Did You Know?
Deciding to establish your own Self Managed Super Fund (SMSF) is an important step in seizing control of your financial future.
Taking on the role of trustee of your SMSF, as required under legislation, brings with it a number of burdensome compliance obligations. The Australian Taxation Office (ATO) is charged with overseeing the administration of SMSFs and ensuring that Trustees comply with all of the requirements of running a fund. This can be very difficult and time consuming for you to manage.
However, Premier Superannuation Services has the solution! We can assist you by:
- I am starting my own Self Managed Superannuation Fund and would like to know the benefits in using a corporate trustee as opposed to individual trustees?
- I wish to transfer personally held assets to my self managed super fund. Could you please advise any rules I should be made aware of?
- If I was to make a non-concessional contribution of $1,000 to my fund under what circumstances will I qualify for the government co-contribution payment?
- I am 50 years of age and would like to know the maximum superannuation contributions I can make to my superannuation fund in the current financial year.
- I have reached age 60 and want to know the benefits of commencing a transition to retirement pension.
- What further benefits can a salary sacrifice arrangement provide to me?
- What are the tax implications on drawing down superannuation benefits between age 55 and 60?
- What are the options available to the beneficiaries with regards to paying death benefits?
- How is a member's death benefit treated for tax purposes?
- I have reached age 65 and would like to know what I must do to continue to make contributions to superannuation?
- What has happened to the Reasonable Benefit Limits (RBLs)?
- What happens when I reach 75 years of age?
- Could you please provide information on the new borrowing laws?
I am starting my own Self Managed Superannuation Fund and would like to know the benefits in using a corporate trustee as opposed to individual trustees?
Whilst the disadvantage of a corporate trustee is the additional costs involved on set up, there are a number of factors that make a corporate trustee more beneficial. Trust assets must be held in the trustee's name. Because a company is a separate legal entity, any changes to the members of the fund under a corporate trustee will not effect the operation of the trustee. Directors can be changed at any time and the legal ownership of the assets of the fund will remain with the trustee company.
The superannuation legislation differentiates between companies and natural persons as trustees of a superannuation fund in relation to their capacity to pay lump sum benefits to members. There has been some debate about the effect of this differentiation, but corporate trustees have a wider capacity to pay benefits.
I wish to transfer personally held assets to my self managed super fund. Could you please advise any rules I should be made aware of?
Firstly there are restrictions as to what assets an SMSF is allowed to acquire from members or their associates. These assets are limited to listed securities, bonds and business real property. Consideration for the sale of these investments must be performed at arms length or at a proper commercial valuation. Note that with any transfer of assets to the fund a capital gains event will occur and if a capital gain is realised the individual will be liable for capital gains tax. Transfers can be made as non-concessional contributions or if the member is substantially self-employed, whereby less that 10% of total assessable income of the individual is generated from an employer, a tax deduction may be claimable to the individual which may off set capital gains realised.
If I was to make a non-concessional contribution of $1,000 to my fund under what circumstances will I qualify for the government co-contribution payment?
To qualify for the government co-contribution payment firstly at least 10% of your total income must be received by way of active income which may include running a business, eligible employment or a combination of both. Your assessable income must be less than $31,920 to receive the maximum $1,000 contribution. The amount payable will reduce by 5c for every dollar you earn over the $31,920 amount and will fully phase out at $61,920..
I am 50 years of age and would like to know the maximum superannuation contributions I can make to my superannuation fund in the current financial year.
The maximum annual non-concessional contribution that can be made to your superannuation fund as of 1 July 2007 is $150,000 per annum. However as you are under age 65 you may wish to contribute up to $450,000 over a three year period. Hence if you were to make contributions totalling $450,000 in the current financial year you would not be able to make any further non-concessional contributions for the following 2 financial periods. Any contributions paid over the cap amounts are subject excess non-concessional contributions tax.
As you are over age 50 the maximum concessional contribution which can be made to your fund is $50,000 per year up until 30 June 2012 at which time this transitional period ceases and the maximum contribution reverts back to $25,000. If a person reaches 50 during the year in this transitional period they are eligible for the $50,000 cap in the same year
I have reached age 60 and want to know the benefits of commencing a transition to retirement pension.
This strategy allows for you to continue to be employed whilst at the same time draw down on your superannuation member balance from age 55. The pension annual amount that is required to be paid to the member must exceed 4% and be no greater than 10% of the member pension balance at the commencement of each financial period. The benefits include, income generated by the underlining investments funding the pension receive tax free status within the fund, once you have reached age 60 all pension income taken from the fund will be received free from tax and not required to be reported to the ATO and the strategy can be of further benefit when used together with a salary sacrifice arrangement.
What further benefits can a salary sacrifice arrangement provide to me?
