SMSF Calculation Of Return

I would like to put a percentage against the return for my SMSF for the year but am not sure how to go about calculating this.

In any given period there is:

Starting Balance
Contributions (ie none investment returns)
Investment Income
Costs
Closing Balance

To take the $(Investment Income - Costs) as a percentage of Start or Closing Balance is not a true reflection of the performance as the balance has been increasing all year with contributions.

I could do this calculation monthly and then average the monthly results.

Any better suggestions on how this is done?

 

I am not an accountant - but it can be done this way from math point of view.

Get daily crediting rates so you can calculate the effect of each contribution/expense from the day it hits the fund.

For shares and such, it is easy to get asset value at the end of the day but it can get trickier for other asset classes

EDIT: Interesting read on unit prices vs crediting rates

 

Why do you need a % rather than a $ return ?

There are some SMSF trust deeds which do prescribe a crediting rate and your problem explains the difficulty in complying with such a "rule". The timing of when contributions and when investmnet income is paid to the fun and timing of costs will all affect the %. Tax should also factor in on contributions and net earnings.

Revaluation of investments must also feature. Typically an actuarial determined earning rate would use a calculated daily balance. Software like BGL Simple Fund performs this process by default.

 

Hi Paul,

This is just for my calculations, need to know how I'm going. A percentage number is more objective than $ amount.

Hi John,

Thanks for the link.

 

Then the methodology if it is consistent will be OK for comparision. Your proposed method may be suitable for that purpose

 

Back of the envelope calculation:

((Closing value / (opening value + total annual contributions /2)) -1) * 100%

Of course this assumes you make similar contributions throughout the year and value the assets at the end of each year.

 

Thanks!

I think I may apply that method monthly and then annualise, a good place to start.

 

Sorry to bump an old thread but thought my question fits in here.

If you join-up(parents) or join-sideways(siblings) to form an SMSF and buy property. At the end of each year, do you just go by valuation of the property by REA etc to get a number for the opening balance of each member for the next year?

I was just wondering about lump-sum contributions in any given year that can skew that member's share of the returns.

Let's say the fund buys a property for $100 and it's growth has been pretty flat for the first 5 years and goes bazunka in the 6th year. In that year, if one member contributes a significant chunk then (s)he would get the most of out of the return? No different an Industry super-fund I suppose?

 

No, it doesn't work like that. Each member would have a member account which takes into account their contributions to super.

 

No. Each member has their own account/s and that is based on contributions and rollovers. The accounts in combination may buy asset/s which are considered fund investments rather than a member investment. Earnings may be apportioned and allocated annually in accordance with SIS Reg which require income to be allocated in a fair and reasonable manner based on balances and member interests etc. Allocation of earning may also be affected by asset segregation - ie Dad has the shares and Mum has an IP in the fund. Income includes revaluation of the assets (up or down) too.

In reality a daily avg balance per member relecting total fund net assets over the course of the year (opening balance 01 July through to closing balance 30 June) may reflect a reasonable basis of apportioning income. This is the typical actuarial method used for an actuarial certificate if one is needed.

There are some reasons why siblings and / or parent should not be in a SMSF together and also valid reasons to do so.

 

Thanks Terry and Paul.

I should have explained it a bit better.

Let's say A and B each rollover $100k from their current super to form an SMSF. For sake of
simplicity, let's say they just bought one asset with all of $200k.



Income earned by the fund in Year 6, which is $100k has to be apportioned to members based on their opening balances and contributions for that year, right? In which case, B got a higher share of returns for that year. If B hadn't injected that extra $70k just before the start of the financial year, they would have go equal shares considering that the asset performed poorly the first couple of years.

In that sense, I think it's no different to putting more money in an Industry super just before it had a bumper year.

 

Don't mix family and business reasons?