smsf masterclass – adding value through niche strategies rahul singh – anz technical services
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SMSF Masterclass – adding value through niche strategies
Rahul Singh – ANZ Technical Services
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Strategies unique to SMSFs Unrestricted non-preserved benefits and TtR strategies
Contribution reserving – claiming double the concessional contributions cap in one year and allocating part of it to the next FY
Has the SMSF reached its shelf life?
Lessons from recent estate planning cases
Agenda
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Meeting our clientsJohn - 56 Gloria - 50
Have a SMSF
Have sought advice elsewhere
Second opinion - want their adviser to consider all options available
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Unrestricted non-preserved and TtR strategies
Salary $100,000 pa
Balance $400,000 all taxable component
$100,000 unrestricted non preserved benefits
Wants to do TtR
Issues
Can he commence a TtR just with preserved benefits?o Beware some public offer
funds
If the TtR is commenced with UNPB + PB, what is the order of payments coming out?
Strategies? Cash out & recontribution Electing lump sum to count towards
the minimum
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Unrestricted non-preserved and TtR strategies
Cash out and recontribution
Condition of release - can only do it as has unrestricted non-preserved funds
Contribution caps Decreases taxable component Increases tax-free component Reduces tax payable on pension payments
Tax on lump sums
Preservation age but under 60
• First $195,000 tax free• Excess 17%
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Unrestricted non-preserved and TtR strategies – cash out and recontribution
Default
Salary 100,000
SG 9,500
Salary sacrifice 25,500
TRIS drawdown 20,467
Tax payable 21,914*
Net pay 73,053
* Does not include 15% contributions tax
Issues
Loss of accessibility
Better than default, but still tax on pension payments
Cash out & recontribution
100,000
9,500
25,500
19,251
20,698*
73,053
Tax savings $1,216
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Unrestricted non-preserved and TtR strategies
Electing for lump sum to count towards minimum payment
SMSFD 2014/1 & TR 2013/5
Make an election for a benefit to be taxed as a lump sumo Can do so because of UNPB
Lump sums within the low rate cap are tax-free
Lump sums, whether cash or in-specie count towards the minimum requirement but not maximum
Akin to a TtR for someone over 60
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Unrestricted non-preserved and TtR strategies – electing for lump sum to count towards minimum payment
* Does not include 15% contributions tax
Default
Salary 100,000
SG 9,500
Salary sacrifice 25,500
TRIS drawdown
20,467
Tax payable 21,914*
Net pay 73,053
Cash out & recontribution
100,000
9,500
25,500
19,251
20,698*
73,053
Elect for a lump sum….
100,000
9,500
25,500
16,000
17,250*
73,251
Tax savings $4,664
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Unrestricted non-preserved and TtR strategies – electing for lump sum to count towards minimum payment
Summary
Look out for clients with unrestricted non-preserved benefits in the 56-59 bracket
Some public offer funds also have this functionality
This opportunity can also have application for retired high SMSF balances in the 56-59 bracket
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Contribution reserving – doubling up on the concessional contributions cap
Now 60 and retired
Only income is tax-free ABP pension payments
Sold investment property with total capital gain of $200,000
Issues
Concessional contributions o “Less than 10%” test
CC Cap limits how much tax advantages Gloria can receive upon contributing
Strategies? Personal deductible super
contribution Contribution reserving and
allocating it across two years
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Contribution reserving – doubling up on the concessional contributions cap
Is Gloria eligible to claim a tax deduction upon contributing to super?
o “Less than 10% test”o Income attributable to employee related income + reportable
employer super contributions + reportable fringe benefits needs to be less than 10% of total income (including RESC + RFB)
o Gloria has not and will not be an employee in the relevant FYo She is automatically eligible to claim a deduction for contributing
to superannuation
Gloria is over the age of 50, so concessional cap is $35,000
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Contribution reserving – doubling up on the concessional contributions cap
No advice ($)
Assessable income 100,000
Personal deductible contribution
Nil
Taxable income 100,000
Tax payable 26,947
Net 73,053
Tax savings
Personal deductible contribution of $35,000
100,000
35,000
65,000
13,947
51,053
7,750*
* inclusive of contributions tax
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Contribution reserving – doubling up on the concessional contributions cap
ATO ID 2012/16 & TD 2013/22o $25,000 contribution is received by fund on 30 June 2015. This amount is
applied to an unallocated contributions account in accordance with the governing rules of the fund.
