Super couples, concessions and conversions

Question. I am 60 and no longer working, while my husband is 61 and self-employed. My husband has $1.5 million and I have $150,000 with an industry super fund. We also have our own SMSF with a corporate trustee totalling $1.5 million split into $500,000 for my husband and $1 million for me. 

We do not need to use income from super accounts for our living expenses at the moment, and would like your opinions on the following queries:

1. Since I am no longer working and 60, is it more beneficial to start an allocated pension for me in order to use the benefit of no tax on pension earnings versus 15 per cent on an accumulation fund? 
2. If I started an allocated pension account, although I will only have approximately $1.15 million at July 1, 2017 once the allocated pension has been set up, can I still contribute an additional $450,000 to my pension account to reach the $1.6 million pension transfer balance cap (PTBC)?
3. Our accountant set up our SMSF account in 2007, however she does not have an AFS licence and can no longer assist us with advice on our trust deed or super strategy going forward. Is it necessary to have our trust deed checked if we are still in the accumulation phase and there has not been any major changes in our operations since it was set up?
4. If an allocated pension is to be set up, do we need to use the service of an accountant with an AFS licence?

Answer. It would take detailed calculations to work out whether you will be better off keeping your accounts in accumulation phase or commencing an account-based pension. My gut feel is that you will be in a better overall financial position by commencing an account-based pension, receiving the minimum pension payment, and investing that pension while you don't need it in your name, rather than keeping your fund in accumulation phase.

The ability to make non-concessional contributions does not depend on whether someone is in accumulation phase or pension phase with regards to superannuation. If a person's total value of their superannuation accounts is $1.6 million or more, they are unable to make further non-concessional contributions.

The ban on making further non-concessional contributions commences from July 1, 2017. If you have not exceeded the non-concessional contribution limits in the previous three years, you can make a non-concessional contribution of up to $540,000 for June 30, 2017.

As you are under 65, and if you don't make a non-concessional contribution before July 1, 2017, the maximum non-concessional contribution you could make after then is $300,000.

If you don't have a large amount invested outside of superannuation your husband should commence a transition to retirement (TTR) pension immediately and take the maximum payment of $150,000, being 10 per cent of his industry super fund accumulation account, before June 30, 2017 and make this as a non-concessional contribution for you.

You may or may not need to have your trust deed updated. Given it hasn't been updated since your SMSF was set up in 2007, it should be reviewed and possibly updated, as changes to superannuation regulations have occurred since then. There are a number of SMSF trust deed update services that you could use rather than having to look for an accountant with an AFS license to do this one job.

You should, however, be looking for an accountant that can prepare and lodge all of the statements and returns required for your SMSF. This accountant should be able to provide you with strategic tax, superannuation and investment advice, due to either having their own AFS licence or being an authorised representative of an AFSL company.

Due to both you and your husband possibly exceeding $1.6 million in super pension accounts, this new accountant should consider whether it is worth your while having your SMSF hold only your pension accounts and your industry fund hold only accumulation accounts going forward.

Question. When an SMSF member commutes an excess PTBC from a pension account to an accumulation account, is it only for assets transferred to an accumulation account that the capital gains tax (CGT) concession applies, or can it be claimed for assets remaining in the pension account? What happens to the two accounts after July 1, 2017 – how are they run under the proportionate method? Must these two accounts be maintained with separate bank accounts?

Answer. The CGT concession can only be claimed for assets transferred from a pension account to an accumulation account as a result of the member exceeding the PTBC. Once a superannuation fund has a member with more than $1.6 million in superannuation balances it can no longer use the segregation method. This means the fund must use the proportionate method which does not require any separation or segregation of assets including bank accounts.

Question. If your defined benefit pension is above $100,000 per year, and in a second fund you currently have an accumulation of $600,000, I gather there is little use converting that to pension or TTR mode prior to July 1, 2017? Secondly, is it ok to the leave the $600,000 in accumulation mode indefinitely?

Answer. If your accumulation account had been converted to an account-based or TTR pension at July 1, 2016, and you are 60 or older, it would have made a great deal of sense commencing a TTR pension then. This would have resulted in your super fund not paying tax on the income it earned and, if you had not maximised your non-concessional contributions in the previous three years, you could have contributed the pension payments received as a non-concessional contribution.

From July 1, 2017 there is no requirement for a superannuation fund member to commence a pension from their accumulation accounts at any stage. It makes sense keeping your accumulation account going for as long as possible as, due to you receiving the defined benefit pension, it would not make tax or financial sense investing the $600,000 outside of superannuation.

Question. There has been discussion that when CGT relief is applied, the benefit will expire after 10 years (that is, mid-2027). I am now told this rule has changed and the CGT relief is ongoing. Can you please clarify this for me?

Answer. Several proposals were outlined originally when the sustainable superannuation reforms were proposed, such as the 10-year limit on being able to claim CGT relief on assets transferred back to an accumulation account. This proposal was dropped.

Question. My SMSF is in pension mode and I am over the $1.6 million transfer limit. My wife died and two of my accounts are reversionary. What happens come July 1 to those reversionary accounts – do they simply go into accumulation, or do they have to be paid out to me as cash?

Answer. You should seek professional advice as soon as possible. From an income tax strategy perspective, it would make sense commuting part of your account-based pension back into accumulation, to get below the $1.6 million limit, and retain the two death benefit reversionary pensions. This is because death benefit pensions must be paid out if they are commuted.