PRODUCT DISCLOSURE STATEMENT (PDS)

The Corporations Act 2001 provides that where a person is being provided with a financial product they must receive a Product Disclosure Statement, also referred to as a PDS, detailing their rights and enticements in relation to that financial product prior to purchasing that product. Under the Corporations Act 2001 a self managed superannuation fund (“Fund”) is a financial product. Many Fund activities including becoming a member of a fund, taking a drawdown, paying a benefit to a deceased member’s dependants or commencing a pension from the Fund is regarded as acquiring a financial product.

A PDS is a statement that contains sufficient information for consumers to make informed decisions in relation to acquiring a financial product. The PDS must provide information about any significant benefits in a Fund to which any prospective or existing member may become entitled as well as the circumstances, processes and timeframe in which those benefits may be provided.

The PDS must also set out the risks for prospective or existing members associated with holding an interest in a Fund as well as the initial and ongoing costs involved with the Fund.

Responsibility for PDS compliance rests with the product issuer which, in the case of a Fund, is generally the Trustee. In recognition of the trustee / member relationship in a self managed super fund an exemption from the obligation to provide a PDS is available in limited circumstances where it is reasonable to assume that the prospective members possess all the information they require to make a choice or are aware of where to access such information. Although the trustee is to prepare the PDS, any person providing Fund advice caught by the Corporations Act 2001 is also required to provide a PDS prior to advice being given in respect of a Fund.

This Product Disclosure Statement describes the main features of the superannuation product that is being offered. It should be read before making a decision to acquire the product. It has been prepared on behalf of the trustees and/or their advisers acting as promoters of the fund by Tranzact Supertec Pty Ltd, AFS Licence No 257804 (“Tranzact Supertec”) a wholly owned subsidiary of Tranzact Super Pty Ltd (“Tranzact Super”), the funds administrator. It assumes the use of the trust deed supplied by Tranzact Supertec Pty Ltd under licence from Espreon Pty Ltd.

The Fund is a self managed superannuation fund. It is not a bank deposit or security. The investments selected by the Trustees are the responsibility of the Trustees and are subject to investment risk. Neither the Trustees nor Tranzact Supertec Pty Ltd guarantee the repayment of capital or any particular rate of capital or income return or the performance of the specific investments selected by the Trustees or the performance of the Fund generally. The provision of investment information or statements in this PDS should not be taken as the giving of personal investment advice by the Trustees or Tranzact Supertec Pty Ltd or Tranzact Super Pty Ltd as none have considered your investment objectives, financial position or particular needs.

The information presented in this PDS is general advice only. It does not take into account any member’s or prospective member’s individual situation and objectives. It is recommended that advice on the superannuation product or action being considered be sought from a financial services licensee or an authorised representative.

This Product Disclosure Statement was published on 1^st July 2008.

INDEX

Superannuation Overview

About the Fund

Fund Feature Summary

About the Administrator

About the Service

The Administration Process

Regular Reports on your Investment

Enquiries, Complaints and Dispute Resolution

Privacy

How is Tranzact Super paid?

Fees & Charges.

Ongoing Fees for the Compliance & Administration Service.

Fees for Retrospective Administration

Other Fees.

What is a Self Managed Superannuation Fund

Advantages & Disadvantages of Self Managed Super Funds

Advantages

Disadvantages

How is a self managed super fund structured?

Trustee Requirements

Trustee Structures

The Trust Deed – The Foundation of the Fund

Sole purpose test and payment of benefits

Who can contribute to a self managed super fund

Taxation

When you make contributions

When your Fund earns income

When your Fund realises a capital gain

When you receive payments

Tax File Number

Reasonable Benefit Limits (RBLs)

Preservation

Accessing preserved and restricted non-preserved benefits

When can benefits be paid?

When must benefits be paid?

Benefits

Lump Sums

Lump Sum Rollover

Pensions

Account Based Pensions

Allocated Pensions

Market Linked Complying Pensions

Defined Benefit Pensions

Death and Disability Insurance

Alternative Tax Deductibility

Increased Death Benefits (Anti-detriment Payment)

Death Benefit Nominations

Binding Death Benefit Nomination

Tax implications of nominations

What happens if you don’t make a nomination?

Death Benefit Issues

Reserves

Investment Strategy

Available investments

Investment rules

Lending to a member

Acquisition of assets from related parties

Investments to be on ‘arms length’ basis

In-house assets

Borrowing by superannuation entities

Administration of the Fund

Administration Agreement

Transferring the administration of the Fund

To Tranzact Super

From Tranzact Super

Winding up the Fund

Superannuation Overview

A self managed superannuation fund is one of a number of types of superannuation fund in which a person may accrue their retirement savings and receive retirement benefits. The following table is an indicative guide that seeks to highlight the main differences between the most common forms of superannuation. The comments in the table below relating to self managed super funds assume that the applicable trust deed powers are at least as extensive as those to be found in the fund deed recommended and supplied by Tranzact Supertec Pty Ltd.

About the Fund

The Fund is a self managed superannuation fund (“SMSF”) administered by Tranzact Super Pty Ltd (“Tranzact Super”) under the terms of the Compliance & Administration Agreement. The rules governing SMSFs are complex. The Trustees and Members should consult a financial adviser or other suitably qualified professional when considering compliance with superannuation laws, tax and other associated matters.

Fund Feature Summary

Example

A $1 million allocated pension fund with 4 members has 10 investments.

