Taxing questions over allocated pensions
I AM 65 and took out a term-allocated pension on July 1, 2007, as a strategy for my retirement income stream. At the time I did not know that a market-linked allocated pension taken out on this date does not qualify for the 50 per cent exemption for the asset test for self-managed super fund members. This was news to me when
I AM 65 and took out a term-allocated pension on July 1, 2007, as a strategy for my retirement income stream. At the time I did not know that a market-linked allocated pension taken out on this date does not qualify for the 50 per cent exemption for the asset test for self-managed super fund members. This was news to me whenI applied for a pension with Centrelink and was told the bad news. In a recent column, you correctly point out that TAPs taken before September 20, 2007, have a 50 per cent asset-test exemption. This ruling does not apply to SMSFs. It is unfair for SMSFs not to be eligible when the complying income stream is non-commutable. H.N.The government changed the rules as of July 1, 2006, so that any fund with fewer than 50 members, which obviously includes SMSFs, could no longer provide "defined benefit pensions". These included lifetime pensions (paid until death) and life expectancy pensions (for the term of the life expectancy of a person five years younger than yourself).SMSFs were still allowed to provide "market-linked" complying pensions such as term-allocated pensions, the latter being 50 per cent exempt from Centrelink's assets test until September 2007 when all future exemptions were removed.If you did take out a term-allocated pension in July 2007, it should retain the 50 per cent exemption from the assets test. Check your facts, ensuring that you don't have a life expectancy pension and, if correct, appeal the Centrelink decision.Beware of capital gainAfter retirement, about 18 years ago,I bought a family holiday house on the northern NSW coast. I registered the property in the name of the family trust. The NSW Department of Revenue assesses the annual land tax at $3700, increasing each year. By the time council rates and other costs are added, it becomes an expensive proposition. I would be prepared to transfer the property to one of the beneficiaries of the trust who does not own any other property. There are three family beneficiaries. When deciding the property value for stamp duty, would it be acceptable to deduct one-third of the value as it is already owned by the beneficiary? A.M.I take it this was established as a fixed trust with three members. So where there is no money paid in a distribution of assets, then section 57 of the NSW Duties Act 1997 reduces stamp duty to $50 "in respect of a transfer ... in conformity with the ... declaration of trust". Applying that to your circumstances, I read it as saying, subject to the terms of the trust deed, you may need to distribute the property to all three beneficiaries and on the basis of three fixed portions. Otherwise duty is payable on the full value of the property.Talk to an experienced tax accountant as an 18-year-old property will probably have a sizeable capital gain and you also need to consider this factor before making any moves.If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW 2026. Helplines: Banking Ombudsman, 1300 780 808 pensions, 13 23 00.