Liam Shorte

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All posts tagged Transition

How you can Fund Children’s Education in your Will

Well this blog is not about Self Managed Super Funds but is about a matter close to the hearts of many of my clients. As a parent or grandparent, ensuring that children receive a good education is one of the most common concerns raised with us at Verante. Many people want to leave provision in their wills for such costs so here is one of our preferred strategies.

You can establish a dedicated education fund through a testamentary trust in your Will. This is a tax-effective and flexible way to provide for the education of your children or grandchildren. It can also help to ensure that the funds you want to be applied for their education are preserved and not misused by young beneficiaries or caught up in the complications caused by the rise of complicated blended families (his, hers and ours issues).

If you are a grandparent, leaving bequests via a testamentary trust for payment of education fees and related costs for your grandchildren is a more tax effective method of providing for their education rather than leaving additional bequests to their parents that may be caught up in marriage breakdowns, business bankruptcy or litigation.

What is a testamentary trust?

In general, a trust describes an ownership structure where the assets of the trust are held by a person or organisation (the trustee) for the benefit of other individuals or organisations (the beneficiaries).

A testamentary trust is a trust that is created within and by your Will. You need to arrange it as part of your Will making but it only comes in to effect on your death.

A testamentary trust may be created using specified assets, a designated portion of your estate or the entire remaining balance of your estate. Multiple trusts may be created by the one Will.

Normally the Trustee of this trust will be the executor of your estate, a surviving spouse or sibling of the deceased. You also have the option of appointing an Independent trustee company. Often this trustee will step down when the beneficiary reaches a target age or completes their education.

What is an education fund?

Assets inherited directly by your beneficiaries become part of their personal assets and are under their control. The future of these assets depends on the beneficiary’s ability to manage their own financial affairs, with no guarantee that the assets will be applied for any particular purpose, such as their education.

An education fund is a trust which focuses on funding the education of a particular beneficiary (the ‘primary beneficiary’). It gives you assurance that the income of the trust will be directed to the educational and other purposes you have specified in your Will.

You set the terms of the testamentary trust in your will. These terms can restrict the ability of any of the beneficiaries to control the activities and investments of the trust or give them complete control. You are in effect choosing to ‘rule from the grave’ to ensure that the inherited assets are protected and used sensibly for the benefit of the primary beneficiary

How does an education fund operate?

The typical features included in an education fund are:

The trust can be funded by your some or all of your assets and by payments in consequence of your death such as superannuation death benefits or insurance proceeds paid to your estate.
A proportion of your estate is held on trust until the primary beneficiary (child/children) achieves a particular level of education or satisfies other conditions established in your Will. Many of our clients choose age 25.
The trustee has the power to apply the income and capital of the trust for a variety of purposes specified in your Will for the benefit of the primary beneficiary, with the emphasis being on the educational needs of the primary beneficiary.
During the financial year, income and capital are distributed to the primary beneficiary to the extent required for the approved purposes. Any remaining income is either accumulated within the trust or distributed to other beneficiaries, as directed by the Will.
When the primary beneficiary has satisfied the conditions specified in the Will (such as attaining a particular level of education or age), they gain control of the remaining balance in the education fund and may either continue the trust or vest it (end it) at any time.
If the primary beneficiary fails to satisfy the conditions within a specified period, the trustee may determine that the remaining balance in the education fund be distributed to other beneficiaries named in the Will or held on trust for the education of those beneficiaries (or their descendants).

An education fund will normally be a mandatory trust imposed upon the beneficiary due to your desire that they continue their education to a specified level. The beneficiary will not normally be given the option of terminating the trust or eventually inheriting the trust without satisfying specified conditions.

Example

George and Helen have a combined estate worth $1,500,000. They have three young grandchildren whom they wish to make their beneficiaries as they had already helped their children to set themselves up as financially secure.

George and Helen are concerned that, in the event of their deaths, their grandchildren will not be sufficiently mature to use their inheritance responsibly. They wish to establish an education fund to ensure that the grandchildren are encouraged to further their education, but are also adequately provided for during their developing years.

As a result, George and Helen’s Wills provide that 50 per cent of the inheritance received by a child ($250,000 each) will be held in testamentary trust funds on the following terms:

Until the beneficiary turns 25, their access to the income and capital of the trust is limited to specified purposes, such as:
- education expenses, including HECS liabilities
- hospital and medical expenses
- rent or accommodation charges
- electricity, gas and other utility payments
- maintenance and income support at the discretion of the trustee.

If a specified level of tertiary education has been completed by the age of 25, the beneficiary will be given full control of the trust at the time of attaining that educational level, with the ability to either continue the trust for tax planning purposes (as a tax-effective vehicle for supporting the education of their own children) or terminate it.
If the beneficiary does not attain the required level of education by the age of 25, the remaining balance of the education fund will be distributed amongst charities specified in the Wills.

The education funds will ensure that each child is adequately supported, but also given an incentive to further their education. If all children were from the one family you could use just one Trust.

Additional issues to discuss with your legal expert

Common areas which require further thought are:-

Whether to have one or several Trusts established under the Will
The selection of the appropriate trustee or trustees
The method of appointing replacement trustees
Whether some classes of beneficiaries are restricted to income and some to capital

Back-up Strategy

There is a second chance for your family to establish a testamentary trust after you die but this second chance must be taken advantage of within three years of your death. This enables a trust to be established from your assets and for the income to enjoy the same tax advantages as income derived through a testamentary trust. However, the assets used to establish the trust cannot exceed the amount which the beneficiary would have received under the law, if you died without a Will.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options or get a referral do a recommended Estate Planning solicitor. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

How does UK vote to leave EU affect SMSF Investors

BREXIT is a reality!

OK, It has happened. I always worried that British pride and fear of immigration would lead to this outcome. So where to from here? What does it mean for SMSF Investors?