The standard fee is:

Monthly Tranzact Super Fee                       $207/mth           $2,484 per annum

Audit ($495), ATO Lodgement Fee ($150)                                        $590

Yearly Cost                                                                               $3,074 (0.31% of fund assets)

Sample Adviser Fees (Not Tranzact Super)                           $7,500

Total Fees (Including Sample Adviser Fees)                                $10,574

BAS Refund                                                                                 $681

Net Fee                                                                                     $9,893

About the Administrator

Tranzact Super Pty Ltd is the Administrator of the Fund. Tranzact Super is a fully independent self managed superannuation fund Compliance & Administration Bureau. Tranzact Super is not a provider of investment advice and does not have any involvement in the Fund’s investment strategy or individual investments made. Tranzact Super specialises in the provision of web enabled administration and compliance services to self managed superannuation fund trustees and advisers throughout Australia. Its wholly owned subsidiary, Tranzact Supertec Pty Ltd (“Tranzact Supertec”), holds Australian Financial Services License No 257804 which authorises Tranzact Supertec to advise on superannuation matters only. Tranzact Supertec provides associated services which require a license such as the provision of trust deeds, pension establishments and advice on the strategic operation of the Fund. Tranzact Supertec does not provide investment advice, investment facilities or financial planning advice.

About the Service

The Administration Process

Tranzact Super works to ensure that all reporting deadlines and audit requirements are met so as to avoid the imposition of penalties. The Fund records are maintained in an efficient and auditable manner. Regular contact with the Fund trustees, generally via their financial advisers, ensures the effectiveness of the administration process.

The Trustees are responsible for the investment strategy of the Fund which must be provided for the auditor. All investments made by the Fund must be made in accordance with the investment strategy which may be altered at any time. 

It is impossible for Tranzact Super to guarantee the Fund’s compliance as we have no control over Fund activities or investments but we do regard our assistance in this regard as a priority.

Now that the ATO is the responsible body ensuring the compliance of self managed superannuation funds the number of field audits and enforcement actions for compliance breaches is increasing. Compliance issues are numerous and can be confusing to those who are not involved with the various matters on a daily basis, particularly in view of the ever changing legislative framework. Though the trustees and their immediate advisers cannot abrogate this responsibility to Tranzact Super we, nonetheless, apply our best efforts to ensure that the Fund remains complying. This includes not only our own administrative duties but also being vigilant to trustee actions which seem to be non-complying and advising the Fund's financial adviser or accountant accordingly. We suggest that any activity of a strategic or unusual nature be referred to us before it is proceeded with.

Remember that for the Fund to be complying for a year it must be complying for every day of the year. The penalty for non-compliance can be severe including fines of up to $220,000, penalty tax on the assets of the fund of up to 45% (plus medicare) and up to 5 years jail.

Often we discover that pensions in Funds that were commenced prior to the introduction of the Fund to us are grossly deficient in appropriate paperwork and actuarial certification. Where rectification work is required a charge will be levied which will vary with the work required but will never be greater than the cost of pension establishment as per our fee schedule. On an ongoing basis we assist in monitoring the level of pensions paid to ensure ongoing compliance.

Under traditional administration arrangements the only opportunity the trustee and adviser have of perusing the accounts is at the end of the year. By this time any anomalies or errors will not be present as the accounts will have been audited, the holdings confirmed and any adjustments completed. By providing daily updates to client accounts our processes are quite transparent. Though we pride ourselves on our level of accuracy and our compliance focus we do not profess to offer a “perfect“ service on an unaudited daily basis. Errors and anomalies do arise as it is not possible to maintain records to daily audit standard at all times. Additionally we have no investment restrictions and, therefore, no standard list to choose from when identifying investments with which we are presented. This may cause identification problems even with conventional managed funds as there are many instances where different funds from the same manager have the same name. This, and other potential problems, are exacerbated by a lack of timely and appropriate information. Most administrators have dealt with this problem by not providing a daily service at all, providing it with severe investment restrictions or providing it in arrears on a quarterly or half yearly basis. We have not imposed any such limitations however we do invite and require the adviser and trustees to monitor the reports we place on the web and alert us to any item which may seem incorrect.

Where a daily service is not required or the trustees/advisers wish to avoid the onerous requirement of providing us with a constant flow of information during the year (and avoiding our constant requests for missing information) then a yearly service standard may be selected. There is no difference in pricing between the two methods. Each method involves fee collection on a monthly basis except that, with the yearly service, the monthly fee is estimated based on the latest record of investment numbers and a balancing charge or refund is made when the actual investment numbers per month are known. A comparison between the yearly and daily service follows:-

There are several parties involved in the administration process and it is important that mutual expectations be realistic and clear. The ongoing administration of the Fund is a joint process.  Responsibility for the smooth flow and maintenance of all activities rests with all parties. The auditor’s duties are to audit the Fund once a year and to check the integrity of the data and the compliance of the Fund. The administrator’s duties are to ensure the accurate processing of the data received and to assist the investment advisor and trustee in maintaining compliance including by advising any problems or potential problems which may be detected on an ongoing basis. The investment advisor’s duties are to advise and liaise with the trustees on all matters and ensure that the flow of information between the trustees and the administrator is efficiently maintained as well as to advise of any errors or potential errors pertaining to the fund to both the trustee and the administrator. The trustee’s role is to ensure that all relevant information is forwarded to the adviser in a timely manner, ensure that only complying activities are entered into and to advise the adviser of any errors or potential errors which may become apparent. The trustee is ultimately responsible for the Fund’s activities and accounting. Fees are debited monthly.

Regular Reports on your Investment

With the Daily service the Fund’s current unaudited valuation, transactions and other information is available from the Tranzact Super web site at www.tranzacttotalsuper.com.au at anytime.

The Fund’s yearly audited accounts report on the financial condition of the Fund and its investment performance.

Enquiries, Complaints and Dispute Resolution

As the members of the Fund are also the trustees, the members do not have access to the Superannuation Complaints Tribunal so any complaints against the Trustees must ultimately be resolved by the Trustees. Tranzact Super and Tranzact Supertec have established internal procedures for dealing with enquiries and complaints in respect of the services for which they are responsible.

If you have any enquiries or concerns about the operation or administration of the Fund, you can:

Ø       call Tranzact Super on 1800 644 804 - fax on (07) 3211 1455; or

Ø       email contact@tranzacttotalsuper.com.au; or

Ø       write to Tranzact Super, GPO Box 849, Brisbane Qld 4001.

