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With the new year almost here, a technical expert has highlighted some of the key superannuation strategies advisers should be considering for clients in different life stages.

 

       

In an online article, SuperConcepts executive manager, SMSF technical and private wealth, Graeme Colley said in terms of the year ahead, there’s plenty of strategies to think about for helping clients build their retirement savings.

For clients nearing or in retirement

For this age group, Mr Colley said one of the significant changes that happened during 2020 was the increase in the age at which personal contributions can be made.

“Since 1 July 2020, the age at which personal contributions can be made has been raised from 65 years of age to 67 before the work test of 40 hours in 30 consecutive days in the financial year cuts in,” he said.

“Personal contributions include concessional and non-concessional contributions. The age increase provides a little bit more flexibility for anyone retiring prior to the age of 67 to make last-minute tax-deductible and non-deductible super contributions.”

Recontribution strategies can also come in handy for those aged between 65 and 67, as they have access to their superannuation when they choose, he noted.

“It is possible to recontribute any amounts withdrawn from super back to the fund as non-concessional contributions, provid[ed] the person has a total super balance of less than $1.6 million,” he said.

“This can reduce the amount of tax an adult child is required to be pay on the death of a parent if they receive a super payment. To see whether there is any benefit in using the recontribution strategy, advice is always recommended.”

If either client is at least 65 and has just sold their home, then the downsizer contribution may be available, he added.

“The downsizer contribution is available as a once-off opportunity for members of a couple who are at least 65 years of age to contribute up to $300,000 each to super from the sale of their residence. The contribution must be made within 90 days of the sale of the residence,” he explained.

“There is no upper age limit to make the downsizer contribution.”

Once clients have reached their preservation age, Mr Colley said, they can access transition to retirement income streams, and if they haven’t retired or reached 65 years of age, they can commence account-based income stream.

“The rules require that a minimum amount is obliged to be withdrawn each year and it is possible to withdraw lump sums depending on the rules that apply. A maximum amount applies to transition to retirement income streams,” he said.

“For some people, it may provide flexibility for anyone with a transition to retirement income stream or an account-based income stream to pause it and have it recommenced at a later time as it is required.”

For parents

Mr Colley said, for mum and dad, making personal concessional and non-concessional contributions to super can be beneficial where they qualify.

“This could include getting access to the bring-forward rule for concessional contributions if their total super balance [is] no more than $500,000,” he said.

Mr Colley noted that whenever clients make non-concessional contributions to super, it’s important to ensure their contribution caps are not exceeded and that their total super balance is taken into consideration in working out whether they can make non-concessional contributions to super.

It may be possible for clients in this age group to also make spouse contributions, which are counted as non-concessional contributions of the spouse and can have the effect of evening up the couple’s super balances.

“To be eligible, if the spouse is under 67 years of age, there is no need to meet a work test, but if they are between 67 and 75 years old, the work test must be met prior to making the contributions. Spouse contributions are unable to be made after the spouse has reached 75 years of age,” he noted.

“If the spouse is a low-income earner and has an adjusted taxable income of less than $40,000, it is possible for the contributor to receive a tax offset of up to $540 for the first $3,000 of the spouse contribution.”

Some clients, he said, may also qualify for co-contributions, which are paid by the government to their super fund.

“If [they] have an adjusted taxable income of less than $54,837 for the 2020–21 financial year and make a non-concessional contribution of up to $1,000, the government’s co-contribution can be up to a maximum of $500,” he noted.

The low-income superannuation tax offset, he explained, is available for anyone with an adjusted taxable income of less than $37,000.

“It applies to concessional contributions because the tax payable on the contribution received by the fund is usually greater than the personal tax they would pay if the contribution was paid to them as salary and wages,” he said.

“The offset is calculated by the ATO and paid directly by the government to the superannuation fund.”

Another contribution strategy advisers may want to consider is contribution splitting which allows a person to split concessional contributions to their spouse.

“To qualify, the split to the person’s spouse can take place if they are under preservation age, currently 58 years of age, or between preservation age and 65 years old if they have not retired,” he said.

“Concessional contributions include employer super guarantee contributions, salary sacrifice contributions and personal deductible contributions. It is possible to split up to 85 per cent of the person’s concessional contributions or up to their concessional contributions cap.”

Our younger clients

Younger clients who are older than 18 years of age are entitled to the same superannuation concessions as their parents, but will depend on whether they qualify for a tax deduction, government payment or tax offset for the contributions they make to super, Mr Colley noted.

“However, for children under the age of 18, it is possible to have contributions made for them. This could be made by their parents or guardians as non-concessional contributions. The amount of the non-concessional contribution is limited to the caps that apply to everyone,” he said.