The situation is unprecedented and there is no verified or tested procedure for EU exit. This means there is uncertainty as to what happens next. You can expect that:

Article 50 of the EU constitution – the law governing the process of the UK’s divorce from the EU – will be triggered
This will kick-start the formal two-year process determining the terms of the UK’s EU exit, including the shape of its future access to the EU Single Market
There will be significant pressure on Prime Minister David Cameron to resign (Update: that has happened) and for Scotland to review its position within the UK

In the short run, Self Managed Superannuation Fund investors can expect:

Shock to investor confidence and increased asset price volatility primarily in the EU but also with Aussie companies who have exposure to that region especially the UK (BTT, CYBG, Henderson, HVN, IRESS)
This vote combined with global economic conditions, high asset valuations, our election next month and the progress towards the U.S. election in November will all likely contribute to volatility through the second half of the year.
Further strength in the Aussie Dollar short-term and declines in the pound (time to pay in advance for the UK trip of a lifetime!)
Downward pressure on equities, especially financial sector stocks and companies with overseas earnings. Time to buy the world at a discount. If not confident then look to great proven managers like Magellan and Platinum to pick the opportunities and ETFs from Vanguard, Ishares, State Street and Betashares for core or sector specific exposure.
Flight to safety will see USD and GOLD seen as safe havens. We can point you to the right people if interested in Bullion
Upward pressure on corporate bond yields owing to increased uncertainty and the worsening short term growth outlook – as with equities, the financial sector is most
exposed. Look to proven managers in this fixed interest and credit space like Vimal Gor at BT Investment Management to guide you.
Modest declines in-house prices are possible, as our banks may find it harder to raise overseas debt and therefore pass on increased costs to borrowers and hence curtail new purchases.

The leave vote will create short-term volatility and hurt growth prospects as markets deal with increased uncertainty. Inevitably however, the increased volatility should open up potential opportunities to benefit tactically through buying of those companies and assets that show solid traits of being well capitalised and with good management that should be able to best withstand the uncertainty. In a nutshell you will get a one-off opportunity to buy quality assets as a discount but you must search for quality among the chaff.

From time to time, as with the Greek debt Crisis, equity markets experience heightened, event-related volatility. A good adviser will ensure that you focus on your long-term goals and understand:

Volatility is a normal part of long-term investing and equity returns premium revolve around getting higher than cash returns for accepting that volatility.
Avoid being swayed by media hype and overly negative sentiment.
SMSF trustees and other long-term investors are usually rewarded for taking additional equity risk when there is “blood on the streets”
Market corrections can create attractive opportunities to buy quality assets at a discount. Afraid to pick sectors then use a multi-manager like Russell Investments to spread the risk
Some active investment can help navigation in periods of increased volatility. That is why we at Verante believe in passive/active blended portfolio design

So what to do?

Make sure you have some cash ready for purchases
Review your portfolio for any stocks or assets over exposed to Europe and seek research or comment on them
Wait for some sign of the market bottoming and take small and targeted purchases in discounted sectors without getting carried away.
Research , research and more research or outsource / work with SMSF specialist advisors like us who have made the contacts and done the leg work in portfolio design.

Finally a table that sums up the fact that those who have to live with this decision were against it.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on June 24, 2016 • Permalink

Posted in Asset Allocation, International Investing, Investment Strategies

Posted by SMSF Coach - Liam Shorte on June 24, 2016

https://smsfcoach.com.au/2016/06/24/how-does-uk-vote-to-leave-eu-affect-smsf-investors/

My Call – Guvera IPO is not suitable for my SMSF clients – Yours?

A new Guvera – Next Big thing?

As an SMSF Specialist and Financial Planner I do not pretend to my clients that I am an investment guru or that I can tell what will be the next big thing!. I believe my job is to guide them in portfolio construction and advise on diversification while bringing up opportunities to their attention that they may not have considered. This includes some IPO’s and in the last few years I have supported HPI, MPL, QVE, BWP, PIC and avoided some I just couldn’t see long-term value in like MYR, Dick Smith (DSH), McGrath (MEA). I never call them all right but I do limit what clients invest in each to what they can afford to lose.

I did not make these decisions for my clients on my own. I relied heavily for support on services such as our own in-house research team at Magnitude and eQR equities research, third-party research services like Morningstar, Intelligent Investor and discussions with peers and those I believe are thought leaders in the SMSF and Investment space. See the Twitter list here

So when I saw the Guvera IPO come up and having followed them from about 2 years ago when I signed up to their beta service it tweaked my interest. But once I had done my own research and read what others had provided I decided this was a no go area for any SMSF client looking to build wealth for retirement as superannuation is intended.

The figures spoke for themselves. $1.2 million in revenue on a $81.1 million loss and a failed attempt to raise money from size-able seed investors. Believe me there are many sources of venture and angel capital funds out there for good start-up ventures with potential so when an idea has good prospects it will receive support and at such an early stage in its life it should not be seeking a listing on the ASX as it has not proved itself.

I struggle to see how a responsible advisor could recommend a IPO like Guvera’s to many SMSF investors let alone 3000 of them. It appears that the main fund-raiser for this IPO is promoting it via related Accounting firms and rumours of SMSFs being set up just to invest in this IPO as their only current asset. I also question if Accountants and Advisers who have become promoters of this IPO are receiving options or referral fees and assume that they are fully disclosing these to clients who must trust them for guidance. I question whether post July 2016 when Accountants’s will be legally obliged to provide Statements of Advice under a Best Interest’s duty and fully outlining the terms and risks on a personal basis for a client or their SMSF if such an investment could be as targeted to SMSFs.