In addition Tranzact Supertec is a member (No F-4006) of the Financial Industry Complaints Service Limited (“FICS”).

Privacy

Tranzact Super and Tranzact Supertec are committed to protecting the privacy and confidentiality of the information entrusted to them. They are bound by the Privacy Act and the National Privacy Principles regulated by the Federal Privacy Commissioner. Further details are available on the Tranzact Super website at www.tranzacttotalsuper.com.au.

How is Tranzact Super paid?

We operate on a flat fee structure. None of our charges are percentage based. We require payment for one-off services in advance and our ongoing fees are payable monthly. Where required, subject to favourable banking arrangements, we will collect the fees charged by third parties including the financial advisers to the fund, and remit them accordingly. To enable us to collect our fees in the most cost effective manner we generally require that every fund maintains a Macquarie Cash Management Trust account as the fund’s cash account. Tranzact Super does not receive any remuneration from Macquarie Bank however if your adviser is the holder of a Proper Authority from a registered Dealer Group your adviser may be entitled to receive a commission of 0.25% per annum on the daily Macquarie account balance.

There are initial fees, ongoing fees and expenses in relation to the establishment, operation and administration of the Fund. These will be charged directly by Tranzact Super. The fees charged by Tranzact Super and its associates for the Tranzact Super services are discussed below. All fees are inclusive of GST where applicable. All fees, including the trust deed, update, audit and actuarial fees, are payable by direct debit from the account nominated in the Tranzact Super Direct Debit Request form.

The fees and charges stated in this PDS are current at the date of this PDS. These fees and charges are indexed to a maximum of the greater of CPI and 5% on 1^st July each year and may be subject to other changes in the future. Any such change will be posted on the Tranzact Super web site at www.tranzacttotalsuper.com.au.

Fees & Charges

Ongoing Fees for the Compliance & Administration Service

Fees are payable monthly in advance and are a set minimum monthly amount determined by the number of investments held by the Fund at the beginning of the month. An investment is defined as any asset with other than a zero balance. The value of the Fund is irrelevant. The minimum monthly fee will vary upwards or downwards as the number of investments in the Fund changes. Where a number of investments are reported from a wrap or other acceptable consolidated reporting method then they will count as only 2 investments for charging purposes irrespective of the number of investments involved. An acceptable platform will be one with its own cash account through which all income from the investments it holds passes. It will also need to provide a consolidated tax report. Where a platform is used fund processing for this investment will not occur on a daily basis.

There are significant administrative benefits to be enjoyed where a Macquarie CMT or Macquarie CMA is maintained as the fund cash account. Failure to use this product decreases the efficiency of the service. It is not compulsory to hold a Macquarie CMT or Macquarie CMA as the default cash account for the fund but where a different account is used it will be regarded as 2 investments for billing purposes.

The monthly fee is $132 per month plus $7.50 per month per investment if an intermediary adviser is involved through whom all contact between Tranzact Super and the Trustee takes place. If the Trustee is dealing with Tranzact Super direct then the monthly fee is increased to $145 plus $8.50 per month.

When a payment to a member is taken as a commutation withdrawal rather than a pension the fund will incur a fee of $110 if the member is over age 60 or $195 if under age 60. There are no extra fees for BAS (see # below), pension administration (excluding set up) or reasonable queries. An additional charge may be levied where the fund requires an unusually high level of attention.

Please note that the fees are in payment of the compliance and administration duties actually performed within that month. It is not payment in advance for requirements yet to fall due including the preparation of financial statements. In the event this agreement is terminated prior to the year-end work being completed additional fees will be payable if end of year work is required as per the Compliance and Administration Agreement.

#         Most administrators do not complete BAS without charging extra fees. BAS registration entitles the Fund to a 75% refund of certain GSTs paid. To calculate the minimum benefit to which you are entitled add ongoing Tranzact Super and adviser fees together and multiply by .068. e.g. Tranzact Super fees of $1,800 and adviser fees of $3,000 (total=$4,800) will result in a refund of $4,800 x .068 = $326 thus the net administration fee is $1,800 - $326 = $1,474.

Please note that

Ø       all ongoing fees will be deducted from the Fund's cash account;

Ø       all fees will be indexed by the greater of 5% and CPI in July of each year.

Fees for Retrospective Administration

To bring Existing Fund Records Up To Date, the above charges are levied for each month work is required. The fees will be debited as soon as practicable after the commencement of the administration process and may be a minimum monthly fee until such time as the records have been sufficiently completed to enable the fees to be calculated correctly based on the number of investments each month.

Other Fees

These fees will only be payable as and when applicable and will generally be debited from the Fund’s cash account.

Actuarial Fees - Actuarial Fees will be incurred if applicable. The current price list is available on the Tranzact Super website at www.tranzacttotalsuper.com.au.

ATO Desk Audit – Time taken in dealing with a tax office audit will be charged on a time cost basis.

ATO Levy - The annual ATO Levy is $150 from 1^st July 2008 and will be required when the Fund financials are lodged with the ATO.

Audit Fee – $495.00 for a standard audit.

BAS Preparation & Lodgement – No Charge

Change of Administrator – $230 unless end of year accounting is required prior to transfer then a minimum fee of $1,040 will apply. The cost of File Freight, Audit, Actuaries, ATO levy, ASIC lodgment fee & Deferred Establishment Fees will be additional and levied as applicable.

Corporate Trustee Maintenance - If the Fund has a trustee company for which Tranzact Super is acting as the Registered Office a maintenance fee of $315 including GST will be charged in addition to the yearly ASIC fee (currently $40 if company functions as a super trustee only).

Deed & Trustee Services

Deed Only                                    $520

Corporate Trustee Only                  $945

Deed Upgrade                               $570

Change of Fund Name                   $350

Change of Trustee                         $350

Change of Company Name            $590

Establishment Fee – a fee will be charged for each fund entering the ongoing administration service This will be $465 for both new and existing funds. An Existing Fund is defined as one which has commenced on the Tranzact Super service during other than the Fund’s first financial year of operation. For Existing Funds ONLY there will be a further DEFERRED establishment fee of $990. If the fund remains on the service for a full48 months then it will be waived in full. If the fund leaves the service any time under 48 months then the fee will be levied in full.

