Ask Max: Your questions answered

Understanding superannuation contribution limits, plus how to be employed by your own fund.

PORTFOLIO POINT: Max Newnham has spent 30 years working with – and writing about – small businesses and SMSFs. Each week he draws upon this experience to answer the questions of Eureka Report subscribers.

This week:

  • Understanding the contribution limit rules.
  • Lump sum payments and Centrelink entitlements.
  • The impact of selling shares on the Commonwealth Seniors Health Card.
  • Can you be employed by your super fund?
  • Clarifying transition to retirement pension drawdowns.
  • What is the bank deposit guarantee on multi-member accounts?
  • Making non-concessional contributions before June 30.
  • What defines pre-tax income under the new super contributions tax?

Contribution limit

Could you tell me if the $50,000 contribution limit remains for a person who has less than $500,000 in super, but whose partner has more than the limit?

The contribution limit for the next two financial years will be $25,000. As you would expect, the regulations relating to how the $500,000 limit applies are complicated. For example, the $500,000 not only includes the value of your superannuation but also the value of amounts taken out of super. However, the value of a partner’s super is not counted.

Lump sum payments

My wife is on a disability pension. I was terminated from my employment as medically unfit after 31 years of service and received a lump sum payout consisting of unused annual leave, long service leave and the balance of my sick leave. I notified Centrelink of the lump sum and now have to serve an income maintenance period until July 9, 2013.

In the meantime, Centrelink has cut my wife’s pension back by $60 a week. I will be 60 this month and was wondering what to do with my super. I don't want to place it in an allocated pension. After July 2013, I will need to access my super to live on. My super currently totals $405,000 and we own our home. Can you offer any advice?

As you are not of pension age yet, the value of your superannuation is not counted as an asset by Centrelink, unless you start taking an account-based pension. One thing you could consider is to take lump sum amounts, which will not be counted as income by Centrelink after July 2013. You should really seek professional advice from a fee-for-service adviser to see if there is anything else you should be doing.

Health card eligibility

I am keeping my personal income below the mandatory $50,000 to be eligible for the health card. If I sell some shares and the capital gain throws me over the $50,000 (a one-off), would I lose my card? Does this mean I have to hang on to the shares?

The income figure used by Centrelink for a Commonwealth Seniors Health Card is adjusted taxable income. This is a person’s taxable income increased by any negatively-geared investment losses, fringe benefits provided by an employer, and reportable employer superannuation contributions.

This would mean that if you made a large capital gain in a year when your income exceeded $50,000, you would lose the health care card for the year. If the capital gain was made towards the end of the financial year, you may in fact only be without it for a short period of time.

If your lifestyle would improve as a result of selling the shares, it may be worth not having the health care card for a short period. You should seek professional advice from a fee-for-service adviser who could assess your various options.

Super fund employment

I am 66 years old and continue to work part-time as a bookkeeper and more than meet the work test hours. To reduce the accounting costs for our SMSF this financial year, I have purchased a subscription to the software that our accountant uses and I will do all the processing.

Will doing the bookkeeping for the super fund warrant being paid by the super fund? Because of the extra work involved, I am considering reducing the hours of my current employment, and am wondering if I can be considered as an employee of the super fund with the hours worked in processing the transactions counted towards meeting the work test?

As an employee, a TFN declaration would have to be completed, but would I need to take regular payments (PAYG) or would it be OK to tally up the hours at the end of the year and make one payment for the duties? It is not the payment that matters so much; more the hours counting towards the work test, which will enable me to reduce my current hours of paid employment and continue to contribute to superannuation.

The only time a trustee for an SMSF can receive payment from the fund is when they perform duties other than in their capacity as a trustee. The carrying out by you of the bookkeeping duties for the fund should qualify as work done that you could receive payment for.

It would help your case if you had a trustee’s resolution that resolved to either employ or contract with you to do the work. The commercial basis would be to achieve an overall reduction in accounting fees as a result. The hours you work should count toward the work test.

The employment or contract arrangement would have to be on commercial terms. This would include the amount paid by the super fund and how it is paid. I believe it would not be commercial for you to be paid once a year. To cut down on the administration required, I recommend that you do the work as a contractor and not as an employee.

TTR clarification

In a letter this week, a reader mentions the minimum drawdown for a TTR pension for the 2012-13 year will be back up to 4%. My understanding from my financial adviser is that it will remain at 3%, the same as this year. Can you clarify please?

Your financial adviser is correct. I had misinterpreted something in the budget papers and the 25% discount, resulting in the minimum pension payable being 3%, will apply until July 1, 2013.

Bank deposit guarantees

The bank guarantee for deposits is $250,000 per person per account. This means for a joint account of two persons the guarantee is $500,000 per institution. How does this apply to an SMSF of four members? Does the guarantee cover $ 1 million per account per institution? So far, no bank managers can give a definite answer. Neither is the ATO website clear on this.

Unfortunately, the guarantee applies per individual or entity. As such, the guarantee for an SMSF is $250,000 per institution.

Super contributions

I turned 65 in October 2011. Am I eligible to put a $450,000 non-concessional contribution into my super fund before June 30, 2012 (after my 65th birthday but before the end of the financial year)? I don’t work.

To be eligible to make a super contribution of any kind, you would need to work for 40 hours in a continuous 30-day period before June 30, 2012.

Determining pre-tax income

The contributions tax has been increased for those earning more than $300,000 per year. I believe that it is the pre-tax income that is taken into account. Is this correct and what exactly constitutes pre-tax income?

Until the legislation is passed that increases the superannuation contribution tax for high-income earners, it is hard to provide a definitive answer. In the budget papers, income was defined as including concessional superannuation contributions. This means an individual’s income will include employer and salary sacrifice contributions.

Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs.

Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.

Do you have a question for Max? Send an email to askmax@eurekareport.com.au