As you are aged 60, you may sacrifice up to $50,000 of salary into superannuation (until 30 June 2012 when the cap reverts back to $25,000). The advantage is that a flat 15% tax rate applies on pre tax earnings sacrificed as opposed to individual marginal tax rates and that pension payments made from superannuation to substitute salary will be received free of tax.
What are the tax implications on drawing down superannuation benefits between age 55 and 60?
Firstly note that if you retire from the workforce after age 55 you may receive superannuation benefits via either lump sum or pension payments. Firstly, when drawing down superannuation benefits a member's balance shall include concessional and/or non-concessional components. All non-concessional components shall be paid to the member free of tax. Furthermore benefits shall be paid from the fund in proportion to the weighted member components at the time of commencing draw downs. ie if a member's balance is made up of $200,000 with 90% concession component and 10% non-concessional component, any benefit will be paid in these set proportions. With regards to lump sum payments, the first $140,000 of the concessional component may be received free of tax with the balance taxable at 16.5%. With pension payments the taxable pension amount will be taxed at the member's marginal tax rate with a 15% tax rebate applied.
What are the options available to the beneficiaries with regards to paying death benefits?
A death benefit may be paid as a lump sum to the beneficiary, or in certain circumstances where the beneficiary is a dependant, death benefits may take the form of an income stream (pension) which may provide beneficiaries with taxation advantages.
A dependant includes a spouse or de facto spouse, a former spouse or de facto, a child of the deceased under 18 years of age, any person who relied on the deceased for financial maintenance at the time of their death, or any person who lived with the deceased in a close personal relationship where one or both of them provided financial and domestic support and personal care.
How is a member's death benefit treated for tax purposes?
For lump sum payment purposes a taxable death benefit shall arise where the deceased's superannuation balance has a concessional component and the beneficiary is not a financial dependant. As mentioned above, all non-concessional components of a members balance shall be paid from the fund free of tax. Where a deceased's superannuation balance is paid to a spouse or another financial dependant all member components shall be received by the beneficiary free of tax.
For pension payment purposes, the taxation of a death benefit paid as a reversionary pension (ie the deceased had already commenced a pension) will be dependant upon the age of the deceased and the age of the reversionary beneficiary. If the deceased had reached age 60 the reversionary beneficiary shall receive the pension free from tax, however if the deceased had not as yet reached age 60 the reversionary pension would continue to be taxable at the reversionary beneficiaries marginal tax rate until they reach age 60. The reversionary beneficiary shall be entitled to receive a pension rebate and any deductible component.
Death benefits paid as a pension to a dependant will be taxable similar to a reversionary pension where the deceased had not as yet commenced a pension.
I have reached age 65 and would like to know what I must do to continue to make contributions to superannuation?
Once you have turned 65 you must then satisfy a work test in order to continue to make contributions to super. In order to satisfy this work test you must be gainfully employed ie. work for a financial reward, for at least 40 hours in a 30 day period during the financial year the contributions are made.
What has happened to the Reasonable Benefit Limits (RBLs)?
As of 1 July 2007 RBLs have been abolished. With the excessive benefits tax disappearing, the trend for high net wealth investors has been to push more and more of their wealth into superannuation. Coupled with the fact that both pension income and benefits drawn after age 60 are free from tax, superannuation continues to grow as the more viable tax shelter for assets and income generated.
What happens when I reach 75 years of age?
Prior to 1 July 2007 compulsory cashing restrictions applied whereby benefits in a regulated superannuation fund had to be drawn upon, on reaching age 65 and no longer being gainfully employed, or when the member had reached age 75. As of 1 July 2007 compulsory cashing restrictions have been removed hence there is no longer a need to commence a pension at any specific age. It is important to note that by keeping benefits in accumulation phase for extended periods of time can be detrimental to a member's benefits due to the assets and income remaining in a taxable environment for an extended period of time.
Furthermore as of I July 2007 in another incentive to maintain employee participation within the workplace the government has allowed for deductible contributions to be made to superannuation up to age 75.
Could you please provide information on the new borrowing laws?
As of September 2007 superannuation funds can now borrow to make investments. Funds can be provided by a commercial or private lender and used exclusively to purchase an investment. Although funds may be borrowed from a related party, the transaction must be done at arm's length and at commercial market rates. The loan is referred to as a limited recourse loan, as the lender shall be limited to recovering outstanding loan amounts up to the proceeds of the sale of the relevant interest. There is no right of recovery beyond the underlining investment for the outstanding loan. The investment must be held on trust for the fund (the trust being referred to as a bare trust) for the life of the loan, so the fund receives the beneficial interest including the right to income earned by the investment and once fully paid out the investment shall be transferred back to the fund. It is important to note that super funds are prohibited from using existing investment assets as security for a loan, however, there is an exception for new investments. Furthermore, there continues to be restrictions for assets purchased under this arrangement from related parties.
