DFP Module 3 Assignment - Superannuation Fundamentals

This assessment covers the fundamentals of superannuation. It covers rules around contributing to superannuation such as the work test, as well as contribution limits (both concessional and non-concessional). Salary sacrifice strategies are addressed, as are the differences around a superannuation fund in accumulation phase versus pension phase. Tax consequences across contributions to super, money held within the accumulation phase, and lump sum withdrawal of benefits (inclusive of pension payments) is also explored. SMSFs are addressed including important tests such as the sole purpose test, and in-house asset test. The use of business real property including in-specie contributions into superannuation is also addressed in the context of SMSF strategies.

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Diploma of Financial Planning
Module 3 Assignment
Submission Instructions:
Key steps that must be followed:
1. Please complete the Declaration of Authenticity at the bottom of this page.
2. Once you have completed all parts of the assessment and saved it (e.g. to your
desktop computer), login to the Monarch Learning Management System (LMS) to
submit your assessment.
3. In the LMS, click on the file ”Submit DFP Module 3 Assignment” in the Module 3
section of your course and upload your assessment file/s by following the prompts.
4. Please be sure to click “Continue” after clicking “submit”. This ensures your assessor
receives notification – very important!
Click here to go to the Monarch LMS
Declaration of Authenticity*
I certify that the attached material is my original work. No other person’s work has been used without due
acknowledgement. I understand that the work submitted may be reproduced and/or communicated for the purpose of
detecting plagiarism.
Student Name*: Date:
* I understand that by typing my name or inserting a digital signature into this box that I agree and am bound by the
above student declaration.

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Important assessment information
Aims of this assessment
This assessment covers the fundamentals of superannuation. It covers rules around contributing
to superannuation such as the work test, as well as contribution limits (both concessional and
non-concessional). Salary sacrifice strategies are addressed, as are the differences around a
superannuation fund in accumulation phase versus pension phase. Tax consequences across
contributions to super, money held within the accumulation phase, and lump sum withdrawal of
benefits (inclusive of pension payments) is also explored. SMSFs are addressed including
important tests such as the sole purpose test, and in-house asset test. The use of business real
property including in-specie contributions into superannuation is also addressed in the context of
SMSF strategies.
Marking and feedback
This assignment contains 4 assessment activities each containing specific instructions.
This particular assessment forms part of your overall assessment for the following units of
competency:
 FNSASICU503
 FNSFPL502
 FNSFPL503
If you are enrolled in SMSF units, the following units are also applicable.
 FNSSMS501
 FNSSMS505
 FNSSMS601
 FNSSMS602
 FNSSMS603
Grading for this assessment will be deemed “competent” or “not-yet-competent” in line with
specified educational standards under the Australian Qualifications Framework.

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
What does “competent” mean?
These answers contain relevant and accurate information in response to the question/s with
limited serious errors in fact or application. If incorrect information is contained in an answer, it
must be fundamentally outweighed by the accurate information provided. This will be assessed
against a marking guide provided to assessors for their determination.
What does “not-yet-competent” mean?
This occurs when an assessment does not meet the marking guide standards provided to
assessors. These answers either do not address the question specifically, or are wrong from a
legislative perspective, or are incorrectly applied. Answers that omit to provide a response to any
significant issue (where multiple issues must be addressed in a question) may also be deemed
not-yet-competent. Answers that have faulty reasoning, a poor standard of expression or include
plagiarism may also be deemed not-yet-competent. Please note, additional information regarding
Monarch’s plagiarism policy is contained in the Student Information Guide which can be found
here: http://www.monarch.edu.au/student-info/
What happens if you are deemed not-yet-competent?
In the event you do not achieve competency by your assessor on this assessment, you will be
given one more opportunity to re-submit the assessment after consultation with your Trainer/
Assessor. You will know your assessment is deemed ‘not-yet-competent’ if your grade book in the
Monarch LMS says “NYC” after you have received an email from your assessor advising your
assessment has been graded.
Important: It is your responsibility to ensure your assessment resubmission addresses all areas
deemed unsatisfactory by your assessor. Please note, if you are still unsuccessful in meeting
competency after resubmitting your assessment, you will be required to repeat those units.
In the event that you have concerns about the assessment decision then you can refer to our
Complaints & Appeals process also contained within the Student Information Guide.
Expectations from your assessor when answering different types of assessment questions
Knowledge based questions:
A knowledge based question requires you to clearly identify and cover the key subject matter
areas raised in the question in full as part of the response.

