Superannuation and Self-Managed Super Fund (SMSF)

The provided text is an assessment activity that examines the details of a Superannuation case study. The case involves Mary and Bill creating a Self-Managed Super Fund (SMSF) with their adult children as trustees. It discusses the implications of this setup, including the acquisition of a business real property through the SMSF fund, and the potential risks associated with in-house asset tests. Additionally, it explores the use of insurance within the SMSF, its tax implications, and the necessity for members to have adequate insurance coverage.

SUPPERANNUATION

TABLE OF CONTENTS
TABLE OF CONTENTS..............................................................................................................2
PROJECT A.....................................................................................................................................1
PROJECT B...................................................................................................................................11
REFERENCES..............................................................................................................................29

PROJECT A
ACTIVITY 1
Question 1.1
Based on 2018-19 rates, calculate George's annual Superannuation Guarantee (SG) contribution.
Please show your workings.
Rate of 2018-2019: 9.50%
Salary= $90000
Annual Superannuation Guarantee (SG) contribution= 90000*9.50%
= $8550
Question 1.2
Based on 2018-19 rates, calculate George's salary sacrifice contribution for the 2018-19 year.
Please show your workings.
After tax Salary sacrifice contribution
Gross salary 90000 90000
Less salary sacrifice (super)
(9.5%) 0 8550
Taxable income 90000 81450
Income tax 22067 19117.25
Contribution after tax 8550 0
Take home 59383 62332.75
Question 1.3
Is it possible for George to contribute the $180,000 into his super fund as a non-concessional
contribution? Explain your answer.
No, George would not be able to contribute $180000 as non concessional contribution in
his super fund. Non-concessional contributions could be made in super fund from income which
is after tax as these contributions are not directly taxed in super fund. With effect of 1 July 2017,
the contribution cap of non concessional as reduced to $100000 (Non-concessional contribution,
2019). If George is among age of 65 to 74 then he could contribute $180000 in his super fund.
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Question 1.4
As Robyn is no longer working, is she permitted to make any further contributions into her super
fund. Please explain your answer.
According to tax rules of 2018-2019, Robyn is permitted for any further contributions in
super fund as it is for employees. One could make voluntary concessional contribution in form of
tax deductible super contributions in order to make super contribution. Thus, contributing to
super account after retirement at lower rate taxed and while drawing income stream, it might be
tax free at retirement.
Question 1.5
George's friend has been talking about contributions splitting and George has asked you if this is
something that he could do. Discuss with George how much of his contributions could be split
with his wife Robyn.
With context of contribution splitting, super contribution could be split on immediate
aspect with financial year where contribution was made or in similar financial year, its
contribution made if sufficient benefit is withdrawn before ending of financial year. In this
scenario, it had been assumed that Robyn had its income of less than $37000 then there is access
of maximum tax offset of $540 and after tax contribution of minimum $3000 is made (Spouse
contributions, 2019). The contribution splitting is stated below for George and his spouse:
Current situation of George After tax
Gross salary income 90000
Income tax 22067
Net disposable income 67933
Non working spouse
Gross salary income 90000
Income tax 22067
Add: Tax offset 540
Net disposable income 68473
less (after tax) spouse contribution 3000
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Net income after spouse contribution 65473
Question 1.6
If George gave his $180,000 to Robyn, would Robyn be able to contribute the $180,000 to her
super fund as a non-concessional contribution? Explain your answer.
In this scenario, Robyn would not be able to contribute $180000 as her super fund as non
concessional contribution as it could be personal contribution after tax pay but on that could not
be claimed as income tax deduction. However, in the latest update it is capped with limit of
$100000 of super fund as con concessional contribution (Super contribution limits, 2019).
Year 2 scenario
In year 2 when George is 61, his father passed away leaving him an inheritance of $400,000.The share market
suffered some dramatic losses in June of the previous year and George's super account balance fell to $1.1 million as
at 30 June of the previous year. George is not concerned about the losses as he understands the volatile nature of
equities and his investments are still producing dividends.
Question 1.7
Out of the $400,000, what is the maximum amount that George could contribute as a non-
concessional contribution, in the year that he receives the inheritance? Explain your answer.
In this scenario, $200,000 as non concessional contribution and bring forward allowed
from 1st July for 2 years as he got inheritance amount.
Question 1.8
As Georgeis now 61 years old, he is considering the aspects of retirement. He plans to retire at
age 65 and move his money to a retirement phase income stream. You have been discussing the
pension benefits cap with him.
