Instructions (How to submit your learning/assessment
tasks to Blackboard) in the Course Outline and Assessment areas of this Blackboard
course.
Assessment Marking criteria
Content
You must address all the necessary issues.
Each answer to the questions is to be answered separately. Marks will be awarded for
technical accuracy and clarity of explanation. Please answer succinctly in your own words.
Assume you are writing this for Gerry and Mary who have no experience in these matters.
Your answers should be succinct and not contain lengthy direct quotes from the text or
other sources. You must keep in mind that you are talking to your client in a clear and
concise manner. In other words, you are to interpret the SISA rules and put them into
‘layman’s’ terms so your client will understand.
This assessment piece does not have to be in a report format.
You should keep the length of your Assessment Task to approximately to 2000 words.