o On 2 July 2015, the trustees allocate $25,000 to the member’s account in the fund with effect from 2 July 2014
In which year can the contribution be claimed as a deduction?o 2014-15 or 2015-16
In which year is the contribution counted under the concessional contribution?o 2014-15 or 2015-16
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Contribution reserving – doubling up on the concessional contributions cap
SISR Division 7.2 in respect of SMSF contributions are required to be allocated within 28 days of the month ending in which it is received
From a concessional contributions cap perspective, the year in which it is allocated to the member is when it is counted : 2015-16
Member claims a deduction in the year in which the contribution is made: 2014-15
Request to adjust concessional contributions – NAT 74851
Work with the accountant and/or administrator around practicalities
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Contribution reserving – doubling up on the concessional contributions cap
Default Contribution reserving
Assessable capital gain
100,000
Personal deductible super contribution
35,000 70,000
Taxable income 65,000 30,000
Tax payable 19,197 2,397
Benefit* 6,300
* Includes contributions tax
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Contribution reserving – doubling up on the concessional contributions cap
Summary
Generally only applies to SMSFs
Clients with “one-off” variation in income may benefit
Work with accountant / administrator to follow process and paperwork
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Has the SMSF reached its shelf life?
John & Gloria have been great clients. Now entering their twilight years, John passes away, leaving Gloria (80) with a single member SMSF.
John & Gloria SMSF
$1 million balance. Combination of ASX 200 direct equities, ETFs and cash
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Has the SMSF reached its shelf life?
Super death benefit
Tax free component 200,000
Taxable component 800,000
Tax payable @ 17% 136,000
Net amount each 432,000
Gloria would eventually like her super balance to go to her two non-dependant kids in equal share.
What can be done to alleviate the death benefit tax?
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Has the SMSF reached its shelf life?
Super death benefit No anti-detriment Roll-over to APRA fund with anti-detriment
Tax free component 200,000
Taxable component 800,000
Anti detriment Nil 141,200
Tax payable @ 17% 136,000 160,004
Net amount each 432,000 490,598
Investment considerations aside, wind up the SMSF to enable a rollover to a public offer fund to benefit from anti-detriment
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Has the SMSF reached its shelf life?
Issues
Fees
Managed versus non managed
Bulky assets
SMSF tax o Losses
Commonwealth Seniors Health Care Card if considering cashing out of super
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Ioppolo & Hesford V Conti 2013 WASC 389
Munro V Munro 2015 QSC 61
David Mandie
Recent superannuation estate planning cases – what have we learnt?
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What the deceased wanted? Francesca through her will stipulated that her death benefit to be paid to her children. None to
be paid to her husband
Facts
Augusto left sole trustee of the fund.
He set up a corporate trustee of which he was the sole director and shareholder
Resolved to make a payment entirely to himself
What did we learn?
Executor doesn’t automatically become a trustee. SIS allows but does not require
BDBN would have resolved the issue
Superannuation is not automatically dealt via the will
Recent superannuation estate planning cases – Ioppolo & Hesford V Conti
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What the deceased wanted? Barrie Munro through BDBN wanted his death benefit to go the estate
Facts
Barrie’s two daughters from previous marriage were his executors
Barrie survived by his second wife, Suzie. Upon Barrie’s death, Suzie’s daughter replaced him as a co-trustee
Barrie in the BDBN nominated the “trustee of his deceased estate”
Instructions to the form among others stated “executor of your estate” could be nominated
Suzie and her daughter argued that the BDBN is invalid
What did we learn?
BDBN have to follow trust deed stipulations – a mismatch can be disastrous
BDBN can be non-lapsing in SMSFs with appropriate deed clauses
Trustee succession is crucial in the absence of BDBN
Recent superannuation estate planning cases – Munro V Munro
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What the deceased wanted? He did not want his sons to inherit any estate assets
Facts
N.M Super Trustee resolved to make a payment to deceased’s three children in equal share
Subject to a SCT determination and Federal Court of Australia
In the absence of a BDBN, the trust deed stated that the trustee must pay the death benefit to either dependants or LPR
Where there are dependants, the trustee has general rules making a direct payment to the dependants
In 1995, the two sons agreed to a settlement renouncing any rights towards future estate
What did we learn?
BDN would have solved the issue
Recent superannuation estate planning cases – David Mandie case
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Thanks for your timeYou can contact Technical Services on
o 1800 444 019oTechnical@onepath.com.au
In closing up
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