Its not just me, the Australian Shareholders Association raise concerns about Guvera on Ross Greenwood’s show on 2GB. Listen here for the podcast. http://www.2gb.com/audioplayer/182331

This type of venture is a very, very highly speculative investment suitable for no more than 1-5% of the most aggressive of investors portfolios so I do not believe it should be promoted by private equity through accounting firms or financial planning firms to their SMSF clients. I will call it now as possibly the next Trio or WestPoint.

So that’s my call and guidance I have given to my clients. What are your thoughts? Am I becoming an old fuddy-duddy with no eye to the potential future of this firm?

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

8 Comments

by SMSF Coach - Liam Shorte on June 9, 2016 • Permalink

Posted in Investment Strategies, News & Stats

Posted by SMSF Coach - Liam Shorte on June 9, 2016

https://smsfcoach.com.au/2016/06/09/my-call-guvera-ipo-is-not-suitable-for-my-smsf-clients-yours/

Why cats don’t need to consider life insurance, but you do…

Ok so as SMSF trustees you are obliged to consider insurance for members but you might think you don’t need it or that you can manage risks. Here is a light-hearted look at some reasons why you might need to reconsider that decision.

Cats have 9 lives. You don’t. Enough said.

Cats get a free ride. You pay the rent/mortgage. Living in an lane way or the bush might work for a feral feline, but for your family, not so much. Your rent or mortgage still needs to be paid regardless of illness, injury or death.

Cats can hunt. You can barely handle the line at the Woolies.
Stalking prey for dinner is not an option. Your family needs cash to put food on the table.

Kittens move out at 8 weeks. Your kids may still be at home when they’re 25..30..and back again at 45 with a few kids in tow!

Your kids may leave for uni at 18, but they could be freeloading off your parental generosity well past their studying years…focusing on becoming an “entrepreneur”, an “artist” or just “finding themselves”.

Cats always land on their feet. You need a safety net. Life on the edge might be thrilling for you, but a nightmare for your family.

Cover your life and your income. Protect your family’s most important asset—you and your earning capacity (unless, of course, you’re a cat).

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on May 14, 2016 • Permalink

Posted in Income Protection, Insurance Strategies, Life Insurance, Salary Continuance, Trustee

Posted by SMSF Coach - Liam Shorte on May 14, 2016

https://smsfcoach.com.au/2016/05/14/why-cats-dont-need-to-consider-life-insurance-but-you-do/

How does the Budget 2016 affect contributions to an SMSF

I am breaking the Budget down in to bite size chunks with strategies to consider going forward for SMSF Trustees. The first part which dealt with pension strategies is available here . This second part deals with changes to contribution options, methods and caps.

Before I go into detail here is a summary of the changes that are relevant to SMSF members (No coverage of Defined Benefit Schemes in this article):

Concessional (Pre-Tax Contributions like employer superannuation guarantee (SGC), salary sacrifice and those contributions where you claim a tax deduction).

Reduction in the concessional contribution cap to $25,000 regardless of age
Carried forward concessional cap for account balances below $500,000 from 1 July 2018
All individuals under 65 will be eligible to claim a tax deduction for personal contributions (bye bye 10% rule). work test applies ot over those 65
Reduction in income threshold to $250,000 where additional super contribution tax applies
Reduction in contribution tax for people earning less than $37,000
Extension of low-income spouse contribution tax offset

Non-Concessional (Post Tax Contribution like personal after tax contributions and Government co-contributions).

Reduction in Non-concessional contribution cap limit to $100 per annum
Reduction of existing annual non-concessional bring forward provisions

Now the detail:

Reduction in the concessional contribution cap to $25,000 regardless of age

The concessional contribution cap will be reduced from the current level of $30,000 to $25,000 from 1 July 2017, irrespective of the age of the individual. The higher cap of $35,000 that currently applies to individuals over age 50 will be abolished. The reduced cap will continue to be indexed in future years in line with wages growth.

Carried Forward or Catch-up concessional contributions
From 1 July 2018 individuals will be able to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. Access to these unused cap amounts will be limited to those individuals with a superannuation balance less than $500,000. Unused amounts accrued from 1 July 2018 will be able to be carried forward on a rolling basis for a period of five consecutive years.

This measure allows some additional flexibility in the timing of your contributions like making $125,000 for a tax deduction on the sale of a property or share portfolio if you did not make contributions in the previous 4 years. Your ability to save may vary throughout your career and this measure will assist to some extent, but falls well short of my preferred option for a lifetime cap on concessional contributions. The restriction based on size of account balance will add complication to the administration of this measure when multiple funds are involved.

All individuals under 65 will be eligible to claim a tax deduction for personal contributions

From 1 July 2017, all superannuation fund members up to age 65 will be able to claim an income tax deduction for personal superannuation contributions up to the concessional contribution cap ($25,000), regardless of their employment circumstances. This is good news for people who are partially self-employed and partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements, as they will benefit from this proposal. Personal contributions for which a tax deduction is claimed will count towards the concessional, rather than the non-concessional cap.

While I accept the government’s intention is to increase flexibility for more people to access the concessional contribution cap if they are able to do so, the mechanism requiring individuals to notify their fund of their intention to claim a tax deduction for their personal contributions will add considerable complexity to fund administration. the “she’ll be right” and “I’ll do it later factor” will lead to many missing opportunities.

Over 65’s will still need to meet the work test.

Reduction in income threshold to $250,000 where additional super contribution tax applies

From 1 July 2017, individuals with “relevant income” greater than $250,000 will pay an additional 15 per cent tax on their concessional contributions, down from $300,000. The additional tax, referred to as “Division 293 tax” after the section of the tax legislation which governs the tax, will be payable where the individual’s taxable income (including reportable fringe benefits and certain other amounts) plus concessional contributions (excluding those that exceed the concessional contributions cap) is greater than the $250,000 threshold.

