Ask Max: Your questions answered

Buying SMSF property in the US, claiming property purchase costs, transferring shares and CGT, recovering super money from the ATO.

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 members.

This week:

  • Buying SMSF property in the US.
  • Claiming costs on buying a property
  • Transferring shares and CGT
  • Recovering super money from the ATO
  • How does the work test hours requirement work?
  • Buying higher dividend yielding stocks
  • Joining children to a SMSF

Buying offshore property in a DIY fund

I have recently purchased two residential investment properties in the US and would now like to purchase another property using the proceeds from our SMSF. Is this acceptable under the current SMSF guidelines?

There is nothing within the super regulations that would stop the purchase of an investment property in the US. You however need to check the trust deed for your super fund to make sure that it would allow an overseas property investment. If the investment strategy of your super fund doesn’t currently mention overseas real estate investments it would need to be amended to include this type of investment.

Claiming costs on buying a property

In the search to purchase an investment property, you might incur expenses like building inspection and pest inspection. If you were successful in the purchase of the property, how do you classify these related costs in relation to your taxable income? What if you were not successful in the purchase of the property? Can you claim these costs in respect of your taxable income?

General costs associated with looking for a property to purchase are not tax deductible. Direct costs associated with the purchase of a property, such as an inspection report and legal fees, form part of the purchase cost of the property and reduce any future capital gain. Costs incurred for a property that is eventually not purchased cannot be claimed as a tax deduction.

Transferring shares and CGT

My daughter inherited shares when she was very young from her grandmother. As a result the shares were put into my wife’s name in trust for her. Can we transfer the shares back to my daughter without any capital gains tax? When she sells the shares, how is the cost base calculated?

As the shares were inherited by your daughter and she is the legal owner, no capital gains tax will be payable when they are transferred from your wife’s name to hers. The purchase price of the shares will depend on when her grandmother purchased them. If they were purchased pre 20 September 1985 the purchase price will be their market value at the date of her grandmother’s death. If they were purchased after 19 September 1985 the purchase price will be what her grandmother paid for them.

Recovering super money from the ATO

I transferred from the UK to Australia where I worked for over three years on a temporary resident visa and have since been transferred to Shanghai with the same company. I own property in Australia, have bank accounts, TFN, shares and until recently a BT super fund. I recently found out that my super fund had been closed and all monies transferred to the ATO where it becomes unclaimed super, earning no interest. I applied to retrieve this cash but was advised the ATO can only send a cheque to an address outside of Australia and cannot transfer to my Australian bank account or any other super managed fund.

My intention was to re-invest the money for my retirement but I was surprised to discover, upon receiving the cheque, that I had been taxed 35%. I fully intend to move back to Australia to settle at some point (my wife is Australian) and ultimately retire there. I didn’t realise while working in Australia that I would be at such a disadvantage regarding my pension contributions.

What are my options here? If I cancel the cheque, can I have the money transferred tax-free from the ATO directly into a super fund once I obtain a new visa?

Unfortunately as you have already had the superannuation paid out to you, more than likely under provisions that apply to a person departing Australia permanently, there is not a great deal that you can do. If in fact you have not left Australia permanently and are planning to return you could try contacting the ATO to see if there is a way to have the monies returned to them.

A better option for you would have been to join another Australian superannuation fund and rollover the balance held by the ATO into your account in the new fund. Instead of trying to sort this out yourself you should think about contacting a professional in Australia that could help you with this. This may not be cost efficient depending on how much superannuation you had as the fees to organise this could be greater than the tax already deducted.

How does the work test hours requirement work?

The work test is 40 hours in 30 days. Is this calendar days, which would include non-working weekends, i.e. it would be 40 hours in 22 days? What happens if you work for a longer period, say four to six months but never pass the 40 hours in 30 days? Wouldn’t the four to six months be regarded as ‘permanent’ employment and not be subject to the test? I have an SMSF and recently sold my house to move into a retirement village, so I have $100,000 sitting in a bank account earning interest and therefore adding to my taxable income and it would be desirable to get it into super. My SMSF is still in accumulation as I don’t need the income from it at the moment.

If a person is 65 or older, to satisfy the work test they must work for 40 hours in a period of 30 continuous days in the financial year that they make a super contribution. If you did not work for 40 hours in 30 days it would not matter that this is being done over a longer period. Business days are not taken into account for this test, only a period of 30 continuous days. This means the work could be done on weekends.

Buying higher dividend yielding stocks

We are in our late 60s and fortunately have an SMSF totalling about $3.5 million. $850,000 is in equities and the rest essentially is in fixed term deposits rolling over every six months. We have about $400,000 now to invest and our risk profile is low. We need to protect our capital but beat inflation. We are considering several higher yielding dividend stocks. What are your thoughts on CBA and Telstra, acknowledging that we may have to sell if their value declines?

The two companies you have mentioned pay high dividends but they certainly aren’t necessarily the best shares from a value point of view to buy. You should seek professional advice from someone experienced in the share sector to see if there are other companies of the same quality that may represent better value.

I do not know why you would think about selling the shares if their value declines. If you would be that nervous after purchasing what is meant to be a long-term investment, you should not be buying shares. Your intention should be to hold the shares for at least five years.

Joining children to a SMSF

My wife and I have an SMSF of which we are the only members, our company is the trustee, and our beneficiaries are our two sons both aged in their 20s. What are the consequences if we have our two sons also become members of the SMSF?

There is nothing stopping you having your two sons also become members of your SMSF. If this happened they will also need to become directors of the trustee company. Depending on how active their accounts in the super fund are there may be a small increase in the accounting and administration costs of the fund.

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.

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