“Some children under 18 years of age can make personal contributions to super. However, if they wish to claim a tax deduction for the contributions, they must be working.”

 

 

Miranda Brownlee
28 December 2020
smsfadviser.com

 

SMSF services firm Heffron has outlined some of the legislative bills and pieces of guidance the SMSF industry is still waiting on and some of the recent proposals floated by the government.

     

2020-21 federal budget proposals for superannuation

As part of the 2020-21 federal budget, the government announced a raft of new measures for super funds aimed at addressing underperformance and multiple accounts.

The measures include plans to staple existing superannuation accounts to a member to avoid the creation of new account when a person changes employment, performance benchmarking and the introduction of the best financial interests duty.

Heffron head of SMSF technical and education services Lyn Formica said the government released exposure draft legislation for the measures in November, with submissions now closed.

“Given many of the measures have a 1 July 2021 start date, we expect Bills will be introduced to Parliament soon,” said Ms Formica.

Bring-forward measure for those aged 65 and 66

The bill containing the measure to extend the use of the bring-forward rules for non-concessional contributions from age 65 to age 67 failed to pass in the last two weeks of parliamentary sittings for 2020.

With Parliament not returning to early February, this leaves some clients in this age group in a difficult position.

Australian Executor Trustees senior technical services manager Julie Steed previously noted that some practitioners have been advocating a strategy when the client puts $1 more so that the bring-forward rule is triggered but the excess is only $1.

However, she warned that for many licensees, advisers need to base their advice on current laws.

Heffron managing director Meg Heffron said while contributing the full $300,000 now would not be a compliance issue if the new rules failed to be passed, it would create an excess non-concessional contribution, which would come with serious tax consequences.

Six-member SMSFs bill

The bill to increase the maximum number of members of an SMSF from four to six, Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill, is also still before the Senate, said Ms Formica.

The earliest possible start date for this measure is now 1 April 2021, she noted.

In early November, the Senate economics legislation committee recommended that the six-member SMSF bill be passed after it was previously referred to the committee for inquiry and report.

Legacy pension proposal

As part of its Mid-Year Economic and Fiscal Outlook (MYEFO) released in December, the government also outlined a proposed change to enable the partial commutation of certain legacy pensions.

The MYEFO stated that the measure will help ensure that retirees who have commuted and restarted certain market-linked pensions, life expectancy pensions and similar products are treated appropriately under the transfer balance cap.

However, Ms Formica explained that unless the measure is far wider than the wording suggests, she expects it is unlikely to bring much joy to many of the members still running these pensions.

“We have long argued that the government should allow legacy pensions to be converted to simple account-based pensions,” she said.

“This would provide a simple solution to the many problems that these pensions present given that the law has changed profoundly in the 13 plus years since these pensions were actively used in SMSFs.”

Ms Formica said it appears the government instead plans on further tinkering, which will only provide relief to some members.

Non-arm’s length expenditure guidance

One of the other key items that SMSF professionals are still waiting for said Ms Formica is the ATO’s finalised ruling on non-arm’s length expenditure.

“The ATO is still to finalise their view on the situations in which SMSFs will be considered to have non-arm’s length income (NALI) because the expenses of the fund are lower than they would have been in an arm’s length situation,” she explained.

“We expect the ATO will be seeking to release their final view before the transitional rules of PCG 2020/5 – covering expenses of a general nature – expire on 30 June 2021.”

Reporter

05 January 2021

smsfadviser.com

Making our website into a valuable resource for our clients is very important to us.  There are more tools and resources available when compared to almost anywhere else and this month we highlight our educational videos. 

We hope you enjoy these ‘extras’ and if you have any question then click on the Contact Us button and ask.

 

         

Educational videos on accounting topics. Every 12 weeks the current range of 6 videos is changed for another 6. 18 in all and all are relevant, interesting, educational and interesting. Videos that are changed three times a year to ensure you and your family are able to lean about many issues related financial issues and topics.  This month's topics are: 

  • Why choose and Accountant?
  • Understanding Estate Planning
  • Reducing your capital gains tax liability
  • Lending interest rates effect everyone differently
  • Caring for Aged Parents
  • How franking credits work

Latest news articles. 7-9 individual articles every month, though 13-15 in March, and all chosen for their relevance. Our website is a great place to stay informed.

Calculators. A good range of calculators to help you better understand and manage your personal and family financial issues. Four of the more popular are: Pay calculator, Budget Calculator, Loan Calculator, and Super Calculator

Client portals. Portals are quite common on many sites and can be used to store your data, pay bills, log onto investment systems.