Superannuation still remains attractive despite this change, the 30% tax applied to concessional contributions is still less than the marginal tax rate on earnings so contributing to super remains attractive. But with the lower $25,000 concessional contribution there will be limited scope for you to make optional concessional contributions. For example, if you earn $250,000 and your employer pays the 9.5% SG on your full salary this is an annual employer contribution of $23,750 which has almost fully utilised the new lower cap. If you are on a higher income with disposable income you may look for alternatives outside superannuation or top up your partner/spouse’s superannuation (and potentially receive a tax offset if they earn less than $37,000).

After earlier reports that the threshold would be reduced to $180,000, the proposed threshold of $250,000 means the tax will apply to only around 1 per cent of superannuation fund members. Retention of the existing mechanism which minimises the administrative costs to superannuation funds associated with this tax is welcome.

Reduction in tax for people earning less than $37,000

From 1 July 2017, the Government will introduce a Low Income Superannuation Tax Offset (LISTO) to reduce the tax on superannuation contributions for low-income earners. The measure will apply to individuals with taxable income less than $37,000, and will effectively refund the tax on concessional contributions up to an annual cap of $500. This measure will replace the Low Income Superannuation Contribution (LISC) which was scheduled to be abolished from 1 July 2017, however, the mechanism will be slightly different. Rather than the government making a direct
contribution to the individual’s superannuation account, the offset will apply to the contribution tax deducted by the superannuation fund. The Australian Taxation Office will determine an individual’s eligibility for the LISTO and advise their superannuation fund annually. The fund will then contribute the LISTO to the individual’s account. The government will consult on the implementation of this scheme.

Extension of low-income spouse contribution tax offset
The government will increase access to the low-income spouse superannuation tax offset by raising the income threshold for the low-income spouse from $10,800 to $37,000 and phasing out up to $40,000. This arrangement provides a tax offset of 18 per cent of contributions made by the contributing spouse, up to a maximum offset of $540 per annum.

Non-concessional contribution cap limit of $100,000 or phasing down towards $300,000 using the bring forward provisions

For 2016-17 the single year capped contribution amount is $180,000 and then from 1 July 2017 it reduces to $100,000. So this year you can still use the bring forward rule to contribute the full $540,000 before June 30th 2017 and that has been confirmed by treasury. However if you do not have enough to meet that full contribution limit you can still trigger your cap by contributing at least $180,001 before the end of the year. Note that you may also have already triggered that rule in one of the 2 previous financials years and be wondering how much of the cap you have remaining. Well this table will clarify that for you.

bring-forward-caps

In summary the Limit to Bring Forward Contributions based on year triggered are:

bring-forward-caps-summary

See a full explanation in this article : So How Much Can I Contribute to my SMSF Using the Bring Forward Rule

The cap now also limits the ability to use the cash-out and recontribution strategy for members who have triggered a condition of release. We normally used this between age 60 -65 to reduce the taxable component of your account balance. Before considering this strategy you should check the available lifetime cap with your administrator / advisor including all retail / industry funds you have been a member of at any time. Many SMSF members took annual pensions and simply recontributed the payments as NCC every year. DO NOT DO THIS! check your cap first PLEASE!

Phew! that was a lot!

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

2 Comments

by SMSF Coach - Liam Shorte on May 5, 2016 • Permalink

Posted in Contribution Strategies, Contributions, Salary Sacrifice, Superannuation Splitting, Tax Planning

Posted by SMSF Coach - Liam Shorte on May 5, 2016

https://smsfcoach.com.au/2016/05/05/how-does-the-budget-2016-affect-contributions-to-an-smsf/

How does the Budget 2016 affect those with SMSF pension / Income streams

Budget 2016 Analysis

I am breaking the Budget down in to bite size chunks with strategies to consider going forward for SMSF Trustees. Let’s start with Pensions.

The government is removing the tax exemption for earnings on assets supporting ‘transition to retirement’ pension / income streams but has allowed the pension payments and withdrawals from superannuation by people over age 60 to remain tax-free. No special rules for Self Managed Superannuation funds so these rules apply to all.

Taxing Transition to Retirement Pension earnings

From 1 July 2017 in the TTR pension phase of superannuation the tax-exemption on earnings will no longer apply to transition to retirement (TTR) pensions from.

Most TTRs were started as a tax planning strategy using salary sacrifice and the exempt status of pension income. From 1 July 2017 tax will be applied to the earnings derived in a TTR pension.

In addition, you cannot elect for payments to be taxed as lump sums rather than as pension payments to gain a better tax outcome. We used this for people aged 55-60 and fully retired up until now

Strategy implications for current TTR clients:

SMSFs with existing TTRs for members may wish to maintain them until the changes take effect (and legislation is passed). At that point they should consider one of the following options:

Do a commutation of the pension and roll back to the accumulation phase of superannuation
Convert to a full account-based pension if a condition of release has been met
Continue the Transition to Retirement pension if it suits your circumstances.

Seek advice before making any rash decisions.

From 1 July 2017, 15% tax will be applied to the earnings derived in a TTR pension and combined with the lower concessional contribution caps these strategies are likely to be less effective and less popular but still offer some opportunities for clients so we will review the appropriateness on an individual basis before 1 July 2017

Pension transfer cap of $1.6 million

From 1 July 2017, the maximum amount of superannuation that a person can transfer into pension phase is limited to $1.6 million.

Clients who are already in pension phase before 1 July 2017 will be required to transfer any balance above $1.6 million back into accumulation phase. Clients who are starting pensions from 1 July 2017 cannot roll more than $1.6 million into the pension phase (in total), but the balance rolled over can grow over $1.6 million due to earnings without penalty. some CGT relief will be available on investments moving back to accumulation phase but I will deal with that in a later blog.

The capital value of any Defined Benefit Income Streams will be counted towards the $1.6m limit using a multiple of 16 times the annual income stream.

The ATO has promised a portal or access to a central place where people can check their balances across SMSF, retail, DB and industry funds will be available soon.

