Ask Max: Your questions answered

Pension limits, transferring property, contribution limits, and deposits and co-contributions after retirement.

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:

  • What is the minimum and maximum pension I can withdraw?
  • What is involved with transferring a property to our SMSF?
  • Can we set up a SMSF at any time?
  • What happens if I breach the contributions limit?
  • Can I deposit money to my super after retirement?
  • Am I eligible for the government co-contribution after retirement?

What is the minimum and maximum pension I can withdraw?

I am 76 and have an allocated pension fund worth approximately $900,000. Is there a minimum or maximum I have to take each year? I know I can’t add to it but can I withdraw a lump sum without incurring tax penalties, and what would be the minimum and maximum pension I can draw each year?

When the new superannuation system was introduced on July 1, 2007, minimum payment amounts were set for superannuation pensions, now called account-based pensions, but there were no maximum limits introduced.

The minimum pension payable for someone aged 75 to 79 is 6% of their superannuation balance at the start of the financial year. For someone aged 80 to 84, the minimum pension rate is 7%. Because of the effect of the GFC a discount has been applied to this minimum rate for the 2013 year of 25%. This means the minimum rate for you this year is 4.5%.

If you want to take a lump sum out of your superannuation you have two choices. The first is to take it as a lump sum. To do this your pension would need to cease for this lump sum payment to be made and then your pension recommenced. You can also take pension payments as a lump sum. As you are over 60 any payments from the fund will be tax free.

What is involved with transferring a property to our SMSF?

My wife and I own an office in the Melbourne CBD, which is currently leased and returning positive cash flows. We have owned the property for nearly 10 years and it is mortgage-free. I am 57 years old and my wife is 52 years. Both of us are still in full employment.

We have recently set up a SMSF using a corporate trustee where my wife and I are directors to the SMSF. We read that we can transfer the office to our SMSF. However we are not familiar with what is involved in the process. We would like to know from you what are the factors to consider and what are the steps that we need to do the transfer. Is it correct that this transfer is stamp duty exempted? Also is there a capital gains tax event with this transfer?

There will be capital gains tax payable on any increase in value of the office over your period of ownership. As you don’t seem to be operating a business from the office, and it is purely a rental property, you would not be able to benefit from the small business capital gains tax concessions.

To transfer the office into your SMSF you must have it valued. There are two ways in which the property can be transferred into your SMSF. It can either be purchased by the SMSF with cash, if your SMSF has sufficient cash or enters into a limited recourse borrowing arrangement, or can be transferred in-specie without any cash being paid.

You will need to engage the services of a solicitor who can prepare all of the relevant documentation to make the transfer. Depending on how you currently own the office and who the trustees of the SMSF are no stamp duty may be payable. When selecting a solicitor you should ask them if they have had experience in claiming stand duty exemptions.

Can we set up a SMSF at any time?

Could you please provide us with some guidelines relating to an SMSF when I am 65 and my wife is 66? We have both retired and have a managed super fund with Colonial First State, which is incurring exorbitant fees. Our questions are:
1. Are we still able to convert to an SMSF?
2. If yes to the above, who should we contact to initiate our SMSF?
3. Again if yes to ‘1’, are we able to transfer considerable savings that we have in an ANZ interest bearing account into our SMSF?

Yes you can set up an SMSF at any time unless you are non-residents for income tax purposes. There are many companies and accounting firms that specialise in the set up of SMSFs. The fees charged for an SMSF can vary greatly from as low as $300 up to well over the $3000. The Self-Managed Super Funds Professionals Association of Australia has a list of SMSF specialists that would be a good starting point.

As you and your wife are both retired, and therefore would not satisfy the work test, you would be restricted in the amount that can be transferred into your SMSF. Had you both satisfied the work test in this 2013 financial year you possibly could have contributed up to $450,000 and your wife could have contributed $150,000.

If you cannot pass the work test, and turned 65 before June 30, 2012, you will not be able to contribute anything to your SMSF. If you turned after June 30, 2012 you will be able to contribute $150,000 from the savings you have with the ANZ.

What happens if I breach the contributions limit?

My compulsory contributions will exceed the $25,000 limit this financial year. Can I stop the contributions at the limit to ensure that I’m not taxed at the 93 cent tax rate? I am seeking advice around the traps and was hoping you may shed some light.

Firstly, the 93% tax rate only applies when a person exceeds with one contribution both the concessional and non-concessional limits. If you are only exceeding the concessional contribution limit the tax would be 46.5%.

If they are compulsory employer SGC contributions being made you will not be payable to stop them and therefore will be liable for the excess contributions tax. If the amount being contributed is a combination of SGC and salary sacrifice contributions you will be able to reduce the amount being contributed.

If you still have an excess contribution for the 2013 year, and your excess contributions are not greater than $10,000, you might be eligible for excess contributions tax relief. If this is the case the ATO will offer the relief to you and you have 28 days to accept it.

Can I deposit money to my super after retirement?

I am 67, retired, and receive a part-pension from Centrelink. I also run a SMSF and receive a pension. I do not work or receive any other income. I sold some assets worth approximately $25,000 and deposited this amount into my super fund. Now I’m told by my accountant that I’m not allowed to deposit funds into my super fund. Is this correct? If so, is there any way around this ruling.

Your accountant is correct. As you are over 65 and not working you cannot make any future superannuation contributions. The only way you can make contributions is to satisfy the work test by working 40 hours in a 30-day period in the year you make the contribution.

Am I eligible for the government co-contribution after retirement?

I am retired, 62 years old and have rolled over my super into a CBA superannuation account. I used to get the government co-contribution. I want to know if I contribute to my super from my savings, will I get the government co-contribution money. I don’t work now.

As you have retired you will not be eligible for the co-contribution. This is because one of the eligibility conditions is that you must earn 10% or more of your total income from eligible employment activities.

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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