Tax with Max: Transferring to a corporate trustee

Transferring to a corporate trustee, Centrelink pension payments, and more.

Summary: This article provides answers on the costs for transferring to a corporate trustee structure, the possible impact of changing funds on Centrelink pension payments, making regular pension payments in advance, claiming internet costs, the five-year rule, and on how the latest superannuation changes may affect a property development.
Key take-out: There are additional costs related to changing to a corporate trustee’s name on investments, such as listed shares, but other assets such as term deposits may not need to be changed over until maturity.
Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

Costs for transferring to a corporate trustee.

I inquired about the costs of changing to a company trustee and my accountant estimated that it would cost approximately $1,000 to change. However there are additional costs of changing the name on shareholdings to the new trustee company, and any term deposits in the original trustee name would result in the loss of interest due to early maturity. Also there was an ongoing ASIC fee for being a company. In my case, the total cost from changing to a corporate structure to from individual trustees would have been in excess of $4,000. Is it worth it?

Answer. The price being quoted for incorporating a company to take over as trustee appears reasonable. There is an annual charge levied by ASIC but this can be under $40 depending on how you pay the levy. There are additional costs related to changing the trustee’s name on investments, such as listed shares, but you may not have to surrender the term deposits currently held by your SMSF.

If your SMSF’s name is clearly shown as the owner of those term deposits you should be able to let them run until maturity. If you rolled over the term deposits upon maturity you would just need to make sure that the new term deposits are in the trustee company’s name. This should hopefully mean that the cost of moving to a trustee company is not the $4,000 you have estimated.

Can changing funds impact adversely on Centrelink pension payments?

I am a 68-year-old widow receiving a pension through my superannuation pension account plus a part-Centrelink pension. I am dissatisfied with my current superannuation fund and want to change to another well-known fund. Speaking with one of their financial advisers, she mentioned that I should be careful changing my pension to a new one as it could impact on my part-Centrelink pension. This is due to the fact that when I originally took out my pension, a factor was taken into account as to my age and my life expectancy, and any change to that factor could impact on future payments. Are you aware that any new pension with a new company could impact on future payments received from Centrelink?

Answer. The adviser with your current fund has a vested interest in keeping you as a member. There is, however, the possibility of an adverse effect on the age pension you are currently receiving. On the other hand, as you are now older than when you commenced the superannuation pension, your life expectancy will have decreased and therefore could result in an increased deductible amount. This could therefore result an improvement in the amount of age pension you receive.

You would end up being worse off by ceasing your current superannuation pension, rolling over into a new fund, and starting a new account-based pension, if the value of your superannuation has increased by a greater percentage than your life expectancy has decreased. You should seek advice from an independent professional that does not receive commissions who should be able confirm what the result would be.

Is it advisable to make regular pension payments in advance?

Our SMSF has been paying annual pensions in one lump sum towards the end of each financial year. After reading comments you have made recently, do you suggest we now start paying pensions quarterly in advance, i.e. first payment on July 1? It sounds as if this is the only way to be dead sure that the fund is considered in pension mode at all times.

Answer. To ensure that your fund will not be regarded as being in pension mode, if you die and the annual pension payment has not been paid, it makes a great deal of sense to either pay monthly or quarterly pensions in advance.

Can additional non-concessional contributions be made after age 65?

I am a 67-year-old member of an SMSF. I am able to pass the test work rule. Under current legislation can I make a $450,000 non-concessional contribution?

Answer. Once a person turns 65 they can still make non-concessional contributions as long as they pass the 40 hour work test. They are, however, limited to the annual non-concessional contribution limit, which is currently $150,000, and are unable to bring forward the next two year’s contribution limits.

Can internet installation costs be claimed as a deduction?

I use my computer when working from home one day a week. I also use the computer to manage my investments. Would I be able to claim the purported $5,000 it will cost to get fibre from the node to the home?

Answer. If you ran a small business from business premises, and paid $,5000 to bring fibre-optic cable to those premises, you could more than likely claim the full amount. As the cable will be connected to your home, and other people will benefit from this connection for private use of the internet, you would not be able to claim the $5,000. You may, however, be able to claim a portion of this but should seek professional advice before doing so.

How does the five-year rule apply for non-concessional contributions?

I turn 65 in January 2014 and my wife turns 60 in April 2014. We have a SMSF of around $800,000 with all but about $5,000 in my name. Also I have shares with a market value of $240,000. I am working part-time (20 hours per week), have started a pension from our SMSF, and my wife is not working.

Based on current value of my assets I would not qualify for the Australian age pension when I turn 65. I have received advice that if I withdraw (before I turn 65) say around $400,000 (in my name) from the SMSF and then re-lodge it in my wife’s name as a non-concessional contribution from her, then I should be able to get a part-pension provided her funds in the SMSF remain in accumulation phase. The advice is based on the premise that Centrelink do not look back five years until after you turn 65. Will this work?

Answer. The five-year rule you refer to relates to gifts by pensioners as individuals or couples. As the money being withdrawn from your superannuation account would not be gifted to someone, but instead will be used by your wife to make a non-concessional contribution, it will not be regarded as a gift and the five-year rule should not apply. Before taking any action you should seek professional advice.

Will the latest superannuation changes affect a property development?

My wife and I run our own fund, which contains a residential property (including house) that we rent. The house is situated at the back, which enables 2 x 900m2 vacant lots to be created. As I am 53, is there a benefit if I wait till 55 and put my account into pension mode? Have the recent super changes involving capital gains limited the potential of our plans to develop the lot?

Answer. My understanding of the changes to be made, which I am not sure if they have been legislated yet, relate to the removal of the one-third CGT discount available to super funds in accumulation phase. The only other intended change relates to superannuation accounts paying a pension that earn income of more than $100,000 a year.

This means unless the income earned and allocated to your pension account including the capital gain is more than $100,000, and if this legislation is passed, you could be paying tax on a portion of the gain even if you are in pension mode. To make an informed decision as to what your options are you should seek professional advice.

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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