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Skill based questions:
Where you are asked to write as though you are speaking to a client, your answers must show
your ability to:
 understand your client’s concerns/perspective/views
 show empathy
 display a professional response
 explain ideas clearly and simply so your client can understand the issues
Good luck
Finally, good luck with your learning and assessments and remember your trainers are here to
assist you 

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 10 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2-3 hours
Assessment Activity 1
Short Answer
Superannuation

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Question 1.1
Describe a market-linked fund.
Question 1.2
Describe a defined benefit.
Question 1.3
The bring-forward rule allows a fund member to bring forward two years of non-concessional contributions
from the future if they under age 65. For members under the age of 65, what are the current maximum bring
forward limits based on their total superannuation account balance? Explain your answer.
Market-linked funds are large funds managed usually by investment companies or banks. Their
salient features are –
 Anyone can be a member.
 They offer a large number of market-linked investment options.
 They work on recommendations of financial advisers who are paid for their advice.
 Usually these are only accumulation funds.
 Usually market-linked funds have mid to high range of costs, but now they offer low cost
alternative, such as MySuper.
 The owner company of the fund retains some profit.
As the name suggests, a Defined Benefit Fund is based on the principle of providing certain
‘Defined Benefits’ to its members. These defined benefits are determined through formulas which
vary from fund to fund, and are usually based on considering factors such as –the members’
average salary and requirements till retirement. Functioning of defined benefit funds is different
from that of accumulation-type of superfunds, where members’ contributions are invested for
generating earnings which can either be positive or negative.
As the name suggests, a Defined Benefit Fund is based on the principle of providing certain
‘Defined Benefits’ to its members. These defined benefits are determined through formulas which
vary from fund to fund, and are usually based on considering factors such as –the members’
average salary and requirements till retirement. Functioning of defined benefit funds is different
from that of accumulation-type of superfunds, where members’ contributions are invested for
generating earnings which can either be positive or negative.

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Question 1.4
Alice believes you may as well die when you retire, so she chooses to continue to work on a casual basis at
Bunnings.She is 68 years old and works exactly 30 hours each month of the year. She wants to contribute her
own funds into superannuation, and seeks your advice as to whether she is able to contribute to super to top
it up. Can she contribute into her super fund, based on her age? Why or why not?
Question 1.5
Using an example, explain how salary sacrificing can reduce a person's marginal tax rate.
There are rules, termed as ‘Work Test’, for super funds to accept contributions from members
belonging to different age groups. The three major groups are - (a) Below 65 years of age; (b) Aged
between 65 to 75 years; and (c) those aged above 75 years. Members falling under Group (a) can
make super contributions, both Mandated and Non-Mandated, provided the member is gainfully
employed. For those falling under Group (b), the member must be working, on a part-time basis, at
least for 40 hours in a month in the financial year in which they make super contribution. This is
termed as the ‘Work Test’. In case of Alice. As she works only for 30 hours in a month, Non-
Mandated contributions cannot be allowed. However, her employer can make contributions, on
her behalf and the amount she chooses, to the super fund of her choice and these include the
Super Guarantee contributions.
Any member who is under 65, can make, in a single year, non-concessional contributions up to
three times their yearly non-concessional contribution cap limit. If the member is eligible, and
makes contribution which is greater than their annual cap limit, the member automatically gets
access to future year caps. This is termed as the bring-forward arrangement. From 1 July 2018, the
non-concessional contribution cap amount which a member can bring forward, depends on the
member’s total superannuation balance and whether the member has a two or three year bring
forward period available. The total superannuation balance of the member is calculated at 30 June
of the previous financial year in which the contribution were made which triggers the rule of bring
forward. From 2018–19 onwards, for accessing the non-concessional bring forward arrangement,
the member must –
 be under 65 years of age for at least one day during the triggering year, which is the first year;
 contribute above the annual cap amount of $100,000;
 have total superannuation balance, at 30 June of previous financial year, at less than the
general transfer balance cap of $1.6 million for 2018–19 and a contribution capacity greater
than the annual non-concessional contribution cap of $100,000 for 2018–19.
Therefore, for year 2018–19, the member must have total superannuation balance less than $1.5
million as at 30 June 2018, so as to access the bring-forward arrangement.