Amounts transferred in excess of $1.6 million to retirement will be taxed in a similar way to excess non-concessional contributions. That means both the excess amount and earnings on that excess amount in retirement phase will be taxed. So please do not ignore this limit which applies from 01 July 2017.

Strategy implications for current SMSF pension clients:

This measure limits the tax-free benefits generated from pension phase but do not limit the amount that can be saved in accumulation phase which is only taxed at a maximum of 15%. However the overall amount you can get in to Superannuation is limited by changes to contribution caps.

Those clients who have pension balances in excess of $1.6 million can choose to:

leave savings in the accumulation phase of superannuation where tax on earnings is applied at 15% or
withdraw to invest outside superannuation or
withdraw and recontribute to a spouse / partner with a lower superannuation balance who has not used up their caps.

The $1.6 million cap will be indexed in $100,000 increments in line with the consumer price index. Where a member has previously used up a proportion of their retirement balance limit, they will be able to us the remaining proportion of the indexed cap.

Investment Strategies

We will look at each available strategies to consider the tax implications and comparisons of investment options inside or outside superannuation.

For many the option to withdraw some funds when fully retired and seek other tax effective arrangements including using the Low Income Tax Offset and Seniors and Pensioners Tax Offset to minimise tax on earnings outside of super

For the funds kept in Superannuation we will look at ways to maximise returns from investments within the caps by looking at segregating assets supporting the pension and focusing those on high yield, high return assets that can grow the tax exempt pension balance through earnings above the minimum withdrawal rates. That means we will focus on cash, fixed interest and term deposits in the still concessionally taxed accumulation balance, taxed at a maximum 15%.

Other issues

We have been strong advocates of evening up balances in superannuation between partners and this strategy implemented over the last 10 years will benefit many clients.

The Government has also confirmed that they will remove tax barriers to the development of new retirement income products by extending the tax exemption on earnings in the retirement phase to products such as deferred start lifetime annuities and group self-annuitisation products (Yeah , I am not sure what they are either).

These products can provide more flexibility and choice for Australian retirees, and help them to better manage consumption and risk in retirement.

This change was recommended by the Retirement Income Streams Review. The Government has released the Review and agreed all its recommendations. The announcement also states that they will consult on how the new retirement income products will be treated under the Age Pension means test.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

2 Comments

by SMSF Coach - Liam Shorte on May 4, 2016 • Permalink

Posted in News & Stats, Pension Strategies, Pensions, Retirement Planning, Tax Planning

Tagged Account Based Pension, Baulkham Hills, budget, Castle Hill, DIY Super, Dural, Hawkesbury, income planning, Investment, Investment Strategy, pension phase, Pensions, Self Managed Superannuation Fund, SMSF, Tax Free Pensions, Tax Planning, Transition, Transition to Retirement

Posted by SMSF Coach - Liam Shorte on May 4, 2016

https://smsfcoach.com.au/2016/05/04/how-does-the-budget-2016-affect-those-with-smsf-pension-income-streams/

Reminder: Minimum annual payments for Superannuation Income Streams in 2014 / 15 including SMSF Pensions.

Yes the Government have been messing about with the system so much over the last few years that many clients have been totally confused and had to confirm their minimum pension payments for last year so I thought I would just remind everyone of this years limits so they can put their payment plans in place.

How much to take to stay compliant with your pension

If you started a pension or annuity on or after 1 July 2007, a minimum pension amount is required to be paid each year. There is no maximum amount other than the balance of your super account, unless it is a transition to retirement pension in which case the maximum amount is 10% of the account balance.

The minimum payment amounts will not be reduced for the 2014-15 year. The following table shows the minimum percentage factor (indicative only) for each age group.

Age	Minimum % withdrawal (2014-15)
Under 65	4%
65-74	5%
75-79	6%
80-84	7%
85-89	9%
90-94	11%
95 or more	14%

Note that these withdrawal factors are indicative only. To determine the precise minimum annual payment (especially for market linked income streams), see the pro-rating, rounding and other rules in the Superannuation Industry (Supervision) Regulations 1994.

For rules and limits on other Payments from super here are the relevant links to the ATO site.

Low rate cap amount

Untaxed plan cap amount

Minimum annual payments for super income streams

Preservation age

Super lump sum tax table

Super income stream tax tables

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Please reblog, retweet, put on your Facebook page if you found information helpful.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on October 1, 2013 • Permalink

Posted in Pension Strategies, Pensions, Tax Planning

Tagged Baulkham Hills, Castle Hill, Corporate, Death, DIY Super, Dural, Individual Trustee, Pensions, Self MAnaged Super, SMSF, Strategy, superannuation, Tax Planning, Transition, TRAP, TRIS, Trustee, Windsor

Posted by SMSF Coach - Liam Shorte on October 1, 2013

https://smsfcoach.com.au/2013/10/01/reminder-minimum-annual-payments-for-superannuation-income-streams-in-2014-15-including-smsf-pensions/

Don’t lose your insurance cover in the haste to rollover to a SMSF.

Just because you are unhappy with your superannuation investment results is no reason to put you or your family’s future at risk by losing your insurance cover in the process of changing.

A good professional like an SMSF Specialist Advisor™ will always ensure you assess your insurance needs before withdrawing.

This issue is becoming even more relevant now that the new SMSF rules require Trustees to consider the member’s insurance needs regularly. See here for more detail.