Explain to George how giving his $400,000 inheritance to Robyn to contribute to her super fund
over a period of time would enable them, as a couple, to have a higher balance in the retirement
income stream phase.
The current pension benefit cap is $1.6 million with subject of future indexation. George
is at retirement age, which ensures that pension unrestricted non-preserved, then value of
position TTR pension would be included in its transfer balance account.
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On basis of super account at retirement income stream phase by introduction of super
reform package which was effective from 1st July 2017, super splitting might become effective
strategy for couples with objective to equalize superannuation balances to get benefit of tax free
earnings.
Question 1.9
Why may it be more beneficial to have as much money invested in the retirement income stream
phase as possible compared with leaving it in the accumulation phase?
Retirement income stream is popular option for turning savings in regular income stream
with five advantages:
 Offers flexibility for drawing according to need in any year when least required
minimum.
 Option for selecting invested money for managing risk prepared with volatility of returns.
 Income payments for drawing tax free.
 Nominate spouse for re visionary beneficiary.
 Income assessed under age pension means test.
Disadvantages
Accumulation phase is taxed as retirement income stream phase is not taxed.
Question 1.10
If a client already has sufficient cash flow from other investments outside of superannuation,
what is a potential downside to transferring money to a retirement phase income stream?
It might be more risk averse and might wish for switching guaranteed and secure
products as if in case investments diminished then tax might be problem after application of
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senior Australian tax offsets. It might decrease advantage of account based pension
comparatively to non superannuation investments.
One must be aware of prior for implementation of this strategy as superannuation
transition to retirement income stream phase is commenced with application of superannuation
accumulation balance.
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 all11 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
5

Scenario 1 - Background
Wendy is age 58, she has reached her preservation age and is considering retiring permanently
from the workforce, however, she is not sure if retiring early is the best option for her financially.
She has come in to discuss some issues around taking a pension from her superannuation account
which is currently in the accumulation phase.
Required:
Answer Wendy’s queries in a way that will be both clear to her and also comprehensive.
Question 2.1
If Wendy retires and commences a retirement phase income stream in July 2018, explain how the
earnings on her superannuation investments will be taxed.
With context to retirement phase income stream (i.e. drawing a retirement income
stream), so in this context earnings on saving in pension account is tax exempted along with
capital gains as well. For people age group of 55 to 59, no tax is payable on tax free component
of income payment as taxable component of income payment would be added to taxable income.
This would be taxed at marginal tax rate less a tax offset equal to 15% of taxable portion of
payment.
Question 2.2
Explain to Wendy how the tax treatment of her super investments will be different if she
continues to work and her super remains in the accumulation phase.
Earnings on investments of super fund is taxed at no more than 15% along with its capital
gains in super fund which is usually taxed at even lower rate. Wendy would transfer most of
super to an account based pension as fund is in need to leave minimum of $5000 in accumulation
account, to keep it open and maintain insurance. The investment returns on super transition to
retirement pension is taxed upto 15%.
Question 2.3
Wendy has now decided to retire at age 58 as she has a balance of $900,000 which she will use
to commence a retirement phase income stream.
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Let’s assume that Wendy commences her income stream with the whole $900,000 on 5th July
2018, and withdraws pension payments amounting to $36,000 for the year. Also, on 1 September
2018, she decides that she would like to take a fancy river cruise which will cost $40,000.
Wendy commutes $40,000 as a lump sum benefit to supplement her pension payments. Show the
debits and credits that will appear in Wendy’s transfer balance account.
Credit items:
Income stream of $900000
Debit items:
Withdrawal of pension payments $36000
Lump-sum benefit $40000
Question 2.4
Explain to Wendy, in detail, the difference between the tax-free component of her super and the
taxable component of her super. Note that the taxable component comes from a taxed fund. You
should mention what is included in each of the components.
Tax-free component Taxable component
 Spouse contributions
 Government con-contributions
 Non-concessional contributions
 Salary sacrifice contributions
 Employer contributions
 Earnings in superannuation investments
 Superannuation insurance proceeds
Question 2.5
Wendy’s lump sum withdrawal of $40,000 will have a tax-free component and a taxable
component.
Explain the methodology of how each component of Wendy’s lump sum would be treated from a
tax perspective. (You are not required to calculate the actual amount of tax).
 Minimum pension as 4% p.a.
