FPE020 SMSF Regulations and Taxation - Short Questions

Assignment details

•      This assignment covers Topics 1 to 9 and accounts for 40% of your final grade. •      There are two (2) sections in this assignment: –      Section A comprises one (1) short-answer question with three (3) parts worth a total of 30 marks. –      Section B comprises one (1) short-answer question with five (5) parts worth a total of 65 marks. Answer all questions. •      Marks will be awarded for presentation and referencing. •      Your overall mark for this assignment will be rounded to the nearest whole number. •      Refer to the Criteria-Based Marking Guide for guidelines on what is expected for each question. •      Full workings must be shown for all calculations. Show all calculations in the text of your assignment and not attached as an appendix. Appendices to the assignment will not be read. •      Answers are to be in your own words. Reference and cite all your sources (within the text of your answer) when quoting or using material from external sources. Include a reference list at the end of your assignment. For further information on referencing, refer to the ‘Referencing and Research’ page in the ‘Build Your Skills’ hub in KapLearn. •      Indicative weightings are noted beside each question. Use these weightings to assist you with your allocation of time and resources. The weightings indicate the relative importance of each question. •      State all assumptions used in providing your answer.

Policies

• The overall word limit for the assignment is 2,000 Marks will only be awarded for answers up to the word limit (plus 10%) for each question. Any material written after this will not be counted towards your mark for that question. Headings, quotes and references within the body of the answer are included in the word count. Numerical tables, calculations, and reference lists are not included. For more information on word counts and their rationale, go to Assessment à Assignment à Assessment Preparation Guide.
• The Assessment Preparation Guide contains information about format and presentation, word limits, citations and referencing, collusion, plagiarism and other policies, useful resources, submitting your assignment and accessing your
• Answers are to be in your own words. Reference and cite all your sources (within the text of your answer) when quoting or using material from external Include a reference list at the end of your assignment.
• Follow the Harvard referencing style as recommended in Kaplan Australia: Harvard Referencing Guide located on the ‘Referencing and Research’ page in the ‘Build Your Skills’ hub in

Requests for special consideration or information pertaining to special consideration written in the body of the assignment will not be considered by the assessor. Refer to the ‘special consideration’ section of the Assessment Policy on Kaplan’s website for more information.

Assignment presentation and referencing (5 marks)

Your assignment should be presented in a clear and appropriate format, with all sources correctly referenced and cited.

You are required to:

• structure a clear response to each question, using headings if required
• number questions (including sub-questions) and pages
• use correct font style and size
• ensure tables or graphs are clearly labelled and readable
• clearly set out calculations or workings, where they are required
• adhere to the assignment word limit
• follow the Harvard referencing style as recommended in Kaplan Australia: Harvard Referencing Guide (available from the ‘Build Your Skills’ hub in KapLearn) to cite sources throughout your assignment, and provide a reference list at the end.

Section A

There is one (1) short-answer question with three (3) parts in this section, worth 30 marks. Answer all parts of the question.

Question 1    Fund structure and regulated super fund   (30 marks | Word limit: 550 words)

Das, aged 60, and Sal aged 57, have been married for 37 years. They have a daughter, Shazza, aged 36 who is married to Con. Shazza and Con have a son, Matt, aged 17.

Das runs a crash repair business ‘Corrigan Crash Repairs Pty Ltd’ on the outskirts of Sydney with the help of Sal, his grandson Matt and his loyal employee of 25 years, Farouk. Das and Sal are the only shareholders and directors of the crash repair business.

Das and Sal’s crash repair business has flourished over the past decade enabling them to accumulate a sizeable retirement nest egg in their industry superannuation fund. They have just received their latest member statements which show an adequate investment return for the last financial year. Das’s balance is now

$900,000 and Sal’s balance is $700,000.

Sal recalls reading an article recently on the costs of running an SMSF. She remembers a figure of $200,000 being mentioned as the minimum amount needed to set up an SMSF. While enjoying the serenity at their holiday house on the central coast, Sal mentions this to Das who is immediately attracted to the idea of running his own superannuation fund. “Picture this, the ‘Corrigan Family Super Fund’”, he says to Sal.

“That’s it Sal” says Das, “first thing on Monday morning I will call Dennis (Das and Sal’s financial adviser) and

get the ball rolling”.