Ok, so you have decided to start your own Self Managed Super Fund or move to one that you feel better meets your needs. That is fine, but one of the things you should look at doing is protecting any cover you have in your current fund by either keeping some money in your current fund to pay for ongoing insurance premiums or taking out replacement insurance cover in the name of your new SMSF. (more…)

1 Comment

by SMSF Coach - Liam Shorte on September 24, 2012 • Permalink

Posted in Insurance Strategies, Life Insurance, SMSF Management, Total & Permanent Disability

Posted by SMSF Coach - Liam Shorte on September 24, 2012

https://smsfcoach.com.au/2012/09/24/dont-lose-your-insurance-cover-in-the-haste-to-rollover-to-a-smsf/

Don’t depend on working longer to save for your Retirement Income

Many clients believe delaying their retirement is a solution to inadequate savings, but they often find themselves out of the workforce sooner than they’d planned. None of us has that crystal ball!

It is likely that the shortfall in retirement savings here in Australia stems in part from our “she’ll be right” attitude towards life, which leads us to believe that we do not need to start saving early and that somehow it will all work out ok.

Delaying retirement can be a powerful boost to your superannuation nest-egg. But relying on the ability to work for a few extra years to stretch retirement savings out a little longer is fraught with risk and does not reflect personal and family health or other issues that may arise. As an example I have had some clients forced to retire to look after their grandchildren due to the illness of the parent.

If you played with any retirement planning calculator or have spoken to an adviser, the “work a little longer” solution would have been investigated and many put it forward as the solution to the GFC “dip” (read plunge) in savings.

The concept is easy to grasp: By working longer then you originally planned, you get more years of concessionally taxed growth in your superannuation accounts especially if you used a Transition to Retirement Pension from 55 or 60. You can also continue to salary sacrifice and make non-concessional contributions while getting the benefit of the Senior And Pensioners Tax Offset (SAPTO) that I mentioned a few weeks ago here.

The idea is the longer you work and save and more you get into a superannuation income stream then your capital will last longer and you may also benefit from more Age Pension when required.

Back to reality with a jolt!

But there is a huge disconnect between workers’ expectations and retirement reality. Over half of the retirees surveyed in a US study last year said they left the workforce earlier than planned, and just 8% of them said that positive factors — such as the ability to afford early retirement — prompted the move. For the vast majority of early retirees, negative circumstances, such as personal or spouse health problems or company downsizing played a role.

40% of Australians will suffer a critical illness before age 65 (Cologne Life Re study). They will most likely survive but their retirement funding will be devastated.

The 2015 Productivity Commission report on post-retirement shows that about 40 per cent of Australians who retire between the age of 60 and 64 do so involuntarily, either because of their own or a family member’s ill health, or redundancy.

For those aged between 65 and 69 who retire involuntarily is not that different, while for younger age groups most people who retire do so involuntarily.

Retirement ages

Clearly, workers relying on delayed retirement are rolling the dice. Yet, most people discount the future so much that they’re willing to take that gamble. May hope that an inheritance will save the day but do not realise that age care costs and parents living longer may eat heavily into any expected inheritance.

Strangely the people most likely to plan on working a few more years to boost their retirement security may actually have the least ability to postpone their retirement. People who suffer an illness or injury are more likely than those in good health to have pushed back their expected retirement date in recent years, according to a report from consulting firm Towers Watson. Yet health problems or disabilities were cited by more than half of retirees forced to retire earlier than planned.

Don’t put you head in the sand – start now

As psychologists are quick to point out, we all have that inner voice that loves to procrastinate who loves to put off till tomorrow what we should do today – beause its “all too hard to get your head around”. Saving more today is a sure thing, and extra years in the workforce are anything but. If you know you don’t have enough, you should start saving more today, because that’s by far the less risky alternative.

Let’s look at an example using the Retirement Planner on the MoneySmart.gov.au site for a 55-year-old pre-retiree with just $30K in superannuation. If she earns $80,000, makes $17,500 annual salary sacrifice contributions (in addition to Employers SGC contributions of 9.5%) and earns a 7.5% return pre retirement and 6.5% after, she could be looking at an Income in retirement of $32,143 by age 67 including the Age Pension. If she’s forced to retire at that point, she’s still in better shape than most Australian’s. And if she can continue working, she counld improve on this lifestyle with a better retirement income.

Retirement Income

A final don’t is cancelling TPD or Income Protection insurances to save money while in your most productive earning years (read here for more on that subject). The loss of 5-10 years of earnings potential is one guaranteed way to destroy your lifestyle in retirement. Your ability to earn is your biggest asset

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Skeletons in the Cupboards and Tax Man at the Door – Estate Planning Solutions for SMSF members

Here is one solution to a big problem that may become more common with blended families and increased divorce as well as de facto arrangements.

Our client , lets call him , Scott (age 78) is a widower in the Hills district and he has a $652,000 account based pension (containing a 100% taxable component to keep it simple). His two adult daughters who are financially independent are noted as 50/50 beneficiaries on his non-lapsing binding death benefit nomination (see here for more details). Any lump sum death benefit they receive will be subject to 17 per cent tax. In dollar terms, this is $110,500 (calculation: $652,000 x 17%) and he wasn’t too happy about this.

Scott was advised by his specialist he has 2-3 years maximum to live due to an aggressive cancer. He threw this curly one at me to come up with a strategy as he wants to maximise his estate for his kids but also retain access to the funds while alive to fund medical and living expenses. Our strategy involves Scott taking a tax-free withdrawal from his account based pension. He then let me know about some skeletons he had in his cupboard!

Scott could retain these funds within a bank account, however the account will form part of his estate upon his death. Even though his estate will be paid predominately to his adult daughters, he is concerned about his estranged son from an affair he had in his late 50’s who might challenge the Will.

We advised that a valid alternative available to Scott is to invest into an investment bond with himself as the owner and the life insured. Since an investment bond is a non-estate asset, upon his death the funds will be paid tax-free to his adult daughters.

Both strategies will avoid the $110,500 of death benefits tax on funds paid to his daughters, however only the investment bond will ensure the funds do not become part of his estate. Scott’s two daughters need only produce a copy of his death certificate to gain access to the funds within the bond. This could also avoid lengthy delays with the administration of the estate and overcome possible estate challenges from his estranged son.