Ask us a question at any time. If you have a question on any related topic then don’t hesitate to use a form on our site to ask.

Your information is private and confidential and should be treated that way. Using Secure File Transfer means your information is encrypted when sent in either direction over the Internet.

Many sites also have a message window feature that displays messages of interest or that cover topics and deadlines you should be aware of.

 

* Not all are on every website.

Your Accountant

 

A new resource is now available that shows the rates per country of COVID-19 vaccinations.  We all suffered in many ways as COVID number increased, now, as expected, let's watch them start to drop.

 

             

How many people have received a coronavirus vaccine?

Click here or on the image to go to the live site.

Tracking COVID-19 vaccination rates is crucial to understand the scale of protection against the virus, and how this is distributed across the global population.

Country-by-country data on COVID-19 vaccinations

 

 

Source: ourworldata.org

 

With thousands of Australian expats still hoping to return home following COVID-19, a mid-tier firm has highlighted some important tax implications and considerations, including the foreign pension transfers.

 

           

For expats recently returning to Australia or planning to return, HLB Mann Judd Sydney tax partner, Peter Bembrick warned there can be hefty tax bill involved, depending on the jurisdiction and the length of time spent overseas.

Mr Bembrick said in addition to income tax, expats will need to account for any share holdings, employee share schemes – particularly in the event of a redundancy, cash in offshore banks accounts, and pension funds.

There are a lot of considerations that need to be made with the transfer of money out of foreign pension funds in particular, he said, given the tax nuances in this area.

“You need to make sure you’re across the local requirements and what you need to do to get the money out because there’s usually a fair bit of red tape involved and tax issues on the other side,” he said.

For example, the pension system in jurisdictions such as the UK – where an estimated 40,000 Australians reside at any given time – can create adverse tax consequences, he warned.

In order for an expat to be able to transfer a UK pension benefit to an Australian superannuation fund, the fund must be must be registered with HMRC as a Qualifying Recognised Overseas Pension Scheme (QROPS). If it is transferred to a non-approved fund, a tax of up to 55 per cent may apply.

To be included on the QROPS list, an Australian superannuation fund must agree to provide ongoing reporting to HMRC, and the fund must restrict the payment of benefits to members aged 55 or older, except in instances of retirement due to ill health.

In terms of US pension funds, Mr Bembrick said there is “still a fair bit of ambiguity around whether some the different US funds such as 401k plans and other types of US pension funds are regarded as being equivalent to an Australian superannuation fund”.

He also noted that for some clients, deciding to leave the money overseas may actually be the best option.

“I was speaking to someone with large amounts in the US and there’s going to be a lot of tax triggered in the US if he takes this money out, so for the moment he’s just going to leave it in place,” he explained.

Its also important, therefore, that expats also consider where they want to retire, he said.

“If they’re not sure that Australia is the place where they’re going to retire then moving everything here may not always be the best answer,” he said.

Mr Bembrick said expats should also be aware that there is a six-month rule where the foreign super interest will generally be tax-free if it is transferred to Australia within six months of them becoming a resident of Australia or their foreign employment terminating.

He also stressed the important of expats seeking specialist advice in this area, given the complexity of the tax laws.

Property is another key consideration that they need to make, he added.

“Some countries charge non-residents a higher rate of transaction tax or tax capital gains on profits from property investments and, in Australia, if you’ve retained property while abroad, you may be better to move back first before selling,” he said.

“This applies particularly to the former family home, as non-residents selling property are now excluded from the CGT main residence exemption and the related ‘six-year absence’ rule.”

Mr Bembrick noted that the CGT discount on the sale of investment properties is not available for any period after 8 May 2012, during which someone is a non-resident.

“For investment properties already owned at the time they left to move overseas, there will need to be an apportionment of the CGT discount for the relevant periods. A similar apportionment applies for periods between the date they return to Australia and a later property sale,” he explained.

Shares and managed funds will also need to be carefully assessed, he said, particularly if someone has become a non-resident during their time overseas.

“These types of investments are generally treated under the CGT rules as having been sold at their market value at the time that tax residency changed, triggering deemed capital gains or losses,” he said.

“The good news is there would be no further Australian CGT implications if these assets are actually sold while a non-resident. However, if they are still owned when Australian tax residency is resumed, they – along with any new investments – will be deemed to be re-acquired at that time for their current market value, so any future capital gains or losses on sale would relate only to the movement in value during the second period of Australian tax residency.”

 

 

Miranda Brownlee
07 January 2021
smsfadviser.com

 

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