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RE: Member Allocation Tab;e

PP Super — Tue, 05 May 2009 04:16:46 GMT

Hi,

Yes, you sort of missed my point which was really to suggest that although more complex formulas are needed to take into account the time value of money, offering another simple formula option could take into account my concern which was which actual amounts feed into the "contributions" amount used in the formula.

[quote]Regarding the addition of a new formula, member contributions already flow through to the member and are not subject to allocations based on the formulas. For example if a member makes a taxable contribution of $10K and there are an additional $50K to distribute then the member will receive $10K (less tax) plus their portion (based on the allocations) of the $50K (less tax).

The addition of a new formula would have no affect on the above. Contributions made by a member in the current year must flow through to them only, otherwise a member contributing many multiples of other members would in effect be giving money to other members in the fund.[/quote]

Yes, I realise that, my point was that since these amounts ARE already directed to the member they are already identified and can therefore be plugged into my suggested formula.

[quote]I meant that if there are new categories of contributions added (eg the recent addition of 'excessive' as a category taxed at highest rate) then any formulas that outline the right way to allocate profits will need to be updated (perhaps only checked) to ensure that the tax implications of changes are handled properly.[/quote]

OK, I misunderstood your point - but still MySF will have to be updated to account for these new categories/rates the relevant amounts will then be available so they just need plugging into the formula.

My point really was that the alternative formula to be offered would just have, as the "contributions" amount to be plugged into the calculations, the sum of all member specific funds going in less any contributions tax applying to those contributions. It's basically just the same approach you already offer but with transfers in included and contributions adjusted for contributions tax.

As such, it would seem to be a relatively easy option to offer it as another of the optional formulas (actually another two options when you include the 100%/50% variants)

Regards

RE: Member Allocation Tab;e

MySF2 — Mon, 04 May 2009 22:54:56 GMT

Hi

When i wrote that
[quote]The formula would also need to be updated each time there is any change in the taxation of contributions. [/quote]
I meant that if there are new categories of contributions added (eg the recent addition of 'excessive' as a category taxed at highest rate) then any formulas that outline the right way to allocate profits will need to be updated (perhaps only checked) to ensure that the tax implications of changes are handled properly.

Regarding the addition of a new formula, member contributions already flow through to the member and are not subject to allocations based on the formulas. For example if a member makes a taxable contribution of $10K and there are an additional $50K to distribute then the member will receive $10K (less tax) plus their portion (based on the allocations) of the $50K (less tax).

The addition of a new formula would have no affect on the above. Contributions made by a member in the current year must flow through to them only, otherwise a member contributing many multiples of other members would in effect be giving money to other members in the fund.

Please let me know if I have misunderstood your posting.

Regards,

MySF

RE: Member Allocation Tab;e

PP Super — Sun, 03 May 2009 19:25:47 GMT

Hi,

As I see it, there are basically two main issues to consider here:

1) Which actual contributions/amounts to use for the split calculation
2) A time value adjustment to allow for the proportion of the year that the funds have been invested

Addressing issue 2) first:
This is addressed in a simplified way by your default formula (ie using 50% of the contributions). I agree with you that an ideal formula would take into account the time value of money but would require a much more involved calculation, however this was not my issue - I am happy to accept the two option approach of basing the calculation on either 100% or 50% of the years contributions as a reasonable simplification.

Issue 1) is really the issue I raised:
I am happy with the two basic formulas except for what actually constitutes the "contributions" that is plugged into the formulas.

I quite accept your statement:
[quote]However we are not in a position to make a unilateral ruling and change in the way that profits are allocated for Australian self managed superannuation funds. This would effectively force our decision about what is acceptable and fair onto others and would cause a range of potential problems for us.[/quote]

My suggestion, as I mentioned last year, is that you could offer an additional formula option (actually two if you include 50%/100% variations of it) in addition to the two currently offered. In fact it would be the same formula except for the "contributions" figure plugged in.

My suggested formula would simply be that the "contributions" figure for a member is the sum of:

• Member Contributions (including Super co-contribution)
• Member Transfers in
• Less Members Contributions Tax

I don't really see where this would be a problem since MySF already needs to "allocate" the relevant contributions, transfers in etc to specific members so that the members benefits are correctly calculated.

I don't really follow your point that:
[quote]The formula would also need to be updated each time there is any change in the taxation of contributions. [/quote]

Surely MySF has to be updated at any time there is any change in the taxation of contributions if it is to correctly account for taxation. The profit split would just be using figures already tracked in MySF.