In terms of costs we were looking at foregoing the tax-free status in pension phase for the 2 years but that was far outweighed by the savings in the death benefits tax and we are actually able to wind up the SMSF to save his children the hassle of dealing with that later.

For further information on the issues raised in this blog please contact our Castle Hill SMSF Centre or Windsor Financial Planning Office or choose an appointment option here

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page if you found information helpful.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

2 Comments

by SMSF Coach - Liam Shorte on September 8, 2012 • Permalink

Posted in Anti-Detriment, Binding Death Nominations, Estate Planning, Life Insurance, Reversionary Pension, SMSF, Tax Planning

Tagged Baulkham Hills, Castle Hill, Corporate, Death, DIY Super, Dural, Individual Trustee, Insurance Bonds, Pensions, Self MAnaged Super, SMSF, Strategy, superannuation, Tax Planning, Transition, TRAP, TRIS, Trustee, Windsor

Posted by SMSF Coach - Liam Shorte on September 8, 2012

https://smsfcoach.com.au/2012/09/08/skeletons-in-the-cupboards-and-tax-man-at-the-door-estate-planning-solutions-for-smsf-members/

Seeking advice makes people proactive on super – SMSF clients even more so.

According to new research released by Mercer, superannuation fund members who obtain advice are twice as likely to make additional contributions,.

The research – released in August 2012 – said those receiving advice were also twice as likely to make a beneficiary update and five times more likely to make an insurance underwriting enquiry. (source: Money Management article on Mercer study 07/08/2012)

I will go a step further and say that of all superannuation sectors it is SMSF members and trustees who take the bull by the horns and make the most of the strategies available to them after receiving competent advice from a SMSF Specialist Advisor™. they start an SMSF to have control and flexibility but after taking advice :

They are more likely to use a Transition to retirement strategy earlier after getting advice
They consider retaining insurance in a separate fund to save fees or transfer the cover rather than simply letting it lapse on rollover.
They are more proactive about seeking out lost super funds
They are more likely to have multiple pensions segregating tax free amounts for estate planning.
They are focused on maximising the potential of the concessionally tax structure by investing in high yield and highly franked investments.
They are more likely to adjust their portfolios tactically to take advantage of the change in market cycles.
They are more focused on getting the best rate for their cash and fixed interest investments rather than accepting the offer from the current provider.
More likely to use Super Splitting to even up accoutn balances and protect against future legislative change
They can learn the benefits of recontribution strategies for Estate Planning.

So if you have an SMSF or indeed a retail or industry superannuation fund go and take some advice as it opens your eyes to the potential strategies available to you no matter your age, assets or experience.

For those who have benefited from advice or are advisors, I challenge you to add other benefits to this list (leave a comment) so others can learn.

Feedback always appreciated. Please reblog, retweet, put on your Facebook page etc to make sure we get the news out there to seek advice.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on August 7, 2012 • Permalink

Posted in Financial Planning, News & Stats, SMSF, Trustee

Tagged Binding Death Nominations, DIY Super, Franking Credits, Pensions, Retirement Planning, seniors, SMSF, Strategy, Super Splitting, superannuation, tax offsets, Tax Planning, Transition, TRAP, TRIS, Trustee

Posted by SMSF Coach - Liam Shorte on August 7, 2012

https://smsfcoach.com.au/2012/08/07/seeking-advice-makes-people-proactive-on-super-smsf-clients-even-more-so/

Understanding transition to retirement pensions

If you have reached your preservation age you can use a transition to retirement pension to access your superannuation as a non-commutable income stream while you are still working. This may be particularly attractive if you have reduced your working hours and need to top-up your income to maintain your standard of living.

There was another great benefit of setting up the pension which was that all the funds supporting the pension move in to a tax exempt status. Yes that means those funds paid no earnings tax and in fact they received a full refund of any franking credits on your investments. For the average investor this can increase your returns by 0.5% to 1% a year risk free every year! However that tax free status was removed as of 1 July 2017.

The strategy still remains effective for those needing a boost in income or those who can combine the pension with salary sacrifice.

What is a transition to retirement pension?

Transition to retirement pensions allow you to access your superannuation as a non-commutable income stream, after reaching preservation age (see below), but while you are still working.

The aim of these income streams is to provide you with flexibility in the lead up to retirement. For example, you may choose to reduce your working hours and at the same time access your superannuation as a transition to retirement pension that can supplement your other income. It may also allow you to salary sacrifice to give your retirement savings a boost.

Not all superannuation funds offer the transition to retirement pensions, so you need to check with your own fund to see if they do. You can also start one in a self-managed superannuation fund.

Are there any special characteristics?

These pensions are essentially like a normal account-based pension, but with two important differences.

Firstly, they are non-commutable, which means they cannot be converted into a lump sum until you satisfy a condition of release, such as retirement or age 65.

Secondly, you have a minimum pension amount you must withdraw each year but you can only withdraw up to 10% of the account balance (at 1 July). No lump sum withdrawals are allowed.

What is my preservation age?

Your preservation age is generally the date from which you can access your superannuation benefits and depends upon your date of birth.

Date of birth	Preservation Age
Before 1 July 1960	55
1 July 1960 – 30 June 1961	56
1 July 1961 – 30 June 1962	57
1 July 1962 – 30 June 1963	58
1 July 1963 – 30 June 1964	59
After 30 June 1964	60

How are transition to retirement pensions taxed?

Transition to retirement pensions are taxed the same as regular superannuation income streams.

If you are under age 60, the taxable part of your pension will be taxed at your marginal rate, but you receive a 15% tax offset if your pension is paid from a taxed source*.

However, once you reach 60, your pension is tax-free if paid from a taxed source*.

Most people belong to a taxed superannuation fund. Some government superannuation funds may be untaxed and you will pay higher tax on pensions.