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Question 1.6
Could all employees benefit from salary sacrificing some of their salary into superannuation? Explain your
answer.
Question 1.7
Complete the following table to show that you understand the way that fund earnings are currently taxed in
the superannuation environment.
Earnings tax on income returns Earnings tax on capital returns
Accumulation phase Contributions are taxed at
15%
Assets held for <12 months at
15% and those held for >12
months at 10%
Transition to retirement income
stream phase
Contributions are taxed at
15%
Assets held for <12 months at
15% and those held for >12
months at 10%
Retirement income stream
phase
All incomes in this phase are
Tax Free
All Capital Gains made in this
income stream are Tax Free from
Capital gains Tax
Question 1.8
Explain the 'pension benefits cap'. What phase of superannuation does this cap apply to?
Concessional contributions to super by the employer will include the employer's super guarantee
contributions of 9.5% and members own salary sacrificed contributions. This total should not
exceed $25,000 in an income year. However, the member is free to increase the non-concessional
contributions till they reach the cap of $100,000 in one income year. All contributions not
exceeding the threshold limit of the super fund are taxed at 15%. Marginal Tax Rate can be
reduced by the member provided they are being taxed at a higher bracket exceeding 15%.
The transfer balance cap of $1.6 million in income year 2018-19 will limit the amount which can be
transferred by the member into their 'retirement phase' of superannuation fund and continue
receiving the 0% benefit of earnings tax. The transfer balance cap is applicable on all retirement
income streams. The new transfer balance cap rules are applicable differently to some of the
defined benefit income streams, which are known as ‘capped defined benefit income streams’.
Since the contributions to a super fund, which do not exceed the threshold limit, are taxed at 15%,
any member, who is paying income tax at a rate higher than 15% can benefit by contributing an
amount, till reaching the threshold limit. Members below 65 years of age can also take advantage
of the ‘Brought Forward Rule’ to make contributions exceeding the threshold limit, provided their
Total Balance Amount does not exceed $1.6 million. Any amount beyond this is taxable at the
member’s marginal tax rate. Members above 65 years, but below 75 years of age, need to pass the
‘Work Test’ for availing this benefit. Members above 75 years of age cannot avail this benefit.

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Question 1.9
Your clients are Mr and Mrs Jones. They are in their mid-50's and they are planning for their retirement in 10
years’ time. Mr Jones has a much higher superannuation balance than Mrs Jones and the pension benefits cap
is a concern for him in the future.
Explain the concept of 'contributions splitting' and how it could help Mr and Mrs Jones plan for the future.
Question 1.10
Nicholas pays tax at a marginal tax rate (MTR) of 37% plus the Medicare Levy of 2%. What is the benefit of
receiving fully franked dividends in his SMSF compared with receiving fully franked dividends in his own
personal name?
The contribution splitting rules will allow Mr. and Mrs. Jones to split certain concessional
contributions within their respective super accounts. As Mr. Jones has a higher income compared
to Mrs. Jones, he can contribute to Mrs. Jones’ Super Fund under the Non-concessional
contribution category. This will mean that both will have enough super for drawing pension after
their retirement. On making eligible contributions to Mrs. Jones’ super account, Mr. Jones can
claim a tax offset, to a maximum of $540 every year on the contributions which he makes to his
spouse’s super fund. However, Mr. Jones cannot claim the tax offset if Mrs. Jones’ income exceeds
$13,800. To claim this tax offset, if applicable, all Mr. Jones need to do is to claim the amount of the
tax offset in his tax return.
If the fully franked dividend payments are received by Nicholas directly into his SMSF account and
provided this contribution to his SMSF account is within the Total Balance Amount Cap, then this
will be treated as earning at the hands of the SMSF. SMSF earnings are taxed at maximum tax rate
of 15% as compared to the 37% marginal tax rate (plus 2% Medical Levy) which Nicholas will pay if
he gets the fully franked dividends in his personal name. Thus he will be saving close to 22% on tax
liability.

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Assessment Activity 2
Case Study
Superannuation
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all of the following questions.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2-3 hours

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Question 2.1
Lisa is 59 years old and has permanently retired from the workforce. She has come to your office to seek
advice in regards to her superannuation. Lisa has $350,000 in her superannuation accumulation fund which
comprises $70,000 as a tax free component and $280,000 as a taxable component (from a taxed source). Lisa
is planning to go on an extended overseas holiday with her daughter and would like to spend a year in Paris.
She has a few questions she wants you to clarify.
Provide a clear explanation to Lisa for each of the following.
a. Can Lisa access her tax free component first as she wishes to use the $70,000 towards her trip and would
rather keep the remaining $280,000 invested?
b. How much of the total $350,000 can Lisa access as a lump sum withdrawal from her superannuation
accumulation fund, without having to pay any tax at all on that withdrawal?
c. At what age can Lisa access all her funds tax free?

