Ask Max: Your questions answered

Valuing property in an SMSF, shares in superannuation, turning 65, reversionary pensions and CGT liability.

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 are the options for valuing property in my SMSF?
  • Can I transfer to an SMSF while living in New Zealand?
  • Will my shares impact my husband’s New Start Allowance?
  • How will turning 65 affect my non-concessional contributions?
  • Can I transfer my shares into my SMSF?
  • How does Centrelink assess a surviving reversionary pensioner’s assets?
  • Will we be liable for CGT when my fiancé sells his house?

What are the options for valuing property in my SMSF?

I own property through my SMSF and am now required to value all assets each year. When it comes to property when should this be done and does this have to be a done by a Registered Valuer? This would make it an expensive yearly exercise. What options do we have?

The new regulation requiring SMSFs to value investments at market value each year does not mean that the valuations must be carried out by a qualified valuer. As long as the trustees of the fund can demonstrate that the valuation method undertaken is based on objective and supportable data they can value the property themselves.

In the past it has been generally accepted that assets such as properties only need to be valued once every three years unless there are events, such as extreme changes in the market or major damage due to fire or flood, that would require a revaluation before the three years are up. In this situation the trustees should at least include a statement in their investment policy that as the market for the investment has not altered significantly, since the last time it was valued, a revaluation was not required.

Can I transfer to an SMSF while living in New Zealand?

I am an Australian citizen currently residing in NZ. I have been making sporadic (every couple of years) lump sum non-concessional contributions to my Australian super, which is held in one of the big multi-fund managers. I am considering transferring it to an SMSF.

I will probably not be residing in Australia until after age 70. Can my fund stay in the accumulation phase until then or is it compulsory to start paying a pension once a condition of release is met? I want to avoid this as any pension would probably be fully taxable in NZ.

As you are not living in Australia you are not eligible for an SMSF. It would not matter whether you acted as individual trustees, or a corporate trustee, you would still not meet the residency test. I recommend that you stay with your current Australian super fund until you move back to Australia.

Since the introduction of the new superannuation system, once a person turns 65 they are not forced to commence taking a pension from their super fund. This will mean you could leave your current Australian super fund in accumulation until you return to Australia, set up an SMSF then, and rollover your superannuation into the SMSF at that time.

Will my shares impact my husband’s New Start Allowance?

My husband has lost his job for the second time this year, and we are going to really struggle financially this time. He got a $12,000 payout, which based on our current bills and living expenses is pretty much accounted for and we'll be out of money in about one month.

He's applied for a New Start Allowance, which I know they ask many questions about assets, etc. What impact will owning a share portfolio of about $50,000 have on him getting a New Start Allowance payment? The shares are in my name and since I no longer work have no super contributions, I really don't want to sell these to pay bills – the shares are my super!

Shares are regarded as liquid assets and are counted in the assets test and also have the deeming rules applied to them under the income test. You would not be forced to sell any or all of the shares. Under the assets test no New Start allowance would be payable if as a homeowner your total assets, excluding the value of your home, exceeded $273,000.

Under the deeming provisions used by Centrelink the income counted by it for your $50,000 share portfolio will mean that your husband will not receive the full new start allowance. If your shares were however in a superannuation fund, rather than being owned by you personally, the value would not be counted under either the assets or the income test.

How will turning 65 affect my non-concessional contributions?

I understand that the annual limit for non-concessional superannuation contributions is $150,000 but that under the pull-forward rule you can contribute up to $450,000 (or 3 years worth of contributions) in one go.

If I make a $450,000 contribution prior to 30 June 2013, this would utilise my annual limits for the financial years 2013, 2014 and 2015. However, I understand that once you turn 65 you have to satisfy a work test, which I wouldn't meet. As I would turn 65 in January 2015, am I still entitled to contribute $150,000 for that year (as part of the $450,000 pull-forward amount) or only a proportion thereof?

If you contributed $450,000 in the 2013 financial year you would be unable to make any further non-concessional contributions until the 2016 financial year. As you would not meet the work test you could not make any further contributions. You could consider contributing $150,000 for the 2013 year, $150,000 for the 2014 year, and then contribute $450,000 in the 2015 year before you turn 65.

Can I transfer my shares into my SMSF?

I am retired and am living off my investments which are not in any super fund. I do have an industry super fund which has only $60,000 and I have a share portfolio of $1.1million which is outside my super fund. Is there a way to have my share portfolio put into a DIY fund? What are the options?

You could set up a self-managed super fund and over a period transfer your share portfolio into it. The number and value of shares you could transfer would however be limited by the concessional and non-concessional contribution limits. If you have 10 years to go until you turn 65 you could conceivably transfer your entire share portfolio into an SMSF.

When you transfer the shares into an SMSF, depending on what you paid for the shares and their value at the time of transfer, you may have capital gains tax payable on any profits made. Before undertaking this strategy you should seek professional advice to find ways of reducing the impact of capital gains tax and make sure that none of the contribution limits are exceeded.

How does Centrelink assess a surviving reversionary pensioner’s assets?

Prior to my wife's death earlier this year, we organised our SMSF pensions to be reversionary. In assessing eligibility for the aged pension, does Centrelink combine the assets of the account of the deceased pensioner together with that of the surviving reversionary pensioner?

On the death of a member of a couple, and under the will or a reversionary pension is in place, the surviving member would have all of the joint assets now counted against their assets test limit. This will mean the value of your wife’s pension account will now be counted as your asset for age pension eligibility.

Will we be liable for CGT when my fiancé sells his house?

My fiancé and I both own separate houses that we have individually lived in for the whole period of ownership. We are intending on marrying next year and putting his house on the market. With the market being quite flat, it may take several months to sell his property but we have no intention to rent it out nor keep it as a holiday home. Will either of us be liable for capital gains tax when this property is sold?

As both houses have been your main residences prior to you getting together, and you will not be renting out your fiancé’s property while waiting to sell it, no capital gains tax would be payable on the property if it is sold within 12 months of him moving out.

If you decided to hold on to the property due to the market being flat, and rent it out while waiting for the market to pick up, you would need to get the property valued at that time. Capital gains tax would then be payable by your fiancé on any increase in value from the time it was rented until it was sold.

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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