Other Services - If a member or the Trustee enters into a transaction or performs a task that may cause a breach of the Superannuation Industry (Supervision) Act 1993 (‘the SIS Act’) then the Fund may incur additional fees for remedial action. Fees for remedial action or work outside the scope of this Agreement will be quoted separately.

Pension Establishment – A fee of $650 will be charged to establish a new pension or to rectify an existing pension that has not been properly established previously.

Pension Ongoing Administration – No Charge

Segregated Member Accounts including Segregated Pension Accounts – No Charge unless assets are physically separated including a separate cash account for each account. If physical separation is required then the investments in each account will be counted for charging purposes. (If the investments are segregated in the accounts only then no charge is levied if an ITAA Section 283 actuarial certificate is arranged)

Wind Up of Fund - A minimum fee of $625 will apply where the Fund is to be wound up in addition to the cost of Audit, Actuarial services, ATO levy, ASIC lodgment fee and deferred establishment fee as applicable.

What is a Self Managed Superannuation Fund

A self managed superannuation fund, otherwise known as a DIY or Family Retirement Fund, is a special type of Trust. It may be established by employees, self-employed individuals and retirees. It houses an investment portfolio that operates under the rules of a trust deed and is operated for the benefit of up to 4 members. All members are trustees or directors of a corporate trustee except in the case of a single member fund where there may be a second trustee who is not a member. Funds are supervised by the Australian Taxation Office (ATO).

The Fund must have a documented investment objective and strategy. Tranzact Supertec does not provide advice on a Fund’s investment objective or strategy. The undertaking of any Fund activity must be in accordance with this test. The sole purpose test states that the Fund must be maintained to provide benefits for at least one of the following purposes:

Ø       retirement from gainful employment; or

Ø       attainment of an age not less than 65; and

Ø       on the death of the member - the provision for benefits to be passed on to a member's dependants or legal representative.

The ultimate responsibility for the conduct of the Fund remains with the trustees.

Advantages & Disadvantages of Self Managed Super Funds

Advantages

Control

As trustees, the members have complete control over the investments of the Fund. Subject to an appropriate written investment objective and strategy you may invest in a wide range of assets and implement a wide range of strategies. The law provides broad investment powers to the trustee.  The trustees/members are ultimately responsible for the Fund’s activities.

Customisation

The Fund allows multiple generations to aggregate their savings and investments to provide a desired income for retirement or flexible benefits in the event of a member's death. The Fund can provide a wide range of personal income stream choices.

In-specie contributions

You may transfer certain assets into the Fund in place of cash contributions.

Social Security and Asset Retention

The Fund can be used to pay a 50% Asset Test exempt complying pension (if the complying pension commenced before 20^th September 2004 it will be 100%) which may allow a member to receive social security benefits they would not otherwise be entitled to. The 50% asset test exemption will cease for new or restarted existing pensions from 20^th September 2007. Also member accounts in the pension phase pay income to members which is largely or wholly exempt under the Income Test.

Family Fund

Up to four (4) members can participate. If more than 4 members are required then a second self managed superannuation fund should be considered.

Cost savings

Depending on the size of the Fund there may be cost savings compared with other types of superannuation funds.

Permanency & Estate Planning

The Fund continues unless the trustee winds it up. The Fund can provide benefits to the member, member’s spouse, children and even grandchildren. The Fund has an indefinite life and can be used to provide benefits from generation to generation.

Security

All the investments are held in the members’ names as trustees or in the name of a company trustee controlled by the members. This means that only the members, or their representatives, can sign the Fund’s cheques and only the members can authorise investments to be made or sold.

Taxation

Tax deductions for contributions into a Fund are available within limits. Self managed superannuation funds receive the same tax advantages as other super funds. Tax of only 15% is levied for income earned by members of the Fund during the accumulation stage. A low 10% tax rate can apply to realised capital gains on assets held for at least one year. There is no tax on income or capital gains to a member account in the Fund during the pension income stream phase. Imputation credits can offset tax in the accumulation phase or be refunded to the Fund in pension phase. Structured correctly, all or most of the pension income stream paid to a member will be tax exempt with a 15% tax rebate on any taxable pension income paid to a member. This benefit is also available for a pension paid to a dependant beneficiary upon the death of a member. Beneficiaries over the age of 60 are able to take pensions or draw downs completely tax free.

Death Benefit Deduction

When death benefits are paid from the Fund, particularly on younger lives, the Fund may receive a tax deduction on a large portion of the payment. This deduction can be carried forward to be offset against contributions tax and income tax for future generations. This is a benefit of holding life insurance within the Fund though the deed wording is vital.

Component Retention

Within a Fund investment managers may be changed without having to rollover from one Fund to another. This allows component retention which may maximise the long term taxation and social security position of the member account. This is an important, but not well understood, advantage and is similar to grandfathering below.

Grandfathering

Where a fund is eligible to receive a retained advantage from a legislative change underlying investments and strategies can be changed without changing the fund and jeopardising the grandfathered benefits. For example some pensions which commenced prior to 20^th September 2005 have a 100% social security asset test exemption. Some pensions which commence prior to 20^th September 2007 will have a 50% asset test exemption. Having gained these exemptions they will be retained so long as the pensions continue. This will not be the case if you need to roll over to an alternative fund to gain access to different investment types. A self managed super fund is able to continue to provide these pensions whilst the investments held by the fund are changed.

Flexibility

The Fund can accept government, spouse, personal and multiple employer contributions. On retirement a member’s account may pay a lump sum or continue in the fund as one or more pensions paying a tax effective income stream without impacting on other members in the accumulation phase. A member is able to contribute listed shares, units held in managed funds, fixed term deposits and business real property directly to the fund instead of cash. Benefits may also be paid in specie as a lump sum drawdown (pensions may only be paid in cash) with no limitation as to the type of asset.