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Question 2.2
Lisa's friend Sophie is 61 years old and she is considering meeting up with Lisa and her daughter for a few
months in Italy. Sophie is also retired and she has a superannuation balance of $500,000 in an account-based
pension which comprises $100,000 as a tax free component and $400,000 as a taxable component (from a
taxed source).
Provide a clear explanation to Sophie for each of the following.
a. Both Lisa's fund and Sophie's fund are producing investment returns of 5% per annum. Are the investment
returns treated any different for tax purposes in Sophie's fund compared with Lisa's fund?
b. What are the minimum and maximum amounts that Sophie must withdraw annually from her account-
based pension?
c. If Sophie withdraws a total of $100,000 in the current financial year, will it come from the tax-free
component or the taxable component?
d. How will the $100,000 withdrawal be taxed?

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Question 2.3
Sophie's friend Bethany is 59 years old and continues to work. Bethany's superannuation balance of $400,000
is in a transition to retirement pension account and comprises $100,000 tax- free component and $300,000
taxable component (from a taxed source).
Provide a clear explanation to Bethany for each of the following.
a. Assuming that Bethany's fund produces an investment income return of 6% for the 2018-2019 financial
year, explain the tax treatment of the return.
b. If Bethany withdraws pension payments totaling $20,000 for the year, how will this be treated for tax
purposes?
c. When Bethany turns 60 and continues to withdraw $20,000 for the year, how will the withdrawal be
treated for tax purposes?

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer both questions.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 1-2 hours
Assessment Activity 3
Case Study
Superannuation –Death benefits

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Question 3.1
Matthew is currently married to Susan and they have one child together, Annie, who is just 5 years old.
Matthew also has 2 children, Zac and Toby, from his previous marriage with Penelope. Zac is 20 years old,
attends university and is financially dependent on Matthew. Toby is 26 years old, works full-time as an
electrician and lives with Amy. Matthew has a superannuation balance of $300,000 which is 100% taxable
component (from a taxed source).
Complete the following table in respect of Matthew's superannuation if it were to be paid out as a death
benefit to each of these individuals.
SIS dependant
YES or No
TAX DEPENDANT
YES or NO
TAX TREATMENT OF
LUMP SUM DEATH
BENEFIT
Susan
Annie
Zac
Toby
Penelope
Amy
Question 3.2
What is the difference between a binding death benefit nomination (BDBN) and a non-binding death benefit
nomination?

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 6 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 1-2 hours
Assessment Activity 4
Short Answer
Superannuation-SMSF

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Question 4.1
How many members can aSelf Managed Superannuation Fund (SMSF) have?
Question 4.2
Your client, Jane, has an existing balance of $500,000 in a retail superannuation fund and is considering
establishing an SMSF where she will be the only member of the fund.
What options does Jane have in terms of who can be the trustees of her SMSF?
Question 4.3

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
Susan has an SMSF with a total fund value of $800,000. She owns her own home which is valued at $425,000
and also owns a beach house worth $310,000 which she only uses during the very warm months of summer.
Susan wants her SMSF to purchase the beach house. Is Susan's SMSF permitted to purchase the beach house
from Susan? Explain why/or why not?
Question 4.4
Your clients, Sam and Terry Banks, have an SMSF and have just purchased a residential property at auction,
using the cash that they had in their SMSF. The property will make up about 95% of the total assets of the
fund. They are both in pension phase and ask you whether there are any issues they should know about.
a) Explain two risks of having one asset comprising such a big portion of the fund.
b) Sam heard a friend talk about the “sole purpose test”. Explain to him what that test means.

DFP Module 3 Assignment 1807
DFP+SMSF Module 3 Assignment 1807
Units: FNSASICU503, FNSFPL502, FNSFPL503, FNSSMS501, FNSSMS505, FNSSMS601, FNSSMS602,
FNSSMS603
c) What happens if the residential property couldn’t be tenanted for a significant period of time? Could
your client move into it and pay rent to themselves? Explain.
d) Explain the In-house asset rule? What percentage of In-house assets could your client have within
their fund?
e) Would your answer to question (c) above differ if the property was business real property and your
client leased the property for their own business? Explain.