Tax with Max: Equalising super balances

Equalising super balances, negatively geared property and more.

Summary: This article provides answers on equalising super balances with a spouse, negatively geared property and SMSFs, accounting fees on SMSFs, industry funds and setting up a SMSF, and tax deductibility on a duplex development.
Key take-out: There are numerous options to equalise superannuation balances, including super splitting with a spouse, commencing a transition to retirement pension if applicable, and a re-contribution strategy.
Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

Equalising super balances

My husband is 56 and I am 55 and we have a self-managed super fund. He is in the top tax bracket and is planning to continue to work at full-pace for at least the next four years. We have around $1.6 million in our fund. We are planning on contributing a fair bit in the next few years now that our expenses have decreased with our children becoming independent.

As the balance in my name in the fund is less than my husband’s, are we able to start a transition to retirement pension to move funds from his name to mine? Is this also a viable option to move concessional contributions to a non-concessional position? Or is this a difficult option when still trying to get as much money into our fund as possible?

Answer: There are a number of options that you could consider if you want to equalise the superannuation balances between you and your husband. The first one would be for him to transfer 85% of his concessional super contributions to you under the spouse super splitting regulations.

You should also consider him commencing a TTR pension, as you have suggested, and combine this increased income with the existing increasing cash flow and make a non-concessional contribution for yourself. This should mean in time your superannuation balance will increase to be closer to his.

Once he does retire you could also consider adopting a re-contribution strategy that involves your husband taking a lump sum tax-free superannuation payout that is then contributed by you as a non-concessional contribution. Due to the complexities involved you should not take any action until getting professional advice.

Negatively geared property and SMSFs

I have read that under the current rules that it is best to hold a negatively geared residential rental property in a self-managed super fund, due to the capital gains tax that could be payable when an investment property is sold, rather than holding it in a personal name. The piece I was reading also said under the current rules it can be transferred to you at aged 60 providing you make the necessary adjustments to your fund. Please advise the rules, when a rental property which is fully owned by myself can be transferred to my SMSF? I am turning 60 in about seven months.

Answer: I actually question whether there is a benefit of holding a negatively geared residential property in an SMSF compared to it being owned by an individual. Firstly, the negative gearing benefit within an SMSF is only gained at the 15% tax paid by super funds, rather than the higher individual marginal tax rate, and secondly if the sale of the rental property is timed correctly when a person is retired tax capital gains tax can be minimised.

The piece you were reading in relation to transferring a residential property only relates to a property passing from the SMSF to the individual member, and not the other way round. SMSFs are specifically banned from buying residential property from members. Given that you will be turning 60 soon you should seek professional advice to fully explore your tax planning and retirement options.

Accounting fees on SMSFs

I have an SMSF which has investments in cash and Australian equities and the value of the fund is $2 million. I prepare all of the accounts for my SMSF and would like to know roughly what an accountant should charge to prepare the tax return and do the audit with no financial advice.

Answer: If the accountant does not need to do anything to the accounts that you prepare, because the auditor is able to audit the accounts and can state that they comply with all of the regulations, the cost should be quite low. Because of the great difference in the hourly rates charged by different accountants this cost could vary from as low as $300 up to more than $1,000. Unless the accountant is a registered SMSF auditor this may have to be done by another firm and this cost also varies greatly.

Industry funds and setting up a SMSF

I currently have my super in an industry fund. The fees are reasonable, but I have been a bit disappointed with the performance of same, in part due to my choice of investment allocations. I have been thinking about setting up an SMSF. The other option is to nominate a break-up of single sector investment options within the industry fund.

Where can I find information on setting up a SMSF? I realise I can go and see a financial adviser but don’t want to be paying over the odds for such a service. If not, can you point me in the right direction to get such advice?

Answer: The ATO website has some information about setting up an SMSF. You could also contact the Self Managed Super Fund Professionals Association of Australia (SPAA) and they will be able to refer you to an accountant that is an SMSF specialist in the area where you live.

The industry fund you are in may also not be the best to be in. I know of at least one industry fund, Australian Super, which allows its members in accumulation phase to have a wide choice of investments that includes direct shares and term deposits. The better industry fund websites often have a tool that compares their fund with up to two other funds; you should use one of these tools to see how your current fund compares.

Tax deductibility on a duplex development

We have an investment property with an old house that originally cost $565,600, and currently owe $350,000. We plan to build a duplex and live in one and rent the other. The cost of building is approximately $450,000 to $500,000. We plan to sell our existing house and pay about $250,000 from the sale proceeds towards the cost of construction and borrow an additional $250,000.

These duplexes cannot be sold separately and the property can only be sold as one title. We want to maximise our tax benefit. Can we claim that all of the $250,000 of our money that we put towards construction is for the unit that we will live in and all the additional borrowing of $200,000 to $250,000 is for the second unit that we would be renting out?

Answer: The first thing you will need to do is apportion the original purchase cost of the rental property between the units you are building. You also need to apportion the loan of $350,000 between those units. The interest paid on the portion of the loan relating to the unit you will be living in will not be tax-deductible.

The proceeds from the sale of your current residence should be specifically allocated to the building costs of the unit you will be living in. This will require you to have effectively two contracts for the building of the duplex.

If you only had one contract for the construction of the duplex this would effectively mean the proceeds from the sale of your current residence would be mixed with the proceeds of the loan. In this situation you could not make a case for the loan purely relating to the unit that will be rented.

Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs.

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.

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