I am over 60, and my SMSF is in the pension phase. It contains shares held for more than five years, and if they were sold now, or any time while I am alive, there would be no capital gains tax. I understand that when I die in, say, 10 or 15 years, the SMSF will automatically go into the accumulation phase. When the shares are eventually sold to wind up the SMSF, I understand CGT will apply on all the gains accrued, not just on the gains since my death. Am I right? Do you have a suggestion on how to legally minimise this tax?
The rules may be changing. As part of its Mid Year Economic and Fiscal Outlook report, the federal government finally clarified the tax treatment of assets in the event of a lump-sum payment from a deceased super member's account. It has announced that the law will be amended to allow a tax exemption until the deceased member's benefits are paid out. Without the legislation, it is difficult to know how the government will ultimately draft the changes. From the brief information available, it appears that the tax exemption would continue until the death benefit is paid, which must be "as soon as practicable". Unfortunately, until the legislation is written, we won't know what the government's intentions are. As you point out, you could always get around the problem by withdrawing your benefit before death.
My wife is the beneficiary in the will of her grandfather, who died in 1940. Her father was the life tenant until his recent death. Her share of the estate consists of shares in public companies, about half of which were acquired after 1985. The value is $650,000. She would prefer to receive the shares in specie and continue the investments in their present form. Could payment of capital gains tax be deferred until her eventual sale of the shares, or would the transfer to her trigger payment?
Death does not trigger capital gains tax any liability is simply transferred to the beneficiaries. Assets acquired before September 1985 will be deemed to be acquired by the beneficiaries at their market value at the date of death, and assets acquired after September 1985 will be deemed to be acquired at the cost base of the deceased. Therefore, your wife should have no capital gains tax liability until she disposes of the shares. Obviously, you should take advice from your accountant.
My mother is single, 58, and has been working in her own business for the past 12 years. She has managed to pay off her mortgage and save an extra $40,000. The house is worth $180,000, but she has no assets other than a car. Because of some physical and mental-health issues (which may be hard to prove), she can no longer run her business. She is not eligible for the age pension until she is 66. What do you recommend she do with her $40,000? And do you have any advice on future cash flow?
The simple solution is to keep the money in an online high-interest bank account, for which there will be no ongoing fees and no loss of capital if the market falls. She should also talk to the people at Centrelink, as she may be entitled to some benefits.
My father, aged 82, has recently had to go into a nursing home with dementia. He was not able to attend to his financial affairs over the past three or four years. I have recently amended his past tax obligations and put his affairs in order. I need at least $90,000 (after tax) a year to pay for my father's expenses in a nursing home with extra services. Dad has about $4.4 million in cash.
Is there something besides term deposits I could look at to consolidate my father's assets and protect against falling interest rates?
You appear to be in a position where your main goal should be to preserve capital for the beneficiaries of the estate, while at the same time generating enough income for your father's needs. A portfolio of blue-chip shares should yield at least 4 per cent to 6 per cent, which would be a more than adequate income, as well as providing capital growth. Obviously, you will need advice from a stockbroker or financial adviser, as you will need to agree on an asset allocation that suits your needs and your risk profile. This should include at least $400,000 in cash so you are never forced to dump good shares while the market is having one of its normal downturns. Keep in mind that you can always use index funds or actively managed funds if you don't want to pick individual stocks.
We are retired and about to build our home from share proceeds. Is it wise to leave our remaining shares with the four big banks only?
It is a fundamental principle of investing that you should not have all your eggs in the one basket, and this is exactly what you would do if you kept the bank shares only. Talk to your stockbroker about a diversified portfolio that will spread your risk.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: noelwhit@gmail.com.
I turn 75 next January and am still working. I would like to add to my super before my next birthday, but am not sure if this would attract tax penalties. If there is no chance of penalties, I easily meet the work test. Would it be better to salary sacrifice or contribute after-tax funds?
You can contribute to super until your 75th birthday as long as you pass the work test. I recommend you use both concessional and non-concessional contributions the former is limited to $25,000 a year and the latter to $150,000.
Frequently Asked Questions about this Article…
If my SMSF is in the pension phase and I’m over 60, are capital gains tax (CGT) exemptions lost when I die?
While you’re alive and your SMSF is in the pension phase, capital gains on shares can be tax‑free. The article explains that on death the SMSF typically reverts to accumulation phase and CGT can apply when assets are sold to wind up the fund. However, the federal government has announced an intention to amend the law to allow a tax exemption to continue until the deceased member’s benefits are paid out — but the detail won’t be clear until the legislation is written.
What did the government announce about tax treatment of deceased super benefits and CGT?
According to the article’s summary of the Mid Year Economic and Fiscal Outlook, the government plans to amend the law so a tax exemption applies to deceased members’ super assets until the death benefit is paid out (the government says that should happen “as soon as practicable”). The specifics are still uncertain until the legislation is drafted.
Can I avoid CGT on SMSF assets after death by withdrawing my benefit before I die?
Yes — the article notes that withdrawing your benefit before death is one straightforward way to avoid the risk of later CGT applying when the SMSF moves to accumulation phase. This is a practical option mentioned while the legal changes are still unclear.
If I inherit shares in specie, will I have to pay capital gains tax when they’re transferred to me?
No immediate CGT is triggered by death; the liability generally transfers to the beneficiary. The article explains that assets held before 1 September 1985 are deemed acquired at market value at the date of death, while assets acquired after 1 September 1985 are deemed acquired at the deceased’s cost base — so any CGT is typically deferred until you dispose of the shares. You should confirm details with your accountant.
My 58‑year‑old mother has $40,000 in savings and needs short‑term security — what should she do?
The article recommends keeping the $40,000 in an online high‑interest bank account to avoid market risk and ongoing fees. It also suggests she speak to Centrelink to check whether she’s eligible for any benefits given her circumstances.
Dad is 82, in a nursing home and needs about $90,000 a year. With $4.4 million in cash, how should we invest to protect capital and get income?
The article advises prioritising capital preservation while generating income. Suggestions include building a portfolio of blue‑chip shares that might yield 4–6% for income and growth, keeping substantial cash (the example recommends at least $400,000) so you’re not forced to sell in a market downturn, and considering index funds or managed funds if you don’t want to pick individual stocks. It also recommends getting advice from a stockbroker or financial adviser to set an appropriate asset allocation.
We’re retired and using share proceeds to build a house — is it safe to keep our remaining shares only in the four big banks?
No — the article stresses the core investing principle of diversification. Holding only the big four bank shares concentrates your risk. It recommends talking to a stockbroker about a diversified portfolio to spread risk across sectors and assets.
I’ll turn 75 next year and still work — can I add to my superannuation without penalties and should I use salary sacrifice or after‑tax contributions?
Yes — you can contribute to super up until your 75th birthday provided you meet the work test. The article recommends using both concessional (tax‑deductible/salary sacrifice) contributions — limited to $25,000 a year — and non‑concessional (after‑tax) contributions — limited to $150,000 a year. It suggests using both types rather than relying only on one approach.
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