Tax with Max: The benefits of a corporate trustee

The benefits of a corporate trustee

My accountant is suggesting that we change our SMSF’s trustee to a corporate trustee from the current individual trustees. Currently just my wife and I are the two trustees of our SMSF. This was recommended because of the SMSF’s purchase of a commercial property in Victoria. The accountant’s advice is that under our current arrangement we will be listed as purchasing the property as ‘tenants in common’ on the title, rather than the much preferred option of ‘joint tenants’.

However the lawyer doing the conveyancing disagrees, and says we can be listed as ‘joint tenants’ on the title. Even if the conveyancing lawyer is wrong on this point, he says that as each of us is the executor of the other’s will, a purchase as ‘tenants in common’ would ultimately lead to the surviving trustee assuming full control. What is your advise on this?

Answer: What the lawyer is advising sounds correct but I agree with what your accountant is saying for other reasons. The main reason for having a corporate trustee take over your SMSF would be the reduction in administration and paperwork required when one of you dies.

If the property is purchased in your individual names, as trustees for your SMSF action must be taken when one of you dies. The lawyer is wrong about what would occur in the event of one of you dying. As an SMSF must have at least two individuals acting as trustees, whichever of you was the surviving trustee could not take full control as trustee of the property. You would need to find a second person to act as trustee and then get involved in paper warfare to update the title details to reflect the new trustee of your SMSF.

By having a corporate trustee take over before the purchase is finalised will ensure that nothing needs to happen when one of you dies. This is because the only time an individual can have an SMSF is when they are a director of a trustee company.

Maximising the tax-free component of your superannuation

I am 55-56 and started a pension after July 1, 2013. My husband and I recently made a non-concessional contribution of $600,000. My understanding is that under the bring forward rules we are able to do this. I am thinking we will divide it $400,000 to me and $200,000 to my husband. He is 59, still working and on a very good salary, so there is little benefit of a TTR pension for him with the current super contribution caps. My super balance before the pension commenced was just over 50% tax free.

After reading your article on how the value of tax-free benefits is calculated as a percentage at the time a pension starts, I am wondering if I am better off starting a second pension with the new $400,000 or just beginning a new one and rolling the old one into it? I did get some financial advice to just begin a second pension but my accountant assumed we would roll the money into a new pension.

I am yet to draw any pension as the accountant is still working on its set-up and actuarial certificate to separate my husbands and my account balances. Am I able to draw it in a lump sum at June 30, that way having the money working for me in super?

Answer: If you want to minimise the tax payable on any superannuation that will be left when you die it is always best to maximise the tax-free component of the superannuation account. By starting a second pension account that is 100% tax free, and drawing the minimum pension payments from it, will ensure that you maximise the tax-free component of your superannuation. If extra income is required this would be taken from the other pension account, which has both taxable and tax free components.

You will be able to pay a pension from this new account as a lump sum before June 30. I do not understand why your accountant is organising an actuarial certificate now as this is not normally done until after the end of the financial year. All that an actuarial certificate does, where there has not been a segregation of the assets between accumulation and pension accounts, is to calculate the value of superannuation income that is taxable and that which is exempt.

Buying shares within super

I just created an SMSF and wish to purchase shares. I am 48-years-old, working full-time and hope to do so for many years to come. Is it a better strategy to buy blue-chip shares or smaller cap or speculative shares in my SMSF? Or is diversification more important? I have a share portfolio outside of super in my personal name with mainly the blue-chip stocks of NAB, CBA, ANZ, BHP, RIO, WOW, TLS and WPL.

Answer: The need to diversify an investment portfolio within a superannuation fund depends greatly on a member’s age and the value of their superannuation. The younger that a member is, and the smaller the balance of their superannuation account, the less that they need to be diversified and more heavily invested in growth investments such as direct shares. This is because if there is a major market correction their ability to buy further growth investments at a reduced cost can outweigh the adverse effect of the drop in value of their superannuation account.

The closer that a person gets to retirement age, and the higher the value of their superannuation account, the more they need to diversify the investment of their superannuation fund account. In this situation, by having no more than 50% of their superannuation account in growth investments, they will be less affected in the event of a market crash.

Personally when it comes to investing I always try to buy stocks that I believe are undervalued and have a great potential for increasing in price, and that are also producing a reasonable dividend yield. Applying this principle to picking stocks opens up investing into both blue chip and smaller cap stocks.

Declaring solar energy credits to the ATO or Centrelink.

I am generating 8 kilowatts per hour of solar energy from my private home. I am currently in credit. Are these credits taxable income? Should I declare them for tax? Do I have to declare them for assessing Centrelink payments?

Answer: As you have installed the solar panel for private purposes, to reduce and subsidise the cost of electricity that you use in your home, you do not have to declare the credits you earn to either the ATO or to Centrelink.

Assessing assets for pension purposes

I turn 65 this year and have a flexible pension from an industry fund, and an SMSF which is still in accumulation phase but that could be converted to a pension fund very easily. Will I be assessed on the value of the super funds as financial assets with the deeming rate, or will I be assessed on the pensions they pay when applying for the age pension? I get confusing answers from different sources. The super funds are worth in total about $900,000.

Answer: To ensure that your superannuation will be treated under the existing rules you must start an account-based pension from your SMSF and be receiving the age pension by December 31, 2014. You should seek professional advice as to whether it makes sense continuing having an account in an industry fund and also an SMSF.

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