Ask Max: Your questions answered

Transferring shares to a self-managed fund, plus claiming a tax deduction on your super contributions.

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:

  • Should I transfer shares into my SMSF?
  • Testamentary trust rules and obligations.
  • Self-employed and super contributions.
  • Is CGT payable on property from a deceased estate?
  • What are the rules on lump sum drawdowns?

SMSF share transfers

Since commencing work for Woolworths about 20 years ago, I have received shares from the company and now have approximately 500 shares. I understand it may be beneficial to transfer them into my SMSF. I am currently 52 years old and do not anticipate selling the shares over the next few years. I would appreciate your advice.

If you transferred the shares into the SMSF now, you could face a large capital gains tax bill. You would be better to wait until you finish work and are receiving a tax-free super pension, then sell the shares and contribute the proceeds.

Depending on the size of the capital gain made, and your ability to make super contributions, you could reduce the tax payable on the gain by making a tax-deductible, self-employed super contribution. Before taking any action, you should get professional retirement planning advice from a fee-for-service adviser that specialises in tax strategy.

Testamentary trusts

My late son has left quite a large sum of money in his will to his wife and ultimately his son, via a testamentary trust. She is now being advised by her accountant that he wants to charge her approximately $900 to provide written advice as to the rules and regulations surrounding a testamentary trust. Are you able to advise us as to how we are able to source details as to the rules and obligations of a trustee of a testamentary trust?

It sounds like your daughter-in-law is using an accountant that bases his or her fee on what they think they can charge, rather than the time it takes and the experience of the person doing the work. What a trust can and cannot do is dictated by its trust deed. When the testamentary trust was set up, there would have been a document drawn up by a lawyer. This will detail what she as trustee can and cannot do. I recommend that you review this document with her. If you need more help, get a quote from another accountant on what the cost will be for the advice and ongoing work.

Tax deducting super contributions

I am an IT contractor and have set up my own company. My client pays for my services through a recruitment company, which forwards the wages to my company. My company finally pays me a salary as an employee and also pays for my super. Can I classify myself as self-employed? Can I claim a tax deduction in my personal tax returns for any super contribution that I make using either before or after-tax dollars?

As you are employed by your company, you would not pass the self-employed test and could not make a tax-deductible, self-employed super contribution. You could, however, take less as a salary and have your company make an increased tax-deductible super contribution. You will also be able to make after-tax, non-concessional super contributions up to the limits.

Deceased estate tax implications

Please outline the capital gains tax, and also the Victorian state tax consequences, after the sole owner of a residential investment property dies and the real estate is transferred to the executor and finally to a beneficiary specified in the deceased’s will?

I don’t see why the property ownership details need to be transferred into the name of the executor, unless the property was to be held for an extended period before the ultimate beneficiary became the legal owner. There should be no capital gains tax or state stamp duty payable on a property administered by an executor.

There are no tax consequences for the beneficiary when the property transfers to them. There will possibly be capital gains tax payable when they sell the property, depending on the type of property and when it was purchased. If the deceased’s property was purchased pre-September 20, 1985, the beneficiary will be taken to have acquired the property at the date of the person’s death at its market value. For properties purchased by the deceased after September 19 1985, the beneficiary will be regarded as acquiring the property at the same price as was paid by the deceased.

Where the property was the deceased’s residence, no tax will be payable as long as it is sold within two years from the date of death.

Lump sum drawdowns

What are the rules pertaining to lump sum drawdowns over and above the stipulated amount? When an SMSF member draws down a lump sum payment over and above the stipulated amount, what are the requirements in terms of recording this in the minutes? Is there a requirement for the pension to be commuted so that a new pension has to be started so that the fund can receive the same tax concession?

There is no maximum limit on account-based pensions. There is only a maximum payment limit on transition-to-retirement pensions. If an extra amount of pension was required as part of an account-based pension, a letter requesting the extra pension as a lump sum, and a letter confirming the payment, is all that should be required. There would be no requirement to commute the pension.

If a TTR pension is being taken, and the lump sum would mean the pension paid would be greater than the 10% maximum limit, the original TTR would need to be commuted with a new pension paid as a lump sum. Letters would again need to be written to evidence this and, depending on your SMSF’s trust deed, there may need to be a minute by the trustees.

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