 Withdrawal amount
Tax free component 25.00%
Taxable component 75.00%
Total benefit 100.00%
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 Wendy is in preservation age, tax free component of her pension funds would be tax free
and taxable and asses as marginal tax rate with 15% tax rebate on basis of taxable
component.
Question 2.6
Wendy’s pension payment withdrawals, which total $36,000, will have a tax-free component and
a taxable component. Explain the methodology of how each component of Wendy’s pension
would be treated from a tax perspective. (You are not required to calculate the actual amount of
tax).
The current pension benefit cap is $1.6 million and subjected for future indexation and
amount which is excess then left in accumulation account subjected for future earnings tax and
should be withdrawn through superannuation system.
Tax free component 25.00% 9000
Taxable component 75.00% 27000
Total benefit 100.00% 36000
Scenario 2 - Background
Wendy’s sister Jacquie, is age 62 and has permanently retired from the workforce.
Jacquie is considering withdrawing a lump sum of $240,000 from her superannuation fund,
which is a taxed fund. Her total super benefit is $650,000 and 95% of the total benefit Isa taxable
component. The other 5% of the benefit is a tax-free component.
Required:
Answer Jacquie’s queries in a way that will be both clear to her and also comprehensive.
Question 2.7
Of the $240,000 withdrawal, claculate the tax-free component and the taxable component.
Benefit withdrawal
Tax free component 5.00% 32500 12632
Taxable component 95.00% 617500 240000
Total benefit 100.00% 650000 252632
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In the above scenario, 5% is tax free component and 95% is taxable which is 32500 and
617500 respectively. The withdrawal amount is 5% is divided by total benefit and 95% is
divided by total benefit.
Question 2.8
Explain how Jacquie’s lump sum withdrawal will be treated for tax purposes.
Jacquie has reached age of 61
Lump sum withdrawal Withdrawal tax
Tax free component 12632 Nil
Taxable component 240000 Tax free
At age of 61, as he in 60 or above 12632 is tax free as 5% and taxable of 95% as 240000.
Question 2.9
Instead of taking a lump sum, Jacquie uses her $650,000 to commence a retirement phase
income stream and withdraws the minimum annual pension amount. What is the minimum
annual dollar amount of pension income to be withdrawn?
 Minimum pension of people with age under 65 is 4% as Jacquie is 61 so
4% X $650000= $26000 minimum annual amount
Question 2.10
If Jacquie only withdraws the minimum annual pension amount for the year, explain how the
withdrawal tax will be calculated.
 Jacquie is retired so no maximum pension amount required as he could withdraw 100%
of his balance. On the contrary, pension through a transition to retirement pension during
work then his maximum pension would be of 10%.
 Jacquie's age is in over 60, so his entire pension payment would be tax free
 So, it is not relevant for including non assessable income in his tax return
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Scenario 3 - Background
Jacquie used to work with Patty and they are now best friends. Whilst Jacquie chose to
permanently retire, Patty, who is 62 years old, has decided to leave the company where she and
Jacquie worked for the last 25 years and start a new job with a rival company.
Question 2.11
Patty would like to renovate her home and asks you if she is able to access her superannuation
money.
It is not possible for patty to get access for Jacquie's superannuation fund as it is possible
as superannuation is continual attack as it is not recommended for avoiding superannuation but
there should be various strategies for purpose of preventing consequences of alterations which
are certain in the future. This access of superannuation is only possible between spouse.
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PROJECT B
ACTIVITY 1
Question 1.1
Describe the three (3) phases of superannuation.
1. Accumulation: This is the starting and longest phase of superannuation. It starts when a
person begins to work until they reach their 50s. In this phase money is saved and
invested as much as possible through contribution to the super. The concessional annul
cap is $30000 and non concessional annual cap is $180000.
2. Transition of retirement: This start when the person attends the age of 55 and is the
shortest phase. In this individual is allowed t reduce their working hours and start taking
money from their super, this can also start from the preservation age.
3. Pension: this is the phase where accumulation stops and savings are withdrawn. Pension
phase begin when the individual gets satisfied a condition to release. The main
conditions to release are:
 retirement form the workforce or after preservation age.
 Leaving the paid job after 60 years,
 reached the age of 65.
Phase Applicability Taxation on the earnings
Accumulation When building up the super
funds.
Up to 15 %
Transition to
retirements
When the superannuation funds
are used to start the transitions in
retirement pension.
Up to 15 %
Pension When accumulation stops and
withdrawal starts from the
savings.
