Tax with Max: Superannuation and the assets test

Superannuation and the assets test, living overseas and capital gains, the tax benefits of buybacks, and more.

Summary: From a Centrelink point of view once someone is of age pension age the value of their superannuation is counted under both the assets and the income test.

Key take-out: From January 1, 2015, for anyone who was not receiving Centrelink income benefits at December 31, 2014 or starts a new account-based pension after that date, pension accounts will have the deeming rates of income applied to them under the income test.

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

Superannuation and the assets test

You recently wrote: “As your mother is over 65 the value of her pension is counted in the assets test”. Do you mean the value of the superannuation rather than the pension payment? I cannot see how a pension income can be regarded as an asset.

Answer: From a Centrelink point of view once someone is of age pension age the value of their superannuation is counted under both the assets and the income test. Prior to the change that will occur on January 1, 2015 only superannuation accumulation accounts have the deeming rates of income applied to them under the income test. The value of the superannuation account is counted under the assets test.

Currently superannuation accounts in pension phase have the value of the account counted under the assets test and the net pension income received is counted under the income test. The income counted from an account-based pension is the amount received less the purchase price of the pension. The purchase price is calculated by dividing the value of the superannuation account when the pension was started by the member’s life expectancy.

From January 1, 2015, for anyone who was not receiving Centrelink income benefits at December 31, 2014 or starts a new account-based pension after that date, pension accounts will have the deeming rates of income applied to them under the income test.

Living overseas and capital gains

I am an Australian citizen, but a non-resident taxpayer since 2003. I am 57-years-old, and planning to retire at 60. I have owned a Gold Coast holiday rental apartment since 1997; it has not had a mortgage since 2003. It has always been rented out, or at least available for it – it has never been my residence.

I bought it for $200,000 in 1997, and an adjacent apartment of similar specifications in the same building is for sale today at an asking price of $440,000. I did not have it valued at May 8, 2012, but I guess it would have been at about the same value. If I sold it, and put the proceeds into a super fund, would the proceeds be exempt from capital gains tax, perhaps under the small business provisions?

Alternatively, if I return to Australia after retirement, and live in it for a while, perhaps a couple of years but no longer, would that make the eventual proceeds on sale CGT-exempt.

Answer: From your question it would appear that you have not paid capital gains tax on the increase in value of the rental apartment once you became a non-resident. Under income tax law once a person becomes a non- resident for income tax purposes a CGT event is triggered, which can result in them paying tax on their taxable Australian property.

At the time of becoming a non-resident you should have theoretically assessed the value of the apartment, and if it had increased in value from the time you bought it in 1997 until when you became a non-resident, you should have paid capital gains tax on the increase at that time.

Prior to May 8, 2012 non- residents received the general 50% CGT discount that everyone received. After that date non-residents no longer received the benefit of that discount. As you had the property prior to the change you would get the benefit of the 50% discount up until May 8, 2012 but, by continuing to be a non-resident, would pay capital gains tax on the full gain after that date.

As the property was an investment property and had nothing to do with running a small business you would not be eligible for any of the small business capital gains tax discounts. Putting the proceeds from the sale of into a superannuation fund would make no difference to the amount of capital gains tax payable.

Your idea of not selling the property until you return to Australia and live in it for a number of years would probably produce your best capital gains tax result. You, however, would still pay capital gains tax as you would only get a principle residence exemption on the increase from the time you became a resident.

You should seek professional advice before doing anything as theoretically you should have paid capital gains tax when you became a non-resident in 2003.

The tax benefits of buybacks

Please explain the tax benefits that benefit various classes of investor shareholders when a company implements a share buyback?

Answer: Share buybacks by companies vary greatly depending on the terms of the offer of the buyback. Where a buyback occurs at market value the capital gain made by the investor will be the difference between the cost and the sale proceeds.

In some cases a buyback will include a discounted value for the shares plus a fully franked dividend. In these circumstances the capital gain made by the shareholder is the difference between what the market value was at the time of the buyback minus the value of the fully franked dividend. In most cases when a share buyback occurs the company issues information that assists shareholders in assessing what their liability for a capital gain will be.

Passing the residency test

I plan to spend approximately five months a year overseas indefinitely, but retain my home and other assets in Australia. What safeguards should I take to ensure central management and control of my DIY fund is deemed to be in Australia? I no longer work nor contribute to the fund from which I withdraw to meet my living expenses.

Answer: To fail the residency test for a self-managed super fund the Tax Office must show that the central management and control of the fund is conducted by someone who is overseas. In your case, as you are planning on spending five months of the year overseas but will return to Australia, if you limit your management and control of your SMSF to the times you are in Australia, I believe you would pass the residency test and will still be able to retain your SMSF.

Qualifying for the age pension

I was made redundant on July 14, 2014 and on September 24 turn 65. I am married, and my husband works, but does not receive a huge income. We still have a mortgage on our house and we have some money in superannuation. How do I find out if I will be eligible for the pension when I turn 65?

Answer: The best way to assess whether you will be eligible for any age pension is to complete and submit the relevant age pension application form to Centrelink once having turned 65. Under the assets test, as long as the combined total of your assets, excluding the value of your home but including the value of your superannuation if you are both 65 or older, is less than $1,134,000 you will receive some age pension support.

Under the income test if the total income received by you as a couple, including your husband’s salary, is less than $2,825.20 a fortnight you will also still be eligible for some age pension. With the rules changing from January 1, 2015 you should consider commencing an account based pension from your super fund to reduce the amount of income counted under the income test.


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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