Can you still contribute to superannuation?

As long as you are eligible to contribute, you and your employer can still contribute to superannuation for your benefit. In any case, your employer’s usual superannuation guarantee obligations would still apply. You need to have an accumulation account to pay these amounts into.

Is a transition to retirement pension right for you?

Transition to retirement pensions can provide you with flexibility in the years leading up to your retirement and can help to boost your retirement savings in some circumstances.

People who might find the transition to retirement pensions attractive include those who:

have reduced working hours from full-time to part-time, eg down to three days per week. The reduced salary can be topped up with income from the transition to retirement pension
are able to salary sacrifice to your superannuation or your spouse’s super for tax savings – the outcome of combining the transition to retirement pension with salary sacrifice can be a greater build-up of superannuation savings by the time you reach actual retirement

The transition to retirement rules and associated strategies can be very complicated. It is recommended that you seek expert advice from your financial adviser before deciding if this type of income stream and strategy is right for you.

Want a Superannuation Review or are you just looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make this year the year to get organised or it will be 2030 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF016_Fellow_Logo_CMYK

Tel: 02　9899 3693, Mobile: 0413 936 299

PO Box 6002 BHBC, NORWEST NSW 2153

40/8 Victoria Ave , CASTLE HILL NSW 2154

Suite 4/1 Dight St, Windsor NSW 2765

Corporate Authorised Representative of Viridian Advisory Pty Ltd (ABN 34 605 438 042) (AFSL 476223)

11 Comments

by SMSF Coach - Liam Shorte on March 14, 2012 • Permalink

Posted in Asset Allocation, Binding Death Nominations, Financial Planning, Franking Credits, Pensions, Reversionary Pension, SMSF, Superannuation, Tax Planning, Term Deposits, Trustee

Tagged Asset Allocation, DIY Super, International, Investing, Investment, Pensions, SMSF, Strategy, Tax Planning, Transition, TRAP, TRIS, Trustee

Posted by SMSF Coach - Liam Shorte on March 14, 2012

https://smsfcoach.com.au/2012/03/14/understanding-transition-to-retirement-pensions/

Tax Planning for Small Business owners over 55

Business Owner Tax Tip

Welcome to my first attempt at a blog with an idea for end of year tax planning aimed specifically at Small/Medium Business Owners.

Ok, so you run your own business and are finally making a profit even if it is just on paper. Now you are looking at your tax position for the current year before June 30th just like you have been encouraged to do. You have spoken to your accountant and know you have a forecast profit for the year after deductions of say $25,000 in your small company after already taking a decent salary for living expenses. Well at the 30% corporate rate the tax will be $7500. But hey, your business does not have that sort of cash in the bank? you have used the profits to plough back in to more stock or equipment for your business.

Here is a strategy for over 55’s to consider if they have a cashflow shortfall for June 30th tax planning. Look at your Superannuation and if you have not moved into Transition to Retirement Phase you could arrange to do so and access up to 10% of your balance before June 30th as a pension. Lets assume you had $200,000 in Super so you could access $20,000 this year.

You could then lend the money to your company via a shareholders loan and the company could use the funds to make a tax deductible employer contribution back into your superannuation. why you ask?

Well the company gets a tax deduction of $20K reducing its tax bill from $7500 to $1500…..Nice! Now you pay 15% contributions tax on these concessional contributions so of the $20,000 you pay tax of $3000. so overall you save $3000 in tax and you have moved $20,000 from your company into your retirement savings.

Now as you have taken the pension, if you are over 55 but under 60 you need to add this to your taxable income…but the nice government give you a 15% Pension tax offset to reduce the tax payable. Once over 60 you do not need to report it in your income so an even better outcome (has to be at least one benefit of getting older!)

Any other benefit of this strategy?

By moving the $200,000 to Pension Phase any further earnings or capital gains are now exempt income and you pay Nil (0%) tax in your superannuation pension on those earnings. So if your fund earned 5% for the year or $10,000 you save an extra $1500 per year. Better still , if your super fund is invested in shares and received franked dividends your fund will get a refund from the taxman of those franking credits…bonus!

As you now have a shareholder loan to your company you can have the company repay you that loan during the next year rather than taking a higher taxable salary from the company and thereby reducing your marginal tax rate.

Things to check :

your age – you have to have reached your preservation age which is now rising towards 60- check here

Preservation age

Access to super benefits is generally restricted to members who have reached preservation age. A person’s preservation age ranges from 55 to 60, depending on their date of birth.

Date of birth	Preservation age (years)
Before 1 July 1960	55
1 July 1960 – 30 June 1961	56
1 July 1961 – 30 June 1962	57
1 July 1962 – 30 June 1963	58
1 July 1963 – 30 June 1964	59
After 30 June 1964	60

your tax position personally and via your company or business (see your tax agent/accountant/bookkeeper)
your superannuation balance
check you have not exceeded your contribution limits.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there to do plenty of research first and only trust those that have earned your trust. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on June 1, 2011 • Permalink

Posted in Financial Planning, Superannuation, Tax Planning

Tagged Deductions, EOFY, Pensions, SMSF, Tax Planning, Transition

Posted by SMSF Coach - Liam Shorte on June 1, 2011

https://smsfcoach.com.au/2011/06/01/tax-planning-for-small-business-owners-over-55/

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Concessional (Pre-Tax Contributions like employer superannuation guarantee (SGC), salary sacrifice and those contributions where you claim a tax deduction).

Non-Concessional (Post Tax Contribution like personal after tax contributions and Government co-contributions).

Now the detail:

In summary the Limit to Bring Forward Contributions based on year triggered are:

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Taxing Transition to Retirement Pension earnings

Pension transfer cap of $1.6 million

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Here is one solution to a big problem that may become more common with blended families and increased divorce as well as de facto arrangements.

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