Creditor Protection

Member’s benefits are substantially protected in the event of their bankruptcy. Bankrupt members are even allowed to withdraw benefits of over $1.2 million and receive the same protection out of the Fund.

Disadvantages

Legislative change

The Fund may be affected by changes in Superannuation laws over time.

Responsibility

All decisions and responsibilities associated with managing the Fund rest with the trustee/members. In addition, all superannuation funds have to comply with rules and deadlines. The trustee is responsible for making sure the Fund meets all requirements on time even if assistance is obtained from financial advisers, accountants, lawyers, administrators or other service providers. Penalties for non-compliance can be significant and in severe cases can include tax penalties, significant fines and jail terms. As a consequence Tranzact Super’s dedicated and professional fund compliance and administration service is a must for Fund trustees.

Compliance & Administration

Because of the rapidly increasing size of this sector of the retirement savings market and the relative inexperience of the Trustees who control each Fund the regulators are increasingly concerned about the level of compliance and administration inherent in funds of this type.

Compliance in a Fund consists of three important elements

Ø       The Trust Deed;

Ø       Transaction Documentation; and

Ø       Administration and Audit.

Severe penalties exist for wilful non-compliance including up to a 45% penalty on the assets of the fund, a $220,000 fine and 5 years jail. Compliance is crucial when it comes to self managed super funds yet is often a misunderstood concept. For most trustees and advisers compliance is regarded as the preparation of accounts, member statements and lodging tax returns. Tranzact Super understands that administration and compliance is more than just administration. It is meeting ALL of the compliance requirements laid down in the superannuation laws.

Limited ability to diversify investments

All investments made by the Trustees on behalf of the Fund contain an element of risk. By diversifying the Fund’s investments and investing for an appropriate time frame, the Trustees may be able to reduce risk. Although members are generally able to invest in a greater range of assets, they may not have sufficient money in the fund to diversify across them all. This may be overcome by investing in managed or pooled investments with the assistance of a qualified adviser.

Cannot assist members or related parties

The Fund must be used for the benefit of members on retirement or disablement or their beneficiaries in the event of the member’s death. It can’t be used to provide benefits such as loans to members, holiday accommodation in a fund property or art for a member’s home for example.

Cost Increases

If the Fund is not large enough it may be more expensive to run when compared with other types of superannuation funds. This is particularly so for funds with less than $220,000 in members’ balances.

How is a self managed super fund structured?

Generally, family members are members of the Fund as well as being trustees of the Fund. The maximum number of Fund members is four. The trustees may employ administrators, accountants and investment advisers to help manage the Fund. The Fund can invest in a wide range of assets including both direct and managed investments and wrap accounts.

Trustee Requirements

A Fund is a form of trust. This means that the trustee of a Fund controls the Fund, makes the investment decisions, determines the benefits to be paid and administers the Fund. As a member of a self managed super fund is required to be a trustee or director of the trustee company, a member has significant influence over the Fund.

Trustees can be individuals or a company. All members of the Fund must either be trustees or directors of the trustee company and vice versa unless a special exemption applies.

A trustee must not be an undischarged bankrupt, have been convicted in the past of a serious offence involving dishonesty or disqualified from being a trustee. If any members are in this position they cannot appoint a legal personal representative to act on their behalf as trustee. They must either leave the fund or the fund must convert to a Small APRA Fund. If a member is a minor (under 18), mentally impaired, has granted a power of attorney or is dead then a legal personal representative may act as a trustee in their place. A parent can act as trustee on a minor member’s behalf and still be a member and trustee of the Fund in their own right.

Individuals who are to be the only member of their Fund often wish to be the only trustee. This is only able to be accommodated by establishing a corporate trustee where the individual is the only director. It is not possible to be the sole individual trustee of a single member Fund however a sole member is able to be the only director of a corporate trustee so will have total control of the fund.

A trustee of a Fund must:

Ø       act honestly;

Ø       act in the best interests of members and other beneficiaries;

Ø       keep the money and assets of the fund separate from the trustee's personal assets and money or those of another person;

Ø       formulate and implement an investment strategy for the Fund;

Ø       abide by the rules of the fund at all times;

Ø       not breach any of the superannuation laws;

Ø       ensure proper accounting including the maintenance of member accounts;

Ø       appoint an auditor and other specialists to the fund;

Ø       meet all regulatory obligations.

Both civil and criminal penalties can be imposed under the superannuation laws for breach of trustee responsibilities. Prior to accepting an appointment as trustee of a Fund it is important that a person consider the risks associated with such an appointment. The excuse that the trustee was not aware of the law or rules of the Fund is not valid.

Failure to properly meet any of these responsibilities may render the trustee liable to a substantial fine and if the breach has been wilful, may result in a term of imprisonment. Additionally the Regulator of self managed superannuation funds, the Commissioner of Taxation, may also determine the Fund to be non-complying. This would result in the Fund being subject to tax at a penalty rate of up to 45% on all income and capital gains of the Fund as well as the market value of the fund's assets (excluding undeducted contributions). It is therefore advisable that the trustee seeks the help of an experienced adviser.

The rules of this Fund are designed entirely to reflect the intention for a Fund to be a self managed super fund and, in particular, one governed by the rules supplied in the Tranzact Supertec Deed. The trustee requirements for this type of fund are shown below.

 Tranzact SuperTEC DECISION TREE FOR SINGLE MEMBER FUNDS

As mentioned earlier there may be circumstances where it is appropriate or necessary to appoint an approved trustee in place of the members of the Fund. For example if a member is prohibited by the superannuation laws from acting as a trustee or simply does not wish to assume the role and responsibility associated with being a trustee then an approved trustee may be appointed. The effect of the appointment is that the Fund is converted from a self managed super fund to a “small APRA fund''. These funds are regulated by the Australian Prudential Regulatory Authority (APRA) rather than the Australian Taxation Office (ATO). While the rules of the Fund permit the appointment of an approved trustee, the newly appointed approved trustee will amend the deed and rules of the Fund at that time to reflect the change in the type of superannuation fund.

