Ask Max: Your questions answered

Imputation limits, the 45-day rule, rolling in funds post retirement, pension drawdowns, self-employed contributions, and having children join a SMSF.

Summary: This article provides answers on dividend imputation credit limits, the 45-day rule, rolling funds into super post retirement, calculating pension drawdowns, self-employed contributions and deductions, and having children join a SMSF.
Key take-out: The dividend imputation credit limit applies to the individual taxpayer as a total, and not to each share held.
Key beneficiaries: SMSF trustees. Category: Portfolio management.

Does the dividend imputation credit limit cover multiple shareholdings?

Does the $11,677 limit on franked dividends received that you referred to in a previous answer apply to only one share or the total dividends received in the fund. Suppose you hold CBA, ANZ, NAB and WBC. Do you mean the total across all the shares of less than $11,677 or could be it be four times the $11,677.

When I answered the question relating to the holding period for shares I received several emails challenging my interpretation of the rules. Like most things to do with income tax the rules relating to the holding period for shares can be open to interpretation. As the ATO is the final arbiter on income tax matters, I sent them three questions relating to franking credits and the holding period rule.

1. Does the holding period rule apply to all taxpayers, in other words individuals and self managed super funds, or does the rule only apply to individuals?

The holding period rule applies to individuals as well as SMSFs.  For more information see ATO ID 2012/24.

2. Does the small shareholder exemption of $5,000 in imputation credits apply to both individuals and self managed super funds?

The income tax law limits the small shareholder exemption to individuals only.

3. Does the $5,000 imputation credit limit apply on a per share basis or is it applied to the total value of imputation credits a tax payer is claiming?

The income tax law specifies that the $5,000 imputation credit limit applies to the total value the taxpayer is claiming.

This means, in the example you have given, where there are four shares held, the imputation credit limit applies to the taxpayer and not each share held. This means if the total fully franked dividends received from the four shares exceeded $11,677, the small shareholder exemption would not apply.

When does the 45-day limit rule apply?

I already own a large parcel of Westpac shares which would exceed the $11,677 limit but they have been owned for a long time. If I buy another, say $20,000 of Westpac within the 45-day limit, would the dividend over those still qualify for the franking credits?

The only time that the 45-day limit rule applies is when shares are sold. If the second lot of Westpac shares purchased are held for longer than 45 days the franking credits would not be at risk.

Can funds be rolled into super post retirement as a non-concessional contribution?

My wife and I have an SMSF with approximately $2 million in it. We both take the pension option. I turned 75 years of age in August 2012, and my wife turned 68 years of age in March 2013. I still work and pass the 40 hours work in a continuous 30-day period. We recently came into $100,000 as part of a family estate. Are we able to roll the $100,000 into my wife’s super account and or can I roll it into my super account as a non-concessional contribution? If this is possible I assume we would simply cancel the current pension and start new pensions.

As you are 75 you are unable to make concessional and non-concessional contributions to superannuation. For your wife to contribute $100,000 as a non-concessional contribution she would need to meet the 40 hour work test.

If she was entitled to make the contribution she could do one of two things. The first would be to make the $100,000 contribution and start a new account based pension from this. The second would be to commute the current pension, contribute the $100,000, and then start a new account-based pension from the total amount now in her account.

Is there a way to calculate pension drawdown amounts over a defined period?

Do you know of an “app” that lets you calculate how much of your SMSF capital to draw down each year over a 20-year period to achieve a predetermined yearly income made up of the SMSF income and some of the capital. We know we have enough in the fund to last 20 years and we do not wish to leave money in the fund at the end, so we need a guide on how much to take each year.

I do not know of an app for mobile phones but I do know that many superannuation funds have calculators on their websites that help people work out what you want to do. The key factor that you will need to have in determining how much pension you can take, in addition to the value of your superannuation and the 20 year-period, will be the expected earning rate of your fund.

Another way of calculating the monthly pension drawdown amount would be to use one of the many loan repayment calculators available on the Internet. In this case the value of your superannuation would be entered as the loan amount, the period of the loan would be 20 years, and your expected earning rate would be the interest rate payable.

When can a self-employed super contribution be claimed as a deduction?

I recently retired from a Commonwealth Government position and am drawing a defined benefit pension from the PSSS. I am also a member of AustralianSuper. When I retired in August 2012 I cashed out my outstanding recreation leave and long service leave entitlements and was left with approximately $40,000 after tax. Prior to retirement I had contributed about $2,000 and my employer about $3,000 to the PSSS for this financial year.

I am currently doing casual part-time contract work. I understand I cannot contribute any of my contract earnings to AustralianSuper as pre-tax contributions unless my PAYG earnings are less than 10% of my total earnings. Can I contribute part of my post tax PAYG earnings payout up to the allowable $25,000 and claim these as a deduction?

You would be unable to make an after-tax contribution of $25,000 and claim this as a deduction. The only way a self-employed super contribution can be claimed as a deduction is if the member is not receiving, or is entitled to receive, super contributions from an employer. The exception to this rule is when a person’s employment income is less than 10% of their total assessable income. You could, however, make an after tax non-concessional contribution up to the $150,000 limit.

Is there a benefit from having children join a SMSF?

We have a well-funded SMSF of which my wife and I are presently the only two members. I am 63, she 60 and I am currently still in full-time work as a business owner. She is currently being funded by an income protection policy due to illness. Our son and daughter are working outside our business and presently contribute to funds associated with their respective employers.

Ignoring which might be the better income generator for the moment, is there any longer-term benefit to be gained by them joining our fund as members, either contributing part or all of their super contributions into our SMSF rather than their company fund? Are there benefits for them to be members when we pass on and wills come into play in terms of taxation etc?

The only benefit of having your son and daughter join your SMSF as members will be if your wife and you currently act as individual trustees. By having your son and daughter join the fund as member/trustees this would mean when one of you died the fund could continue to operate without anything needing to be done.

The cost of having your son and daughter join the fund would be an increase in administration due to their names having to be listed on all investments held by the SMSF. In addition they would need to sign all future documentation including for the purchase of investments. A better alternative would be to appoint a company to act as trustee of your SMSF.

Having your son and daughter as members of the fund does not create any tax advantages. Once both of you died, as your son and daughter that would not be classed as dependents, your superannuation would need to be paid out of the SMSF and they would pay tax at 16.5%.


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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