|Summary: This article provides answers on making contributions post retirement, transferring assets into super, stamp duty on property transfers, buying a house using super funds, pension payment treatments after death, and the rules on property in super rented to relatives.|
|Key take-out: Concessional contributions received by a super fund always have tax paid on them of 15%. Income on investments is also taxed at 15%, unless the fund is in pension phase.|
|Key beneficiaries: SMSF trustees. Category: Portfolio management.|
Super contributions post retirement
I am retired and turn 60 in March. My SMSF will be in pension phase. After my 60th birthday I plan to do an in-specie transfer of shares (worth approximately $80,000 and all held for over 12 months) into my SMSF as my only non-concessional contribution amount for this financial year. My estimated personal CGT for the share transfer will be about $15,000 (with the 50% discount applied) so I was also going to make a $25,000 cash transfer into my SMSF as a personal deductable contribution to offset the personal CGT amount.
- Can you see any issues/flaws with the above approach?
- Will the $25,000 personal deductable contribution still be subject to 15% tax after my 60th birthday?
- If some of the transferred shares are sold before being held for 12 months in my SMSF will tax be payable on any gains? Does the 15% or 10% tax rule still apply after my 60th while in pension phase?
What you are proposing will work if you are not receiving employer superannuation contributions. To be able to make tax deductible self-employed contributions you must either not receive any employer contributions at all, or your employment income must be less than 10% of your total taxable income.
Your strategy will not work if your only taxable income will be the capital gain. This is because no tax is payable on income up to $18,000. How income is taxed in a super fund does not depend on the age of members. The only tax effect of someone turning 60 is that lump sum and pension payments they receive are not taxed.
Concessional contributions received by a super fund always have tax paid on them of 15%. Income on investments is also taxed at 15%, unless the fund is in pension phase and then no tax is payable on the income. If your capital gain would not be taxed, due to you not having sufficient taxable income, you would be paying 15% contributions tax and not saving any income tax.
Where a super fund makes a taxable gain, if the investment is held for 12 months or longer, tax is effectively paid at 10%. If the fund is in pension phase no tax is payable on any capital gains made.
Transferring assets into super, and setting up a SMSF
I have a small super investment with a Colonial First wrap, which costs a lot in fees as is beneath $50,000 as I am a part-time worker. I am 54 and visited a financial adviser who suggested an SMSF as we have three investment properties and cash invested in a cash management account of $200,000.
The investment properties are all negatively geared, although this is likely to change as we have paid of a fair bit off the debt in the past financial year. My accountant has said SMSFs are not good as the government keeps changing the rules. I have a salary sacrifice to our loan account, which I could put to super if necessary. What do you advise?
I don’t know of any changes being considered that would affect members of an SMSF any differently from superannuation held in another type of super fund.
Setting up an SMSF would make sense if this was done as part of a detailed tax and retirement plan. At the centre of this plan would be to gradually transfer your current investments into superannuation. This would require some to be sold and the plan would have to deal with any capital gains tax issues.
Cost is only one reason to start an SMSF. By far the most common reasons why someone starts an SMSF is to take control of their superannuation and because they want to invest in direct investments. Before taking any action you should seek advice from a fee for service, non-commission earning, advisor that specialises in tax and retirement planning strategy.
Paying stamp duty on a property transfer
I have a residential unit and a block of land owned outright by my super fund. When I retire can I transfer these to myself and is stamp duty payable? What is the best age to retire to avoid any stamp duties or income tax liabilities?
Whether stamp duty is payable does not depend on your age, but it does depend on where you live. In some states property transferring from an SMSF to a member is stamp duty free. Before transferring the property you should seek advice from a lawyer that specialises in stamp duty issues.
Buying a house using superannuation funds
I am 52 and my wife is 42, we currently have my wife’s parents living with us and are looking at a bigger house. We owe $385,000 on our home, which is valued at $500,000. I have $200,000 in my super fund and my wife has about $40,000. Can we purchase a new house and/or use our combined super to purchase one and direct our super contributions towards the house, pay the difference, and rent our exiting house out and negative gear the property?
As you are both under retirement age you cannot access your super to help pay for a new home. You also cannot set up an SMSF and have it buy a house that you and your wife’s parent would live in. It would make more sense to sell your current house and buy another one that gives you the space you need.
Clarifying pension payments after death
In your recent column you said: “If the original pensioner has been receiving lump sum pension payments, and dies before a pension payment was received by them, that member will not be regarded as having been in pension phase”. I’m not sure what this means. If the pensioner has been receiving the lump sum payments, how can they die before they receive a payment?
There are many people who have set up their SMSF to pay a pension in one lump sum at the end of each year. In this case, if the member dies any time between 1 July and before the end of the financial year they would not have received a pension payment and they would not be regarded as being in pension phase.
The rules on property in super rented to relatives
My husband and I are both retired, run our SMSF and we receive a part pension. Can we buy an apartment in our super fund? No loan would be required, and we would then rent it at the going rental rate to our daughter? Do we pay stamp duty on the purchase? I have researched the taxes and it appears that as we are retired we pay no tax on the rental and no capital gains when we sell. Would we have to pay land tax?
An SMSF is prohibited from providing benefits to its members and related parties. As your daughter is a related party your fund would be banned from buying a property and renting it to her. Your fund could buy a residential property, as long as it is not purchased from you, and rent it out to non-associated parties.
If your fund purchased a property, stamp duty would be payable. Once an SMSF is in pension phase it pays no tax on income and capital gains it makes. However, you will pay tax on rental income and capital gains whether you are retired or not. Depending on the value of the property, and the land tax rules of the state the property it is located, land tax could be payable.
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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