• Discuss the risks that should be considered by Dennis and disclosed to Das and Sal about the couple establishing and running their

(10 marks | 180 words)

• Outline the various steps required to set up their SMSF. As part of your answer, you are also required to explain the advantages and disadvantages of a corporate trustee structure versus an individual trustee structure, and the issues with appointing Corrigan Crash Repair Pty Ltd as the corporate trustee of their

(15 marks | 270 words)

• Das and Sal would also like Shazza, Con, Matt and Farouk to all be members of the Corrigan Family Super With reference to the relevant legislative provisions, explain whether it is possible and, if so, what conditions would need to be satisfied for each of the following to be members of the SMSF:
  • Shazza and Con (1 mark)
  • Matt (2 marks)
  • (2 marks)

(Total 5 marks | 100 words)

Section B

There is one (1) short-answer question with five (5) parts in this section worth 65 marks. Answer all parts of the question.

Question 2    SMSF investment strategy — acquiring business real property and planning for life events  (65 marks | Word limit: 1450 words)

Das and Sal complete all the necessary documents and steps to establish their SMSF and the ‘Corrigan Family Super Fund’ is now a reality. They both join as members of the fund and complete the necessary steps to roll over their respective super balances to their SMSF. No one else shows any interest in joining the Corrigan Family Super Fund, preferring instead to stay with their current superannuation fund arrangements.

Soon after, while sorting through the day’s mail, Sal notices a letter from the owner of the commercial premise which is leased to Corrigan Crash Repairs Pty Ltd. The letter says due to rising property costs, their lease payments are being increased by 20 percent. “Tell him he’s dreaming” says Das and the letter goes on to say the owner is selling the property and will shortly list it for sale for $2 million. The property itself consists of two adjoining properties on separate titles: one consists of the business office and workshop, and the other is used to store spare car parts and incorporates a car park for customers and staff.

Shazza and Con were visiting Das and Sal at the time and Con overhears Sal and Das’s conversation. Having had some dealing with SMSFs in the past as an accountant, he says to Das “You know Das, SMSFs can purchase a business premise, so why doesn’t the Corrigan Family Super Fund just buy the property?”

“That’s a great idea Con” says Das and turns to Shazza and says with a wink “that’s why you married him – he’s

an ideas man”.

Das does some quick calculations in his head and realises their fund will be at least $400,000 short. He also knows Sal wants to retire in about 12 months time.

• Describe the various compliance issues that would need to be considered under the Superannuation Industry (Supervision) Act 1993 by the trustee(s) of the Corrigan Family Super Fund before acquiring the commercial property? (10 marks | 250 words)
• Outline and discuss at least five (5) strategies that could be implemented to enable the Corrigan Family Super Fund to acquire the property. In your answer briefly explain the advantages and disadvantages of each (Note: Bullet point format is acceptable for this answer). (30 marks | 600 words)

About 12 months later, and prior to Sal retiring and their fund acquiring the commercial property, Sal passes away after a short illness. Fortunately, the trustees of the Corrigan Family Super Fund had taken out a life insurance policy for Sal when their fund was established. Das and Sal had also appointed Shazza and Con as joint executors of their respective estates.

Stricken with grief, Das’s doctor declares that he is in no condition to work. Das immediately closes his business. He is determined to do the right thing by Farouk and offers him four weeks wages in advance so Farouk can find alternative temporary employment. With his business shut and his personal and business debts mounting, Das decides it is time to finalise Sal’s death benefit. Given his financial situation, and with no death benefit nomination made by Sal, he believes the best course of action would be to pay Sal’s death benefit to himself as a tax-free lump sum death benefit. “That’s what Sal would have wanted”, he says to Con and Shazza at a recent family gathering.

Having just read Sal’s last will and testament, the executors of Sal’s estate, Con and Shazza, are not convinced. With Con currently out of work, they too are finding it difficult to make ends meet and Sal’s Will makes it clear all her superannuation benefits are to be divided equally between Das and Shazza.

• As executors of Sal’s estate, do Shazza and Con have a say over how, and to who, Sal’s death benefit should be paid? Explain your answer. If Das agrees to pay the death benefit to Sal’s estate, do you think the trustees have correctly carried out their fiduciary duty? (5 marks | 100 words)
• The proceeds of the life insurance policy are received by the fund, and the insurance premiums were paid by the Corrigan Family Super Fund on a monthly basis until Sal passed
  • In the income year of Sal’s death, explain the tax deduction options available to the fund. As part of your answer, for each option, explain the conditions that would need to be satisfied. (6 marks | 100 words)
  • Which option would you recommend for the Corrigan Family Super Fund and why? Would your answer change if Con and Shazza were also members of the fund? (4 marks | 100 words)
• With the payment of Sal’s death benefit now finalised, Das abandons his plans to purchase the commercial property and, with his vision of the Corrigan Family Super Fund now in tatters, he calls Dennis and asks him to wind up his SMSF.

What advice would you provide Das regarding the timing of the fund closure and other matters that need to be addressed? (10 marks | 250 words)