Regards

RE: Member Allocation Tab;e

MySF2 — Sun, 03 May 2009 17:16:52 GMT

Hi,

[u][i]lewisid:
[/i][/u]There has been no change to the formulas used on the member allocation table screen, so if the inputs are the same then the results of the calculations should also be identical.

The only update to this since the release of the software has been to include the new accounts (contributions accounts that hold concessional, unconcessional and excessive member contributions). This change was made several updates ago, so if you have recently updated from a very old version then that may be the reason for the differences in display. Please also check to ensure that the opening balances and contributions recorded have not changed.

[i][u]PP Super:[/u][/i]
We accept both of your examples and the calculations shown as being valid examples of shortcomings of the offered formulas. However we are not in a position to make a unilateral ruling and change in the way that profits are allocated for Australian self managed superannuation funds. This would effectively force our decision about what is acceptable and fair onto others and would cause a range of potential problems for us.

The ideal solution would be a a complete and comprehensive formula supplied by a widely accepted and respected authority. Such a formula would need to take into account items such as the time value of money (for example by applying discount rates for contributions late in the year), and would need to include every single possible variable and scenario relating to taxation of member contributions. The discount factors applied to contributions would need to be calculated in a continuous manner. The formula would also need to be updated each time there is any change in the taxation of contributions.

Given the lack of such formulas we have chosen what we believe is an acceptable alternative, which is a choice between two very simple formulas provided in Taxpayer Australia's Self Managed Superannuation Fund manual. Despite all of its shortcomings the formula provides a simple to understand method of calculating allocations.

Past version of MySF Manager allocated tax according to the formula as well, but we have improved on this to allocate tax related to income from contributions to those members who have actually made taxable contributions.

In summary, It is very unlikely that we will make any large scale changes to the allocation formulas in MySF Manager. However we do accept that the current formulas are far from perfect and encourage MySF Manager clients to use their discretion when determining allocation percentages.

If readers of this post have developed a spreadsheet which addresses the shortcomings of formulas and assists SMSF trustees in calculating allocations in a more appropriate way then please post them as an attachment to responses.

Regards,

MySF

RE: Member Allocation Tab;e

PP Super — Fri, 01 May 2009 22:47:50 GMT

Hmmm,

I still have real problems with the way MySF calculates member allocations.

I appreciate there are many variables and that to actually take into account how the balances change during the year ( ie the difference between a contribution in July vs a contribution in June) could get very complicated - so I don't have a problem between offering a choice of simplified default formulas.

Where I have a real problem is how those formulas are calculated and applied.

Last year I raised the issue [url]http://www.mysf.com.au/members/Topic3847-25-1.aspx[/url]when MySF gave a particularly inequitable split for our opening year. At the time you said [quote]We will review the formulas and the way that the allocations are calculated to see what can be done to make sure that similar problems do not reoccur.[/quote]
This year we had no incoming rollovers - so I don't know if you addressed that or not - however I found another problem in that your allocation formula makes no adjustment for the contributions tax due on deductible contributions.

My partner is employed and cannot make deductible contributions whereas, being retired, I can - so again she is the one being disadvantaged - not happy Jan :(

To explain the problem I'll use a couple of really simplified examples:

Example 1:
2 members, zero opening balances, both make a $100k contribution, one is deductible but the other isn't.

MySF will give a 50/50 profit split (in this case for either formula due to the zero opening balances). In reality there is $15k contributions tax due on the deductible contribution so the actual split should be based on $85k/$100k ie 45.946% to the member who made the deductible contribution and 54.054% to the other.

Example 2:
2 members, zero opening balances, one makes a $100k deductible contribution, the other makes a $85k undeducted contribution.

In this case MySF really should give a 50/50 profit split as both members have effectively made $85k net contributions after allowing for the $15k contributions tax due on the deductible contribution. However MySF will actually give a split based on the gross contributions ie 54.054% to the member who made the deductible contribution and 45.946% to the other.

I realise I can always calculate an equitable split manually and then input the percentages into MySF - but I shouldn't have to!

PS - Sorry to hijack your post lewisd - but it seemed to be appropriate seeing it covered how MySF splits the profits.

Regards

Member Allocation Tab;e

lewisd — Wed, 29 Apr 2009 19:05:29 GMT

I run a fund with two members. Recently I updated MySF to version 7.01 and noticed a change in the % calculated allocations in the member allocation table, compared to a previous version, for exactly the same financial year. To be more specific, for financial year 07-08, the old version (I think it was 5. something) gave an allocation of 100% to me and 0% to my wife. Version 7.01 now gives 97.791284% to me and 2.208716% to my wife. At no stage did I use the year end wizard - all I did was an update. I find this puzzling and wonder if there have been any formula changes made during the update.