Inheritance threatens housing

I AM on a disability support pension and have lived in public housing in Melbourne for many years. About two years ago I inherited money. I have $54,000 in a bank account and shares worth about $17,000. Public housing only allows me to have $30,000 in assets. Every time my pension increases (next on March 20), I am reviewed by public housing. When they see my assessment I will be told to leave. I have been advised to put most of the money in superannuation but when I turn 65, the super will mature and then I will have to leave. Can you please help me? D.T.

I'm not sure whether you are in state- or council-sponsored housing. If you are in Victorian state housing, then the fact you are already a resident means you will not be asked to leave, despite your inheritance, although your rent may be adjusted to take into account your increased assets. Confirm this with the department of housing on 1800 663 662.

If you have a problem, contact the office of the senior practitioner, department of human services, on (03) 9096 8427. This position was created by the Disability Act 2006 to ensure the rights of disabled people are protected.

Super may be the best option for your money if you want to be sure the money does not affect your housing entitlements until age 65.

There is the choice of having someone, such as the state trustees, set up a special disability trust to which you can contribute your bequest within three years of having received it. Money in such a trust is ignored by Centrelink's income and assets tests but I believe it is still counted towards the Victorian department of housing's assets test.

Steer the safest course

I AM 62, work full-time and have my own self-managed super fund. I am planning to set up a transition-to-retirement pension. Can I just instruct the bank that holds my SMSF savings account to transfer 4 per cent of my SMSF's July 1, 2009 balance to my personal savings account before June 30, 2010 and continue to do so each year to achieve pension mode? Can I still make concessional and non-concessional contributions to my SMSF although I would be in pension mode? If so, what are the maximum contributions I can make each year? S.L.

Yes, the fund trustee (you) can pay a member of the fund over 55 (you again) a transition-to-retirement pension, assuming the trust deed allows it. This financial year, the pension needs only to be half of the regular minimum, or 2 per cent of the assets in the fund (for people aged 55 to 64), when you begin the pension. Unless the government changes the rules, it will be back to 4 per cent for you from July onwards.

You cannot contribute to a pension fund. However, the SMSF can establish both a pension and an accumulation account in your name and you can contribute to the accumulation account. These accounts can hold separate assets, which is often the clearest approach. Some accountants simply amalgamate the pension and the accumulation accounts, which means the fund must obtain an annual actuarial certificate.

Your maximum concessional and non-concessional contributions are $50,000 and $150,000, respectively.

It's clear from your questions that you have learnt enough about running a super fund but you should seek an accountant or SMSF service provider to help you or you are likely to end up in hassles with the Australian Taxation Office.

Look before you leap

MY husband is 56 and has $250,000 ($20,000 tax free and $230,000 taxed element) in his self-managed super fund. He plans to withdraw and reinvest $150,000 into the fund's accumulation account and then withdraw a transition-to-retirement pension of 5 per cent a year. Is this allowed? T.X.

You need to understand the concept of preservation. All contributions are preserved and cannot be withdrawn as a lump sum from your super fund until a condition of release is met. The most common such conditions are complete retirement after reaching one's preservation age (currently 55) or changing jobs after age 60, or turning 65.

Otherwise, the only way to withdraw money after turning 55 is via a transition-to-retirement pension but this only allows a maximum of 10 per cent of assets (as at the preceding June 30) to be withdrawn each year, or $25,000 in your husband's case.

You really should be seeking professional advice on this matter to avoid making any serious mistakes.

Clarifying conflicting advice

OUR unit trust was set up in 1991. We have been advised that due to changes in regulation our super fund is no longer permitted to buy further units from my wife and I as we are the owners of the other units. We would still fall below the 5 per cent threshold for non-arms-length investments. We now have conflicting advice on this matter and would be grateful if you could help clarify this issue. D.S.

Prior to August 11, 1999, an in-house asset only included a loan to, or an investment in, a standard employer sponsor of the fund, or an associate of the employer.

After that date, in-house assets were limited to 5 per cent of the fund value and the definition was extended to a loan or investment in a related party, or trust, or a fund asset subject to a lease arrangement between the trustee and a related party. However, under Section 66 of the SIS Act, and Section 13.22 B and C of the SIS Regulations, a real business property held in a unit trust is exempt from being an in-house asset of the superannuation fund, assuming all the well-known basic conditions are met.

Pre-1999 arrangements were grandfathered for 10 years and these expired on June 30, 2009. This change should not have affected the SMSF's ability to purchase more units in a unit trust holding a business property, nor the trust's ability to buy units from other unit holders, typically the mum and dad trustee-members of the SMSF.

I checked with the ATO and a spokesman confirmed that "there have been no changes to the Superannuation Industry (Supervision) Regulations 1994 to prevent an SMSF from investing in a related unit trust which invests in business real property and meets the conditions contained in regulations 13.22B or 13.22C."

Investing in a related unit trust means buying units in the trust.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW 2026. Helplines: bank ombudsman 1300 780 808 pensions 132 800.