Tranzact Supertec provides alternative arrangements where a small APRA fund is required. A small APRA fund is a public offer superannuation fund and is therefore subject to more stringent regulation and compliance.

Tranzact SuperTEC DECISION TREE FOR FUNDS WITH MORE THAN ONE MEMBER

 Trustee Structures

Trustees can be individuals or a company. Legally a fund with a corporate trustee is able to pay members a lump sum as well as a pension. It is also a legal requirement that, where the trustees of the Fund are individuals, then a pension must be taken and not a lump sum. This means that, technically, a member of a fund with individual trustees who wants to withdraw a lump sum must first start a pension then make a commutation of the pension. As this requirement has been almost totally ignored by Funds over the years and its enforcement now would be impractical the tax office has announced that they will ignore it. It is mentioned here for completeness in case the tax office unexpectedly change their mind.

Similarly the law states that a pension payable from a fund with individual trustees cannot be considered to provide the 15% tax rebate to its members. Once again the tax office has announced they will ignore this.

Where a trustee of a Fund dies, retires or is removed then any assets of the Fund in the name of the departed trustee must be switched into the names of the remaining trustees. This can be time consuming and expensive if the trustees are individuals. No change of asset names is required where a corporate trustee is in place.

The Trust Deed – The Foundation of the Fund

The Fund deed should be flexible and up to date. If this is not the case then the Fund may not be able to take advantage of all the options available to it under the legislation. For example the deed may define who can make contributions to a Fund such that spouse contributions cannot be made even though the legislation states that they can. Similarly the deed may prescribe a certain type of benefit or membership criteria which precludes some pensions or child members. There are many such examples.

The Tranzact Supertec supplied Deed has been selected for its flexibility and comprehensiveness.

Tranzact Super does not insist on this deed for Funds it administers but some of the self managed superannuation fund features mentioned in this PDS may not be available to a deed used by the Fund if it is not a Tranzact Supertec supplied deed and no warranty is given to the contrary.

Sole purpose test and payment of benefits

A superannuation Fund must be maintained for the sole purpose of providing retirement benefits to the member:

Ø       on their retirement;

Ø       on reaching the age for payment of preserved benefits;

Ø       or to their dependants or estate if the member dies before retirement.

However, payment of other benefits is allowed as an ‘ancillary purpose’ provided certain conditions are met. This allows benefits to be paid:

Ø       to a member on termination of employment;

Ø       to a member as a result of temporary or permanent disability;

Ø       to a member's dependants or estate when the member dies after retirement.

The Fund must be operated for at least one of the sole purposes. If the nature of investments suggests a purpose behind the investments other than a permitted purpose, this may mean the sole purpose test has been contravened. In serious cases this could result in the Fund losing its tax concessions and suffering severe penalties.

Who can contribute to a self managed super fund?

Anyone who can contribute to an institutional fund can contribute to a self managed fund.

Depending on the member’s employment situation the contribution may be tax deductible. There is an annual limit to the level of undeducted contributions a member can make. It is $150,000 per year with a 3 year average concession such that $450,000 may be contributed in any one year with a nil contribution in the following two years provided the member is under 65. For members between 65 and 74 there is no 3 year concession average available. No contribution can be made once the member is 75. The Fund is also able to accept rollovers from other funds or contributions of certain assets in specie.

Regular contributions can be made by periodic payments from your nominated bank account or by irregular deposits. There are no minimum or maximum contribution levels applicable to your Fund only to the level of tax deductibility which may be involved. Contributions to your fund can be made by yourself, your spouse, or your employer, provided a contribution condition is satisfied.

You may also transfer your existing superannuation entitlements into the Fund. This will enable you to consolidate your superannuation benefits. Alternatively you may transfer certain approved assets into the Fund at their market value.

Taxation

The taxation information provided is intended as a guide only. You should consult an Adviser to determine the taxation implications of your investments in the fund.

There are basically four instances relevant to tax:

When you make contributions

Tax-deductible contributions to the Fund are taxed at a rate of 15%. No tax is payable on contributions to the Fund for which no tax deduction has been claimed. These are called non-concessional contributions (previously undeducted contributions)

No tax is payable on amounts rolled over into the Fund unless they contain an “untaxed” element.

The maximum tax deduction that may be claimed in a year is $50,000 unless the member is over 50. In this case a tax deductible limit of $100,000 applies until 30^th June 2012. This amount is not indexed. These are called concessional contributions.

If the total of all contributions into all funds is greater then these limits then the top marginal tax rate will be levied. Any such excess will also be counted towards the non-concessional (undeducted) contribution cap.

There are two ongoing exemptions to the non-concessional cap.

1.       The proceeds from the disposal of eligible small business assets are exempt up to a lifetime limit of $1 million (indexed).  The $1 million exemption may include up to $500,000 of capital gains that are disregarded under the capital gains tax (CGT) retirement exemption and proceeds from the disposal of assets that qualify for the CGT 15‑year exemption.  The latter includes pre‑CGT assets, assets on which there is no capital gain or loss, and assets disposed of after the permanent disablement of the owner.

2.       The proceeds from a settlement for an injury resulting in permanent disablement are also exempt.

The cap will apply to all non-concessional contributions made on behalf of an individual. For example, contributions made by one spouse for the benefit of the other spouse will be counted against the receiving spouse’s cap.

The Government co-contribution will not be included in the cap.

Contributions above the concessional cap will also count towards the non-concessional contributions cap.  This will ensure people cannot circumvent the non-concessional cap by making excessive concessional contributions. 

Non-concessional contributions will not be able to be split with a spouse. Splitting of concessional contributions will still be allowed.