0.00%
Question 1.2
The bring-forward rule allows a fund member to bring forward two years of non-concessional
contributions from the future. Explain any restrictions that apply to the bring-forward rule.
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 In case the total superannuation fund of a person is more than $1.4 million than his/her
ability to use bring forward rule is restricted to a lesser mount than $3000000.
 A person need to satisfy the work test before making super contribution when the person
is over the age of 65 and is subject to annual non concessional cap only.
Question 1.3
Explain the work test, including which members the work test applies to.
A person who have reached the aged of 65 or over must satisfy the work test before making
contribution to the suer. This require the person to be employed for at least 40 hours in a period
of not less than 30 consecutive days during the financial years in which contribution is made.
Question 1.4
Your client, Mr X earns income of $80,000 plus the superannuation guarantee. He is interested in
making salary sacrifice contributions up to the allowable limit. Explain to your client how much
he will be able to salary sacrifice.
Salary $80000 per year
Add: Plus SG 9.5% of annual salary $8075
Total $93075
Salary sacrifice 15% of before tax income and
super (93075*15%)
$13961.25
Salary sacrifice: 93075* (45+2)% = $43745.25 is the amount which X is able to salary
Sacrifice.
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Question 1.5
Your client, Mrs X is on a low income of $38,000, and her overall average marginal tax rate is
around 12% (including Medicare levy). Explain to Mrs X why salary sacrifice may not really be
a suitable option for her situation.
One of the benefits for selecting salary sacrifices is that the earnings on the investments are
taxed within the super fund at a maximum of 15% instead of the marginal tax rate of the
individual.
Here, in Mrs X makes a salary scarifies her income will be taxed @ 15% rather than 12% ,
incurring 3% extra tax on the income. So this option is not suitable for Mrs X this will increase
her tax liability by 3%.
Question 1.6
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 15.00% 15% (when super funds are
held for less than 12 months)
10.00% (when holed for more
than 12 months receives 1/3 of
tax discount)
Transition to retirement
income stream phase
15.00% 15.00%
or
10.00%
Retirement income stream
phase
0.00% 0.00%
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Question 1.7
The 'pension benefits cap' for the 2018/19 financial year is $1.6 million. List three (3) debit items
and three (3) credit items that would appear in the transfer balance account.
Debits items Credit items
1 Transfer backs to the accumulation amount Balance as on 30th June 2107 of existing
incomes stream
2 Lump sum withdrawal from the income
stream
National earning on excess transfer balance
account
3 Pension losses due to fraud or dishonesty Purchase price of new income stream from 1st
July 2017,including death benefit income
stream.
Question 1.8
Your clients are Mr and Mrs Jones. Mr Jones is 50 years old and working full-time and Mrs
Jones is 59 years old and retired so she has access to her superannuation funds. Mr Jones is
planning to contribute up to the concessional contributions cap each year for the next three years.
Explain how using contributions splitting will provide extra funds for Mrs Jones to withdraw
over the next 3 years.
Splitting the contribution is a valid strategy where Mr Jones can scarifies salary contribution
ans then can spilt it with his spouse. MR Jones's salary will get reduced by the amount of
concessional contribution. The marginal tax rate will reduce and maximum of the tax payable
by Mr Jones will be 15%. Mrs Jones gets the boost in her super benefits maker her eligible to
access the super benefits at earlier stage making the super benefits tax free.
The IPE quest is manager that search the facility which connects the institutional investors and
the asset managers. The concessional contribution cap is $25000 p.a. This will boost the super
benefit of Mrs Jonas high and this the amount contributed by MR Jones to Mrs Jonas will be
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tax free.
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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
16

ACTIVITY 2
Question 2.1
Peter is 59 years old and has permanently retired from the workforce. He has come to your office
to seek advice in regards to his superannuation. Peter has $430,000 in his superannuation
accumulation fund which comprises $129,000 as a tax free component and $301,000 as a taxable
component (from a taxed source). Peter is planning to go on an extended overseas holiday with
his son and would like to spend a year in London. He has a few questions he wants you to
clarify.
Provide a clear explanation to Peter for each of the following.
a. Can Peter access his tax free component first as he wishes to use $50,000 towards his trip and
would rather keep the remaining $380,000 invested?
Withdrawal sought by peter Tax free component Allowed
$50000 Half of the amount in tax free
component deducted by 25%
of tax free component at age
58.
