Tax with Max: Division 293 assessments

Division 293 tax, account-based pensions, the bring-forward rule and more.

Summary: The Australian Tax Office introduced Division 293 tax from the 2012-13 year to reduce the tax concession on superannuation contributions for individuals with income greater than $300,000 a year. Division 293 tax is charged at 15% of an individual’s taxable concessional contributions above the $300,000 threshold.

Key take-out: Individuals issued with a PAYG installment notice based on a Division 293 tax assessment can vary their taxable income estimate to reduce the amount payable. However, care needs to be taken as penalties can be imposed by the ATO if the varied level of income is underestimated.

Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

Tax installments on Division 293 assessments

I recently read your Div. 293 tax article with interest. I have had quite a few clients in this category who are confused. Some clients have also started receiving outrageous installment activity amounts to pay based on the Div. 293 assessment. Have you encountered the above and do you have any comment?

Answer: I personally have not seen a PAYG installment notice issue for any clients based on a Div. 293 tax assessment.

I suspect that as with any PAYG installment notice that, if the taxable income will be less in 2014 resulting in a reduced or zero Div. 293 assessment, you should be able to vary the PAYG installment amount. Care should be taken in amending any tax assessment because penalties can be imposed when someone underestimates their income.

Understanding account-based super pensions

I am 57-years-old and was made redundant six months ago. I have elected to retire early. My wife turns 57 this year and continues to work. Her income and our investments outside of super will allow us to leave our super funds in accumulation mode until we turn 60, or even beyond that. I have always believed it a safe plan to have enough cash to live on for two to three years in the event of an economic downturn.

Can you tell me the basics about super funds in pension mode, such as the rules regarding minimum pension payment percentages? When a fund is in pension mode I gather that you are cashing in your units to supply your income. So a $1.00 unit may fall to 60c in a GFC scenario. If this was to happen, can you turn off your pension and live on your cash until things improve?

Answer: Account-based super pensions have a minimum annual payment requirement but no maximum limit. The current minimum pension percentages increase as a person gets older and starts out at 4% for those aged 55 to 64; increases to 5% for people aged 65 to 74, and eventually increases to 14% for people 94 and over.

A super fund that pays a pension pays no income tax on the income generated to fund the pension. The balance of a member’s pension account is calculated by adding the income earned to their opening balance, deducting the pension paid and a share of the administration costs, and then either increases or decreases depending on whether the value of the investments have increased or decreased.

When a member’s account decreases the minimum pension payable for the following year also decreases. Once a pension has been commenced a member can stop their pension whenever they want.

As you are under 60 the taxable portion of a super pension will be taxed at the applicable marginal rate of tax, with a reduction in the final tax payable on the pension due to the super pension rebate of 10%. If your fund is made up entirely of taxable super you could consider using a re-contribution strategy to maximise your tax-free super benefits. Before taking any action you should seek advice from an SMSF specialist adviser.

Using the bring-forward rule at age 62

We are both 62 and self-funded retirees. How late can we leave it to take advantage of contributing up to three years at $150,000 per annum to an SMSF? For example, could we do this at say 64 and contribute up to $900,000 to our fund, or would we need to start at age 62 for example?

Answer: If you want to maximise your tax-free super benefit by making non-concessional contributions you could contribute $150,000 each this year. Then for the next two years contribute $180,000 each, with a final contribution in your 65th year of $540,000 each.

To use this strategy you would need to make the $540,000 contribution before you turn 65. Depending on your birthday you may be able to contribute more in non-concessional contributions. Before taking any action you should seek professional advice.

Utilising the new bring-forward limits

I transferred $450,000 into my SMSF in the financial year 2012-13. Having done this I was advised that I could not make any more after-tax contributions into the fund until July 1, 2016. I have just read that the contribution limits are rising to $180,000 pa from July 2014. Would this allow me to contribute an extra $30,000 in the 2014-15 year without upsetting the SMSF Nazis?

Answer: Unfortunately, by having triggered “the bring-forward” rule relating to non-concessional super contributions, you will be barred from making any further non-concessional contributions until July 1, 2016. This is because “the bring-forward rule” only relates to the annual non-concessional super contribution limit in the year the contribution is made.

Paying for SMSF property repairs using personal funds

My husband is 64 and I am 53 and we have had an SMSF since 2006. The majority of the fund is in pension mode, and neither of us are working. An asset that has been in the fund since 2008 is a holiday rental house in Adelaide, managed through a local agent. The house, built in the 1930s, is in need of major repairs associated with the rising damp and major cracking. It also requires internal and external painting as well as a kitchen refurbishment. All these expenses are necessary to maintain a suitable rental standard.

From the ATO perspective am I correct in assuming that we could pay for these costs in one of two ways? Through existing cash funds within the SMSF or by meeting the costs from our external personal funds and then making a non-concessional personal contribution in the same financial year at least equivalent to the total costs? The latter would be preferable as we can use credit cards rather than having to process all payments through the SMSF direct debits.

Answer: Care should always be taken when trustees pay expenses on behalf of their SMSF. This is because the ATO has stated that it regards this as a non-concessional contribution by the members. This can cause major problems when the members are over 65 and have not passed the 40 hour work test.

The ATO’s opinion on this particular point of superannuation law has not been tested as far as I know. Personally I am not 100% sure that it is right in this interpretation. Under SMSF regulations trustees can be reimbursed for costs that they incur on behalf of their fund. This being the case, if you as trustees incurred the costs using your credit card on behalf of the SMSF there should not be a problem with it reimbursing you for those costs.

A possible sequence of events could be to make a non-concessional contribution to your fund, you incur the costs on your credit card for the repairs needed, and then the superannuation fund pays the credit card statement when it becomes due and payable. As you have a number of alternatives available you should seek professional advice before taking any action.

Fees for actuarial services in transition to retirement stage

Approximately how much additional fees would you estimate an SMSF will have to outlay for actuarial services etc, when it moves into a TRIP/TRIS (transition to retirement pension) stage?

Answer: I believe you should be able to obtain an actuarial certificate for your superannuation fund for between $150 and $200. This cost can differ depending on the number of members and how many are in pension phase. The cheaper cost is often dependent upon documentation being completed to assist the actuary and, like most things, you should shop around.


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

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