Tax with Max: Planning for possible super changes

Preparing for any new taxes on super and understanding the Transition to Retirement provisions.

Summary: Savers with DIY super funds in pension mode that have large potential capital gains may be considering whether to sell and take tax-free profits ahead of any possible changes to taxes on super. The Prime Minister has promised there will be no adverse changes to the superannuation system in the first term of his Government. If an investor is still worried about this promise being broken, they could consider selling those investments with large capital gains while their fund is in pension phase.

Key take-out: An investor who sells investments in pension phase should not repurchase the companies after only a short space of time, as this could give the ATO the chance of attacking what was done under the income tax anti-avoidance provisions.

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

Planning for possible super changes

If the Government in its wisdom decides to tax super funds in pension mode, the same as those in accumulation mode, would a fund that currently has large potential capital gains benefit from selling now while in pension phase and thus attract no tax?

Answer: One of the few pieces of good news that I can give you, if Prime Minister Tony Abbott can be believed in relation to promises he made during his election campaign, is that there will be no adverse changes to the superannuation system in this first term of the Coalition Government.

This will mean that any adverse changes made to superannuation will either become part of policies brought to the next election, or Coalition politicians will announce NO changes to superannuation and also only commit to the promise of not making changes in their first term of government.

If a person is still worried about this major election promise being broken they could consider selling those investments with large capital gains while their fund is in pension phase. They would need to be careful doing this. If the investments were sold then re-purchased they could give the ATO the chance of attacking what was done under the income tax anti-avoidance provisions.

Given the political turmoil around the world and the uncertainty surrounding many economies, not least of which is the chance of the Australian economy slipping into recession, it would be prudent for the trustees of an SMSF to review the current asset allocation of their fund.

Upon a close examination the trustees could find that they are over allocated to the more volatile asset classes, such as Australian and overseas shares, and therefore decide to sell down the fund’s share holdings. It would make sense for the trustees to do this while the fund is in pension phase and, as long as the same companies are not repurchased after only a short space of time, the trustees could decide to increase the percentage invested in the equities asset class at some future date.

Understanding TTR payments

We both work on a contract basis in the IT industry, have been looking for work for several months now, and have just turned 60. We have used up our ‘emergency’ funds and are living on Transition To Retirement pensions from our own SMSF. We do not qualify for the age pension yet, and I have investigated the Newstart allowance. I am unable to get a definitive answer on whether our TTR pension payments qualify as income, which if they did we would not qualify as we draw $2,000 per month each.

Is using our super funds via the TTR pension the only option open to us until we reach pension age?

For various reasons our super balance is insufficient to retire on just yet, hence the desire and need to work. We only have minimal assets outside of super. Even if we qualified for the Newstart allowance we would still need to draw a super pension as the Newstart allowance on its own would be insufficient to live on.

Answer: Eligibility for the Newstart allowance is based on the following criteria:

  1. Applicants must be age 22 years or older but under pension age.
  2. They must be looking for suitable paid work,
  3. Are prepared to enter into an employment pathway plan and meet the requirements included in the employment pathway plan ,
  4. Not be involved in industrial action,
  5. Meet activity test requirements,
  6. Meet the residents requirements, and
  7. Pass an income and assets test.

From what you have stated in your question you would easily pass tests one, four, and six. The requirements for an applicant to pass tests two, three and five are stricter for someone who is under 55 compared to someone who is 55 or over.

For a couple where both members are over 55 they can meet the activity or participation requirements by undertaking approved voluntary work and/or paid work for 30 hours per fortnight. There will be no other job search requirements other than they must continue to be registered with a Job Services Australia provider. If they do not pass the 30 hour per fortnight requirement, and do not have a reasonable excuse for not doing so, they will need to meet the job search requirements placed on people who are under 55.

To receive the full Newstart allowance someone must have assessable income of less than $100 per fortnight. Income earned above $100 a fortnight, and up to $250, reduces the fortnightly Newstart allowance by 50 cents for each income dollar in excess of $100. Once income exceeds $250 per fortnight the Newstart allowance is reduced by 60 cents in the dollar.

The following types of income are included by Centrelink as assessable income:

  • Deemed income earned from financial investments, such as bank deposits and other investments, including the value of superannuation if a person has reached age pension age
  • Gross employment income
  • Net business income
  • Dividends or distributions from private trusts and private companies
  • Net income from rental properties
  • Reportable superannuation contributions
  • Income earned from outside of Australia, and
  • Some lump sums.

One of the problems that someone would face by continuing with a TTR pension is the value of their superannuation will be counted as an asset under the deeming rules. For a couple in this situation this will mean the first $79,600 will be deemed to earn 2 per cent per annum with the balance deemed to be earning 3.5 per cent per annum.

For a couple where members are both aged 60 or older it may be best for them to satisfy a condition of release that will mean they will have total access to their superannuation. If it is unlikely that they will be getting work in the near future, and do not believe they will be working more than 10 hours a week, they may be able to class themselves as having met the retirement condition of release.

Another condition of release is to cease a paid position. This could be satisfied by undertaking any employment at all, this does not have to be in the IT area but could include delivering pamphlets, and then resigning from that position.

As a result of having met a condition of release, people in this situation could cease the TTR pension and have their fund go back to accumulation phase. As they will be under age pension age the value of their superannuation will not be counted under the assets and income test and therefore not affect their eligibility for Newstart allowance.

If they are able to meet the other conditions relating to either doing voluntary work or paid employment for 30 hours a fortnight, they could take irregular lump sums from their super fund to help balance their domestic budget.

Lump sums not counted as income by Centrelink include irregular superannuation amounts. Because of the different rules and regulations, including superannuation and Centrelink, you should seek professional advice before taking any action.

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

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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