When your Fund earns income

Investment earnings are taxed at a current maximum rate of 15% for complying superannuation funds. Tax deductions and other offsets, such as imputation credits, can be used to reduce the basic rate of 15% to a lower level or even to zero. Assets in a member’s account being used to pay a pension are tax exempt. Any franking credits earned by such an account may be claimed back from the ATO by the fund.

When your Fund realises a capital gain

For a complying fund a capital gain on an asset is taxed at a maximum rate of 10% if the asset has been held for a year or more. If the asset is not held for this time then the capital gain is taxed at a maximum rate of 15%. No capital gains tax is payable on an asset in a member’s account which is paying a pension to the member even if the pension did not commence until some time after the asset was acquired.

When you receive payments

Benefits paid from the Fund are also subject to special taxation treatment. The actual taxation of benefits depends on the components that are included. From 1^st July 2007 a member pays no tax on any income or drawdown once they have achieved age 60.

Tax File Number

While it is not compulsory for a member to provide their Tax File Number to the Trustees, if it is not provided, the Trustees must deduct the highest personal marginal rate of tax from any withdrawals. From 1^st July 2007 a trustee will not be able to accept a non-concessional (undeducted) contribution for a member who has not supplied a TFN.

Reasonable Benefit Limits (RBLs)

Reasonable Benefit Limits were abolished from 1^st July 2007.

Preservation

The government has provided generous tax benefits to super funds so that they may cater for the retirement needs of members. This means that member balances need to be preserved until retirement age. There are three categories of member benefits. They are

Ø       preserved benefits

Ø       restricted non-preserved benefits

Ø       unrestricted non-preserved benefits.

Unrestricted non-preserved benefits are accessible at any time subject to the sole purpose test.

Accessing preserved and restricted non-preserved benefits

A member may rollover preserved and restricted non-preserved benefits to another complying superannuation fund or retirement savings account at any time but can only access the benefits if a condition of release is satisfied. Where a condition of release is satisfied, preserved benefits and restricted non-preserved benefits become unrestricted non-preserved benefits and can be accessed subject to the sole purpose test.

Conditions of release are:

Ø       Retirement (working less than 10 hrs/week) after preservation age (age 55 to age 64);

Ø       Termination of employment after age 60 (even if working for another employer);

Ø       Attaining age 65;

Ø       Permanent incapacity;

Ø       Compassionate grounds (approved by APRA);

Ø       Upon death;

Ø       Financial hardship (receipt of CentreLink benefits for 6 months consecutively or 9 months cumulatively if >55).

Preserved benefits may be used to pay a non-commutable account based pension to a member who has reached their preservation age (presently 55). Such pensions become commutable once a condition of release has been met as listed above. These are often referred to as transition to retirement pensions

When can benefits be paid?

Benefits are payable on retirement, temporary or total disablement or death of the member in the form of lump sums or pensions. Benefits may be payable in cash or by asset transfer upon:

Ø       permanent retirement from gainful employment after reaching preservation age;

Ø       paying a non-commutable account based pension to a member who has reached their preservation age even if not retired

Ø       ceasing one situation of employment on or after age 60;

Ø       retirement due to mental or physical ill health and the trustee is satisfied that the member is unlikely ever to be able to resume gainful employment for which the member is reasonably qualified by education, training or experience;

Ø       satisfying compassionate grounds requirements as defined in the SIS Act;

Ø       satisfying financial hardship requirements as defined in the SIS Act;

Ø       reaching age 65;

Ø       Death.

The payment of all benefits is subject to the Trust Deed governing the Fund. The benefit paid is generally the accumulated value of the Member’s Account within the Fund but may be converted to a pension to provide a tax effective retirement income stream.

When must benefits be paid?

Benefits can be retained indefinitely in the fund except on death (unless a reversionary pension is payable).

In the event of death the balance of the Member Account together with any insurance proceeds may be converted to a pension and paid to dependant beneficiaries. At the Trustee’s discretion upon death, in the absence of a binding death benefit nomination, the benefit may be paid as a pension or lump sum to a surviving spouse, tax dependants or to a legal personal representative (the estate). Care should be taken when paying benefits to an estate to ensure the executor is able to distribute them in the most tax effective manner. From 1^st July 2007 death benefits may be paid to tax dependants as a tax free lump sum or a pension. Non-tax dependants are only be able to receive a lump sum on which tax may be levied.

Benefits

Benefits accrue in the fund over time and are comprised of contributions/rollovers received and investment earnings. Benefits are comprised of two components. These are the Exempt component and the Taxable component.

Benefits may only be paid when a condition of release is met. The conditions required for release will depend on preservation status and have been discussed above. Once a condition of release has been met and the member account becomes “unrestricted non-preserved” the following benefits may be paid subject to the sole purpose test and the trust deed of the fund.

Lump Sums

Lump sum withdrawals from superannuation are taxed at different rates depending on various factors. Rollovers are not taxed unless they contain an untaxed post element. There has been a significant change to the treatment of components after 30^th June 2007. The following descriptions and taxation rates applied for 2006–2007 and 2007-2008;

Lump sum benefits may be paid in cash or actual assets. If you choose to take your benefit as assets, transfer costs such as stamp duties and capital gains tax may be deducted from your benefit.

All funds commenced from 1^st July 2007 will contain the exempt and non-exempt components only. The conversion from the pre 1 July 2007 to the post 1 July is not automatic for existing members.

For existing members an event must occur before their old components are crystallised as new components. These events are;

• Taking a partial commutation

• Commencement of a pension

• Rollover of an existing pension or accumulation account

• Achieving age 60 from 1^st July 2007 or before

Lump Sum Rollover

When a member balance is rolled over from one super fund to another there are generally no taxation effects. Tax at 15% will be deducted from any Untaxed element however.    

Pensions

There are a variety of pensions that a member or a dependant of a member may or may have become entitled to. Where a member is in receipt of a pension benefit all or part of the pension payment is included in the member's assessable income until age 60. In addition, a member may access a 15% tax rebate on any assessable pension income. From 1^st July 2007, for members aged 60 and over,  pension benefits are completely tax free and do not need to be declared as income.

