There is a lot of information flying around the world every nanosecond. In 1998 at the Strategist Group we completed the first ever live videocast over a program called Real Video. It was groundbreaking but at 28 kps, it wasn’t a smooth video but a new frame every two seconds instead. Revolutionary at the time but now very pedestrian.
Now anyone with a modern phone can stream HD video over multiple platforms. I am not sure if you have seen my channel on YouTube – Grant Abbott YouTube Channel but it has hundreds of videos.
Here is the big news about so much information at our fingertips – things we once thought were true, or we have been told that were true, over time have been found to be untrue. A classic case on point:
So I thought I would throw three myths at you that you may have once or still believe to be true:
1. An SMSF Trustee cannot run a business.
This was once a truthism until the Commissioner issued a release on the ATO website coming right out of the bat with “Self-managed super funds (SMSFs) are not prohibited from carrying on a business, but the business must be:
- allowed under the trust deed
- operated for the sole purpose of providing retirement benefits for fund members.
For the full link on running a business in a SMSF: https://www.ato.gov.au/super/self-managed-super-funds/investing/carrying-on-a-business-in-an-smsf/
2. A Will is legally binding.
This was once true until the various states introduced family provision claims enabling “eligible persons” to make a claim against the Executor and the estate despite what is stated in the Will. Justice Geoff Lindsay of the Equity Division, Supreme Court of NSW gave a great paper on “THE FAMILY PROVISION JURISDICTION IN HISTORICAL PERSPECTIVE” in May 2020 noting that the family provisions laws “turns on terms such as “adequate”, “proper” and “ought” in their application to provision for a person’s “maintenance, education or advancement in life”.
And more importantly, “In the absence of family harmony, exposure to family provision litigation costs, as well as the uncertainty attending any litigation, imposes heavy transaction costs on administration of a deceased estate.” So as our clients get their Wills done by a local lawyer or online they definitely don’t realise that if there is the slightest hint of family disharmony, the Will can be thrown out with the Supreme Court instituting its own determination. And any move down this track devours the estate and creates untold stress for family members for years to come.The family is never the same and cases for a $50,000 estate claim have recently been heard.
3. You should never make excess concessional contributions
Once this was true when excess concessional contributions were taxed at 31.5%. But that stopped in 2013 with excess concessional contributions – deductible contributions, to be added back to assessable income and taxed at the member’s marginal tax rate less a 15% tax offset. So let’s consider John Smith who is retired, aged 61 and has a SMSF with $1M in his pension account. In addition, he has two rental properties which provide $60,000 of taxable income per annum. On the one hand he has tax free income and on the other fully taxable income – what a waste.
Transfer $60,000 of cash from rent into the SMSF as a concessional contribution so that John’s taxable income crashes to zero. He lives off tax free pension income and uses his $15,000 of imputation credits to take the fund’s $9,000 tax on taxable contributions out of play. Once the SMSF Trustee lodges its return John will have to add back the $60,000 to his assessable income with tax being $9,967 BUT there is a 15% tax offset of $9,000 and a low and middle income tax offset of $1,080 so John ends up paying how much tax?
Zero! So do you still think it is not worth going over the concessional contributions caps of $27,500?
I could go on for days and I am sure you can too. Things we once believed are now no longer true and even things we believe are true now may not hold up to scrutiny over time. We simply have too much information out there to check the so-called truthisms which may not stand up over time.
Which is why we spend so much time at LightYear Docs and Abbott & Mourly looking, researching and providing answers and strategies to the hardest questions and client circumstances put forward to us by our Strategist members. We all need someone else to look over our client issues but importantly ensuring the person looking over it is not bound in myths but in reality.