For 58= 129000*25% =>
32250
For 59= (129000-32250)/2=>
48375
Total => 80625
As per the rules of Superannuation a person at the age of 59 can withdraw $80625 lump sum
amount from the tax free component. Hence, Peter can withdraw $50000 from his tax free
compensation super funds.
b. How much of the total $430,000 can Peter access as a lump sum withdrawal from his
superannuation accumulation fund, without having to pay any tax at all on that withdrawal?
Total Withdrawal amount Tax free
Tax free component 129000 129000 129000
Taxable component 301000 301000 205000
Total tax free
withdrawal
430000 334000
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c. At what age can Peter access all his funds tax free?
With reaching the age of 60 the amount withdrawn from the super funds are will be tax free as all the
superannuation benefits are tax free when the person is able to access their super at the age of 6 or
over.106
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Question 2.2
Peter's friend Sandra is 61 years old and she is considering meeting up with Peter and his son for
a few months in London. Sandra is also retired and she has a superannuation balance of $760,000
in an account-based pension which comprises $304,000 as a tax free component and $456,000 as
a taxable component (from a taxed source).
Provide a clear explanation to Sandra for each of the following.
a. Both Peter's fund and Sandra's fund are producing investment returns of 5% per annum. Are
the investment returns treated any different for tax purposes in Sandra's fund compared with
Peter's fund?
As Peter is 59 years old i.e. under retirement age and Sandra is 61 years old, which is above retirement
age. Therefore, taxability criteria of return on investment will be different for both.
The investment return for Sandra= $760000* 5%=> 38000
The investment return for Peter=$430000*5%=>21500
Difference in the investment= 38000-21500=> 16500
For peter 38000 is taxable as he is under 60 but for Sandra 21500 is not taxable as she is 61.
b. What are the minimum and maximum amounts that Sandra must withdraw annually from her
account-based pension?
Maximum amount (10% of balance amount) 76000
minimum amount (5% of the account balance) 38000
c. If Sandra withdraws a total of $40,000 in pension payments for the current financial year,
will it come from the tax-free component or the taxable component?
Total tax free Withdrawal from tax free
component (25%)
76000
Sandra's withdrawal 40000
Therefore, withdrawal of Sandra will be tax free.
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d. How will the $40,000 withdrawal be taxed?
As the at the age of 61, tax free component could be upto 25% of the total withdrawal which is $76000
in case of Sandra. Therefore, withdrawal of $40,000 from tax free component will be nill taxed for
Sandra.
The $40000 is tax free no tax will be charged on withdrawal of 40000, therefore the tax is 0.
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Question 2.3
Sandra's friend Leonie is 58 years old and continues to work. Leonie's superannuation balance of
$475,000 is in a transition to retirement pension account and comprises $125,000 tax- free
component and $350,000 taxable component (from a taxed source).
Provide a clear explanation to Leonie for each of the following.
a. Assuming that Leonie's fund produces an investment income return of 6% for the 2018-2019
financial year, explain the tax treatment of the return.
The earnings on the super funds are taxed at maximum rate of 15%.
Return on investment income => 350000*6% = 2100
Tax on $2100 will be charged at the lower rate of 15% or the marginal rate of tax on the income of
Leonie.
b. If Leonie withdraws pension payments totalling $20,000 for the year, how will this be treated
for tax purposes?
As per the rules of superannuation Leonie can not access the super funds as the preservation age is 59
and she is only 58.
c. When Leonie turns 60 and continues to withdraw $20,000 for the year, how will the
withdrawal be treated for tax purposes?
Any withdrawal from super annulation funds by a person after the age of 60 or over are tax free.
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Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 3 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
22
Assessment Activity 3
Case Study
Superannuation – Death benefits

Question 3.1
David is currently married to Taylor and they have one child together, Bella, who is 8 years old.
David also has 2 children, Nathan and Matthew, from his previous marriage with Penny. Nathan
is 19 years old, attends university and is financially dependent on David. Matthew is 32 years
old, works full-time as an electrician and lives with Katrina. David has a superannuation balance
of $300,000 which is 100% taxable component (from a taxed source).
Complete the following table in respect of David'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
Taylor
Yes Yes Tax-free
Bella
Yes Yes Tax-free
Nathan
Yes No 15% + Medicare levy
Matthew
Yes No 15% + Medicare levy
Penny
No Yes Tax-free
Katrina
No No 30% + Medicare levy
Question 3.2
David has nominated the beneficiaries of his super fund. He forwarded his ‘nomination of beneficiary’ form to the
trustees and is happy to have that all in place. As this is a non-binding nomination, explain the obligations that the
trustees have in the event that they have to pay out David’s super as a death benefit.
