Disability pensions, and SMSF name changes

Question. My son has cerebral palsy and gets a disability pension. Due to him earning some interest on a $200,000 lump sum invested his pension was cut by $30 a week. If he joins a super fund and puts $150,000 of his money into a super account should this mean his pension will increase? Seeing that he will not be able to touch the super money till he is 60 it shouldn’t, should it? 

After we put his money into super, will my son be able to go to Centrelink and tell them what he did and ask them to reinstate his original amount because he is not receiving any income anymore?

Answer. Under Centrelink asset and income tests, the cash held in bank accounts and term deposits is treated differently from amounts in superannuation accounts. A single person receives the full disability support pension if their income is below $174 per fortnight and that cuts out when the income reaches $2026.40 fortnight.

Under the assets test, a single person’s pension starts to decrease for a homeowner with assessable assets of more than $263,250, and for a non-homeowner with assets of more than $473,750. The amount of pension that someone receives depends on which of the tests results in the least amount of pension.

Income counted under the income test includes actual income earned, such as salaries and wages, and deemed income on investment assets such as bank accounts, shares, and in some circumstances, superannuation accounts.

On the basis of your son having $200,000 counted under the income test, at the time it was invested and the deeming rates that would have applied then, a deeming rate of 1.75 per cent would have been used for the first $51,800 and 3.25 per cent on the balance. I estimate this should have resulted in a decrease in his pension of between $9-12 per week.

The reason for the two decreases is because there is a transitional rate of 40 per cent decrease in a pension if it was commenced prior to September 2009. As a result of your son’s pension having decreased by $30 a week. this means he must be earning other income.

For the age pension the balance of a person’s superannuation account is counted under both the assets and income tests if they have reached age pension age, or have commenced receiving a superannuation pension. This is because until someone reaches age pension age they would not normally be able to access their superannuation.

When it comes to a disability pension, it appears that in some circumstances a person may have their superannuation balance counted under both tests. According to the Centrelink website, when applying for a disability pension, superannuation is not exempted for someone under age pension age if they have access to any part of their superannuation account.

Under normal circumstances I would have advised that it would make sense putting $150,000 into a superannuation account for your son as he was below age pension age. This is because someone cannot access their super until they have reached preservation age, which for your son would more than likely be 60.

An exception to this rule is if someone is classed as permanently disabled. Under this superannuation condition of release a person can access their superannuation either as a pension income stream or as lump sum payments.

I recommend that you seek advice from a fee-for-service adviser that specialises in tax and retirement strategies. That way a full evaluation can be conducted of whether your son would be better off making a $150,000 superannuation contribution.

Question. I turned 60 six days before the end of the 2019 tax year. I usually make an annual superannuation payment from our superannuation fund as I am in pension mode.​​​​ I made my annual superannuation payment after my 60th birthday, but before June 30. What is the tax treatment on this payment? 

Answer. Someone who is under 60 will pay tax on lump sum superannuation payments over the maximum low-rate cap amount. For the 2020 financial year, this is $210,000. For the 2019 financial year, this was $205,000.

Account-based pension payments received by someone under 60 are fully taxable at their normal marginal tax rates. However, the actual tax payable is decreased by a 15 per cent tax offset of the taxed amount of income received and 10 per cent on the untaxed amount received.

By you having delayed receiving your full superannuation payment until after you turn 60 this should mean that no income tax will be payable by you. Had you received any part of the pension before you turned 60 this would have been taxable.

It makes sense when a person is in pension phase and under 60, and turning 60 in the next financial year, not to receive any payments in that following financial year until after they have turned 60.

Question. My wife and I were personal trustees of our SMSF and we had bank accounts in our names. We were then persuaded to appoint a company to act as trustee for the super fund. We are also advised that we needed to change the name where we held all our investments into the name of the new company trustee.

The new bank account in the corporate name, being a ‘business’ account, pays virtually nil interest. We were getting over 2 per cent when the monies were held in our personal names as trustees. Those bank accounts continue to exist, with no funds in them, although revenue is now deposited into the bank account in the name of the company trustee. 

Is it legal for us to move money from the company account back into the previous accounts in order to continue to earn a little interest? The previous accounts are still identified as us being trustees for another super fund, so we are not trying to take money out of the super system.

It would seem to us that as directors of the trustee company it is our duty to try to earn as much as safely possible without any wrongdoing that may be questioned or incur any penalty. 

Answer. Despite what the ATO has on their website and has issued in tax determinations, there is no legal requirement for all the investments in an SMSF to be transferred into the name of a company when it takes over as trustee.

At the very least, when a company is appointed to act as trustee for an SMSF, I advise they should have an operating bank account in the new trustee’s name. Where it is easy to change the name of other investments into the company this should be done.

However, when there are investments that will incur costs such as stamp duty by changing the name of the trustee, and those investments have a maturity date when they will be converted to cash, I advise they be left in the name of the individual trustees. There does, however, need to be a declaration of trust by the original individual trustees stating that they are holding those investments on behalf of the new corporate trustee.

As the bank account for your SMSF is still open in your personal names, you may be able to transfer the funds back to that account, after checking with your SMSF administrator and auditor. There are accounts operated by some financial institutions that pay a higher rate of interest even when a company access trustee of the SMSF, which could prove to be the best solution to your problem.

Before taking any action you should seek professional advice.