Tax with Max: Anti-detriment payments explained

Explaining super fund anti-detriment payments

Could you please explain anti-detriment payments from a super fund, what are they, how are they calculated and who are they payable to?

Answer: Anti-detriment payments are made by superannuation funds as an additional lump sum payment upon the death of a member. The payment is made to compensate their dependants for the fact that super contributions and income earned have been taxed at 15%.

The payment can be made to the trustee of the deceased estate, the spouse or former spouse of the deceased, or a child of the deceased. Where the payment is made to a dependant the super fund can claim a tax deduction based on the anti-detriment payment made.

The amount of the anti-detriment payment is calculated using a reasonably complex formula. In most cases, where a person has no eligible service period relating to the superannuation fund prior to June 30, 1988, the anti-detriment payment is equal to 17.65% of the taxable component of the member’s balance at their date of death.

The tax deduction that can be claimed by the super fund making the anti-detriment payment is incredibly generous. It is calculated by dividing the anti-detriment payment by 15%. This means for every $1,000 of anti-detriment payment an SMSF gets a tax deduction of $6,667.

This is a very complicated area of superannuation and taxation law and most SMSFs would find it hard to pay one. This is because, as the anti-detriment payment cannot be taken from other members’ accounts, it must come from a reserve or insurance proceeds. This means for an SMSF to make an anti-detriment payment planning must be done well in advance of the death of a member. Before taking any action you should seek professional advice as to whether an anti-detriment payment strategy would be suitable for your fund.

Setting up a superannuation proceeds trust

What is the situation if an SMSF member dies when they under age 60, and the surviving husband is also under 60, and they have two young children. My understanding is that between death and super payout, the trustees can set up a superannuation proceeds trust so that her husband can share the super trust proceeds between dependent children and himself, thus saving tax which otherwise the husband would be paying at his marginal rate. This assumes that he can take her super proceeds as a pension. Is this correct? Finally, if the husband can take his wife’s super proceeds as pension, where can one find the drawdown rates for such a pension?

Answer: I have not had any experience with a superannuation proceeds trust being set up as part of an SMSF. I believe that this is something that would need to be done by a lawyer who specialises in estate planning. My understanding is that the superannuation proceeds trust must form part of the will of the deceased.

Another alternative is for death benefit superannuation pensions to be commenced directly from the SMSF. This could be done as separate pensions for the husband and the two children. Care must be taken if this option is used as once the children reach 25 years of age the pension must cease. Any funds left in the pension account must then be paid out to the children in tax free lump sums.

SMSF trust deed queries

I retired from full-time employment in 2012 at the age of 62. I established an SMSF drawn up by The Super Factory and put my money in the hands of Ord Minnett. I am now doing my tax for 2012-2013 and my accountant tells me the following information is missing:

• The SMSF does not have a commencement date.
• The SMSF does not have any members identified.
• The SMSF does not have any beneficiaries identified.

The deed currently only identifies my wife and myself as trustees. My wife continues to work and only my money is in the super fund. I have spoken to the person who drew up my super deed at The Super Factory and he said this is how he does them and he could see no problem. If I wanted to add the above there would be a charge for this amendment. Can you help me please?

Answer: I am surprised to learn that the SMSF trust deed does not include the first two points that your accountant says is missing. I do not understand why the accountant requires beneficiaries to be identified because an SMSF has members and does not have beneficiaries. The only time that this would occur is in the case of a binding death benefit nomination that nominates people to benefit from the superannuation upon the death of a member.

I have looked at the website for The Super Factory and the way their instructions for having a trust deed are prepared, and it would appear that the names of at least two people who were individual trustee/members must be entered. This being the case, there should not be a problem with your deed apart from possibly the missing commencement date.

It may be worthwhile getting a second opinion from another accountant/auditor to see if they have the same objections to the trust deed. It is also hard to advise you properly without seeing the trust deed.

The assets test for disability pensions

Up to how much money can a disabled person have in their bank account to continue to receive the disability pension?

Answer: The assets tests that applies to disability pensions is the same as the assets tests that applies to age pensions. A single non-home owner pensioner can have up to $339,250, or if they own a home up to $196,750, and still receive the full pension. For a couple the combined asset value is $421,500 for non-home owners and $279,000 for homeowners.

The assets included in these limits are not only financial assets, such as bank accounts and shares, but also other personal assets such as motor vehicles and home contents. One of the few assets that would not be counted in this test, as a person on disability pension would not usually have attained pension age, is the value of their superannuation.

Ceasing non-compulsory contributions at 75

I will turn 75 in January next year. I understand from previous advice that I would need to cease all non-compulsory contributions from the end of February. Does that mean that I would be able to put two-thirds of the maximum non-compulsory contributions into my super fund next year before I cease the contributions?

I am one of those workers who have only been able to make additional contributions over the last few years because of prior commitments to children and family. It does seem unfair that I am forced to cease contributions at a time when I might have been able to increase my super fund to a viable investment level.

Answer: When a person turns 75 in a financial year, and they have been able to satisfy the work test, under the current non-concessional contribution limits they can contribute up to $150,000. The deadline for making the contribution requires the amount to be received by the super fund no later than 28 days after the end of the month in which the member turned 75.

I agree with you that it does seem unfair that on the one hand compulsory employer super contributions can be made on behalf of an employee no matter what their age is, but the non-compulsory non-concessional contributions must cease at age 75. Like all things, unless Australians are prepared to write to their local member to voice their dissatisfaction about such rules nothing will ever change.

Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs. Also go to www.smsfsurvivalcentre.com.au.

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.

Do you have a question for Max? Send an email to askmax@eurekareport.com.au