|Summary: This article provides answers on dividend imputation credits in pension mode, transferring transition to retirement pension payments, government changes to superannuation, capital gains tax on deceased estates, post-retirement income and pension payments, clarifying capital gains tax in pension phase, and SMSF reversionary pension payments to a spouse.|
|Key take-out: The holding period relating to claiming imputation credits still applies in pension mode.|
|Key beneficiaries: SMSF trustees. Category: Portfolio management.|
Dividend imputation credits in pension mode
In an SMSF (single member) in pension mode, does the dividend holding period rule still apply even though there is no tax payable?
The holding period relating to claiming imputation credits still applies in pension mode. Even though the fund is not paying tax it still gets a benefit from claiming imputation credits. If the holding period is not satisfied these credits will be wasted. They could be used to produce a tax refund for the fund or to reduce tax payable on an accumulation account in the fund.
Transferring transition to retirement pension payments
I have recently started a transition to retirement pension taking the minimum 3% pension drawdown. I am 55; my wife is 47 and not working. Is it possible to direct any of that pension payment directly to my wife as an income as opposed to taking it all myself and having to add it to my other income, paying tax and then distributing a payment to my wife for her living expenses.
The ability to receive payments from a superannuation fund depends on a person being a member of the fund, having an account with funds in it, and them having met a condition of release. This means your wife could not receive your transition to retirement pension for two reasons.
The first is the superannuation account is not in her name and therefore she could not receive the pension payments from it. Secondly even if your wife had an account in your super fund, as she has not reached the relevant age to qualify for a condition of release, she could not receive a transition to retirement pension.
Government changes to superannuation
My wife and I hold separate superannuation accounts with QSuper and, taken individually, the accounts do not amount to $1 million each. Combined they do go over that amount. I haven’t heard if the Government is planning to tinker with the combined superannuation accounts of a married couple or treat each account individually. We are both over 65 and we are retired self funded retirees. Any thoughts?
I have given up on trying to predict what governments will be doing in relation to superannuation. The only thing I can say is that I have not heard about a move to disadvantage superannuation members by combining the value of a couples superannuation accounts. There, however, have been some leaks that Labor is considering increasing taxes on superannuation for individuals with more than $1 million.
Capital gains tax on deceased estates
My father’s estate owns a single property of three rental apartments and his own residence, which he bought in 1976. As it is a pre capital gains purchase I understand that if the estate sells soon there is no tax payable. However, if we don’t receive an offer we are happy with we will not to sell. What are the CGT implications? How long could we hold before a sale would trigger a CGT event, and at what price would the “purchase” value be determined?
The capital gains tax treatment of property owned by your father differs between the three apartments and his residence. With regard to the three apartments it will not matter how long you keep them as the capital gains tax rules are the same, whether you hold on to them or sell them now.
Assets purchased by a deceased before the capital gains tax regime was introduced are deemed to have been purchased by the person inheriting them at their market value at the date of the death of the deceased. If the apartments remain in the estate of your father and are sold, no capital gains tax would be paid by the estate. Deceased estates are allowed to run for three years and are taxed as if they are an individual.
A person’s residence will remain capital gains tax tree for up to two years after a person has died. If the residence is sold by the estate no capital gains tax would be payable on any profit made on its sale. Where the residence is occupied by someone under the terms of a will the exemption period extends for the period of their occupation.
Post-retirement income and pension payments
My wife and I have recently retired and we have a self-managed super fund. We have both been offered casual employment working one to two days per week. How will this income affect our earnings from our self-managed fund?
The taxation of superannuation benefits relates to the age of the person receiving the benefits and not whether they are receiving any other income. If you are 60 or over, lump sum and pension payments from your superannuation fund will be tax free. If you are under 60, tax will be payable on pension payments received, but you will receive the benefit of the 15% superannuation pension tax offset.
Pension payment timings
I was of the understanding that the minimum pension amount was set at the start of the financial year and, if an annual payment was requested, could be paid at any time during the year. If a member has been in pension phase for a number of years, would they be regarded as returning to accumulation just because the payment hasn’t been made? What about if a small amount was paid early in the year and the pensioner died near year’s end before the total amount was paid?
For a super fund to be in pension phase the minimum pension payment requirements must be met. In the example you outlined, as there was only a small pension payment at the start and no more made until the person died, if the minimum pension had not been paid the account would not be regarded as being in pension phase.
The government announced in its mid-year economic financial outlook statement that legislation would be passed that will result in no tax being paid by a super fund on the event of the member’s death. Until the legislation is released it will be difficult to work out exactly how this will help in the example you outline.
Clarifying capital gains tax in pension phase
Just to clarify your answer to the last question on 22 February 2013. I am in pension phase and over 60. If my SMSF buys a unit to rent and subsequently sells the unit, I assume it pays no capital gains tax?
If your fund meets all of the requirements to be regarded as being in pension phase no tax would be paid at on a capital gain when the unit sold.
SMSF reversionary pension payments to a spouse
My wife is left a reversionary pension from my SMSF on my death. She is not presently a member in the SMSF. Does she have to be a member to receive the reversionary pension?
Yes. If you currently have a company acting as trustee she should become a director of the trustee company at the same time as becoming a member. Documentation needs to be prepared to give effect to this. You may want to consider having her join the fund as a member with no balance and becoming a director now. This would save the necessity for a lot of documentation upon your death.
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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