The Nomination of beneficiary is basically member’s wish to nominate a trustee for such superannuation
fund’s benefits. Thus, in this case there will not be any serious concerns regarding the public offered
funds which follows and locate the potential beneficiary. Therefore, if David dies then the fund will be
under control of that trustee and they may end up with the ultimate discretion when paying out the
benefits of the deceased.
Moreover, trustee is liable to make payment of taxes as per the granted benefits have been retained by
him through David’s super fund.
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Question 3.3
If David was to complete a Binding Death Benefit Nomination (BDBN) form instead of just a ‘nomination of
beneficiary’ form, explain the obligations that the trustees have in the event that they have to pay out David’s super
as a death benefit.
If the members have filled BDBN form completely than for paying out as a death benefit decisions will
goes to trustee. Therefore, in this case if David’s death beneficiary wishes to pay than they will pay.
If there is incompletion of from than the clarity of transaction would being reflected. Due to which the
funds will be transferred to the close relative of David such as spouse, child, parents etc.
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Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer allof the 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
25
Assessment Activity 4
Short Answer
Superannuation-SMSF

Question 4.1
Mary and Bill have an SMSF and they are the only members. They have three (3) adult children
who they would also like to be members of the fund. Is this possible?
Question 4.2
Your clients, Jake and Jennifer are looking to set up their own SMSF. Explain the two (2) options available to them
in regards to the Trustee structure of the fund.
Question 4.3
Taylor has an SMSF with a total fund value of $1,800,000. Taylor is a doctor and she owns the building that she
operates her practice from. The building is Business Real Property. Taylor would like her SMSF to purchase the
building as the fund has enough spare cash sitting in a term deposit account. Is Taylor's SMSF permitted to
purchase the building from Taylor? Explain why/or why not?
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Yes, Mary and Bill will make their adult children their trustee for SMSF. Moreover, they
are more than 18 years and have complete rights to become the member. On the other side,
if a minor (less than 18 years do not have rights to become the member while if such
transaction took place than there must be a guardian which would take initiative on behalf
of them.
In relation with becoming the trustee or member of SMSF there must be several
consequences to be considered. If Jake and Jennifer are corporate partners, parent, sibling,
spouse etc. than they can be the member of this scheme. However, there have been two
options to them such as: Individual trustee and Company trustee
Trustee will be responsible for the acquisition and disposal of funds. Thus, in this case, Taylor
can use the fund for the investment purpose such as purchasing the building from SMSF fund.
As per the terms where Taylor is able to make action and purchase the building.

Question 4.4
Your clients, Stephen and Jane Rosenthal, 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. Stephen is in retirement pension phase and Jane is in
accumulation phase. They also understand the importance of having adequate life insurance
cover. They 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.
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There will be risks associated with the SMSF fund utilization such as the trustee did not provide
any financial assistance to members or relatives. Similarly, they did not have any insurance cover.
However, there have been two risks which are being associated with the operational practices such
as responsibilities for running this and compliance and administration.

b) Stephen heard a friend talk about the “in-house assets test”. Explain to him what this test means.
c) Jane is the owner of a life insurance policy and she is also the life insured. The policy is getting expensive and she
would like to transfer the policy to the SMSF so the investment income can cover the insurance premiums. Can she
do that? Explain why or why not?
D)Explain to Jane what other options are available in regards to having insurance policy in the
SMSF
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This is the test which ensures that, the trustee is obtaining the business real property and not
ensuring the amount for In- house asset test limits. Therefore, it must not be more than the
5% of the value. In this case, 99% of the fund will be utilized in acquisition which does not
satisfy the in-house asset test. Therefore, the investment must be considered on armed length
basis.
Yes, insurance amount can be used in SMSF whereas insurance has been treated as the not
tax-deductible element in the personal tax purposes. It is generally tax deductible in super
fund. Therefore, life insurance policies are term life cover which will be dependent in this
schemes as Untaxed element. Thus, she can recover the insurance cover premium
Jane must have insurance as well as members in this scheme to make it appropriately
completed. However, if she is individually operating the scheme than there must be proper
details regarding her. There are options such as becoming the individual trustee, company
trustee which would be adequate in relation with taking the benefits of SMSF.