For Social Security purposes the Income Test exempt amount is the total value of the pension at commencement divided by the relevant term or life expectancy.

An extract of the life expectancy table to be used from 1/1/2005 is below.

Due to the wide variety of pension possibilities a prospective member should make themselves aware of all the types of pensions outlined in the rules. Professional advice is recommended.

Account Based Pensions

Account based pensions have been available from 1^st July 2007. The pension has a minimum payment based on the table below.

There is no maximum payment except for a transition to retirement pension (mentioned below) which has a maximum of 10% of the account balance at pension commencement or the previous 30^th June (whichever is the nearest).

Taking an example of a person who has an account balance of $500,000 on 1 July 2006 and is aged 65. The acceptable pension amount is in the range of:

Maximum Pension         $500,000

Minimum Pension          $500,000 x 5% = $25,000

The higher the pension taken the sooner the account will be depleted.

For social security purposes the account balance is counted as an asset under the assets test. The income is counted under the income test less the amount that is calculated by dividing the account balance by the member’s life expectancy

You may access part or all of your capital (referred to as a commutation) at any time unless this a “transition to retirement” pension which was commenced with preserved benefits. Such a pension is available once a member has reached age 55 when the member is able to access preserved benefits for pension purposes only. Lump sums cannot be withdrawn unless and until a condition of  release has been triggered which has converted preserved benefits to unrestricted non preserved benefits.

Allocated Pensions

Allocated pensions may no longer be commenced but existing pensions may be retained. There is some confusion generated as the term allocated pension is still widely used to describe the account based pensions that were introduced under the Simpler Super legislation even though they are covered by separate legislation.

The pension must fall within minimum and maximum levels prescribed by legislation. The actual amounts are calculated by dividing the balance in the account at 1^st July each year by the appropriate Pension Valuation Factors (‘PVFs’) shown in the table below.

This table is current from 1^st January 2006 and is to apply to all allocated pensions from 1^st July 2006. The range of ages actually extends from age 0 to 100 but these are not shown here.

Taking an example of a person who has an account balance of $500,000 on 1 July 2006 and is aged 65. The acceptable pension amount is in the range of:

Maximum Pension         $500,000 ÷   9.9    = $50,505 (rounded to $50,510)

Minimum Pension          $500,000 ÷ 17.3    = $28,902 (rounded to $28,900)

The higher the pension taken the sooner the account will be depleted.

The minimum pension is higher than the minimum pension available in the account based pension and the maximum pension is lower so it is suggested that consideration be given to converting existing allocated pensions to account based pensions. This will provide a  greater range of payments and simplicity of calculation.

For social security purposes the account balance is counted as an asset under the assets test. The income is counted under the income test less the amount that is calculated by dividing the account balance by the member’s life expectancy. In the above example:

Income Test Exempt Amount      $500,000 ÷ 17.7 = $28,249

You are also able to access part or all of your capital (referred to as a commutation) at any time unless this a “transition to retirement” pension which was commenced with preserved benefits. Though the minimum pension is the same as for allocated pensions the maximum, until the account becomes unrestricted non-preserved, is limited to 10% of the balance on which the pension was calculated. You are unable to withdraw a lump sum unless and until you have satisfied a condition of release which has converted your preserved benefits to unrestricted non preserved benefits.

Market Linked Complying Pensions

Market Linked Pensions, otherwise known as Term Allocated Pensions or “TAPS” have been available since 20^th September 2004. This pension is paid for a set term and must be paid at least annually. The pension has no residual capital value. It is treated like any other pension for income test purposes as described above. 50% of the assets underpinning the pension are exempt from the assets test if commenced before 20^th September 2007. This is assessed semi-annually.

This type of pension is non-commutable once it has been in force for 6 months.

You have a choice as to what the term may be but, once it has been chosen, it is fixed for the life of the pension. The term of a Market Linked Pension Account must be based on life expectancy factors and, from 1^st January 2006, the number of years from the youngest relevant age to age 100.

The choices are:

Ø       Any period between your life expectancy and your life expectancy as if you were 5 years younger; or

Ø       For those who want their pension to revert to their partner and the partner has a longer life expectancy, a period between the life expectancy of the partner and a life expectancy as if the partner was 5 years younger; or

Ø       the number of years before you reach age 100; or

Ø       for those who want their pension to revert to their partner and the partner is younger the number of years before your partner reaches age 100,

Ø       Once commenced, your Market Linked Pension Account cannot be commuted except:

o        If the commutation is made within 6 months after the commencement day of the pension; (only if the pension wasn't started with a balance that had already been part of another complying pension) or;

o        If the pension account is transferred directly to the purchase of another market linked pension or;

o        The commutation is required in order to pay superannuation contributions surcharge or to effect a "split" due to divorce; or

o        On death or;

o        To the extent necessary to pay out a hardship amount

Notwithstanding the above the minimum pension cannot be less than the pension available under the Account Based Pension rules.

There is no possibility of any residual capital to be available for future benefits as the pension has been specifically designed to pay out all of the underlying capital by the end of the term. On the death of a member, prior to the expiry of the term with a reversionary pension, the pension continues until such time as the reversionary beneficiary dies (or the term expires), at which time the capital remaining is paid to the survivor’s estate or nominated dependant. On the death of a member with a non-reversionary pension, the assets of the Fund pass to the member’s estate or nominated dependant. There is no ability for the benefits to remain in the Fund.

In order to enjoy taxation benefits, the term of your pension must fall within a specified range prescribed by legislation. That term is to be selected as above. The term will be a period of whole years.

The gross annual payment amount from a Market Linked Pension Account will be calculated by dividing the account balance on commencement and on 1 July each year thereafter by the payment factor corresponding to the remaining term of the income stream, rounded to the nearest $10.00.

This is shown below.