4. Contributions for Spouse - Superannuation Tax Offset

Taxpayers are entitled to a maximum $540 tax offset for superannuation contributions made on behalf of a low income or non-working spouse. The maximum rebate of $540 is based on 18% of a maximum $3,000 non-concessional contribution.

The maximum rebate is reduced by $1 for each $1 that the total of the spouse's assessable income, reportable fringe benefits and reportable employer superannuation contributions exceeds $10,800 cutting out completely one this figures reaches $13,800.

5. Commence a pension before 30^th June 2010

One of the most significant tax concessions applying in relation to a complying SMSF is the taxation rules for pension assets. This tax concession provides that income derived in relation to assets supporting a pension is exempt from tax. However, income derived in relation to assets supporting accumulation entitlements is taxable.

Where the member is over 60 years old, the pension payments drawn from the SMSF is tax free. Hence to commence a pension for all members who are over 60, effectively creates a tax free environment for the taxpayer.

If the pension is commenced on 1^st July 2009, to meet the pension condition, the member must make a minimum withdrawal before 30^th June 2010. This minimum withdrawal is 4% of account balance of the member as on 1^st July 2009. Due to GFC issues the government has announced that this minimum withdrawal amount is halved for the financial year ended 30^th June 2010.

6. Commence a Transition to Retirement Pension before 30^th June 2010

If a member of a SMSF is over the preservation age (55 years for those members born before 1960) and working, he can commence an income stream from his superannuation interest from 1^st July 2009 as long as minimum amount is withdrawn as an income stream before 30^th June 2010.

The pension assets of the SMSF supporting a pension are exempt from income tax. But when any "taxable component" is withdrawn by a member, it is included in their income tax return if the member is between 55 to 59 years.

However, combined with salary sacrifice and 15% pension rebate, this strategy can create amazing results. This is explained with an example.

Example

Ann is 57 year old and her superannuation interest is $500,000 of 100% taxable component. This year the SMSF has earned 7% income. Her salary package is $87.2K ($80,000 + 9% super) and she needs all the salary to survive (Salary $80,000 less tax $19,110 = $60,890 cash).

Her Super fund has earned $35,000 and will pay $5250 tax with net after tax of growth of $29,750. Her total contributions in super are $7,200 and after 15% tax, Ann will have $6,120 more in super.

If Ann stays in her current situation, her total after tax benefits from all sources are $96,760 (salary $60,890 + new contribution $6120 to the fund + $29,750 income of the fund) and her fund balance would be $535,870 ($500,000 opening balance + income after tax $29,750 + contributions after tax $6120).

1)     Commence her pension as a transition to retirement pension on 1^st July 2009;

2)     Salary Sacrifice the maximum amount of $50,000 from her package of $87,300;

3)     Withdraw $35,111 as a pension from her fund.

After maximum salary sacrifice Ann's salary will be $37,300, after tax of $5,628 she will be left with $31,572 cash and to maintain her standard of living of $60,890 she would have to withdraw grossed up amount of the balance $29,318 from her super.

Ann is on marginal tax rate of 31.5% till she reaches $80,000, if she withdraws up to $42,800 she will pay no more than 16.5% tax after getting a credit of 15% pension tax offset.

If she withdraws $35,111 (which is below the maximum 10% of $500,000 as she is on transition to retirement pension) from her super fund, she will end up with additional cash of $29,318 after tax of $5,793 (16.5% of $35,111) which she requires to maintain her lifestyle with total cash of $60,890.

At individual level her taxable income will $72,311 (Salary $37,200 + Pension of $35,111) and her tax would be $11,421 after 15% pension rebate, which is the same $60,890 as if she has not taken a transition to retirement pension.

The super fund will pay $7,500 on $50,000 contribution and no tax on income. Her super balance will be $ 542,389 (opening balance $500,000 less withdrawals of $35,111 plus $50,000 contributions less $7,500 tax on contributions).

By going on TRIP, Ann has increased her net worth by $6519 ($42,389 less $535,870) and has been able to maintain her lifestyle as before.

 Click here to order documents required to commence a pension in a SMSF

 

 

 

ARTICLE CONTINUES BELOW  SEMINAR ANNOUCEMENT

 

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 SEMINAR: PENSION STRATEGIES

 

Commencing a Pension from Self Managed Super Fund is Complex - Learn Pension Strategies  

 

 

 

 

We present a great opportunity for advisors to learn interesting SMSF Strategies that can be structured to maximize retirement benefits of their clients.

 

This 1 � hour information packed seminar will include practical examples and must not be missed by advisors who have clients  considering moving to pension phase or are already in pension phase. The seminar will be followed by an informal lunch.

 

    

 

TOPICS

• What are the complex issues which must be considered before an Account Based Pension can be commenced in a SMSF;
• When & How to convert accumulation account to pension phase;
• Step by Step process - what happens to un-realized capital gain on assets when a member moves to pension phase;
• What are the Pension conditions as per SIS Act and Regulations which need to be complied;
• What are the various components of pension amount;
• How to calculate purchase price of pension if superannuation interest contains Pre 1983 component;
• How does Transition to retirement pension (aka TRIP) works and how to tweak the correct amount of salary sacrifice amount for the client;
• Need for Actuarial Certificates whilst member is on TRIP;
• Reversionary Pensions Vs Anti-detriment payments;
• How to report pension accounts in financial statements and how does proportionate rule works;
• How to document account based pensions in case of ATO audit in your claim for deduction against current exempt pension income;
• What must clients do, before they turn 65 years including lump sum payments and re-contribution strategies;
• Segregated and non-segregated asset strategies;
• What happens in case of death of the pensioner;
• Common questions and answers arising when moving to pension phase;
• Audit Issues of pension funds.

 

Click here to commence a pension in a SMSF

 

 

 

 

When

16^th June 2010 Wednesday

11.30 AM Registration for 11.45 AM Start

 

Venue

Connaught Place

69 Wigram Street Harris Park Sydney

 

Cost

 

$110 Including GST for each attendee

 

*** 3 SEATES LEFT *** 

 

Each attendee will be given full comprehensive notes including worked out examples + a credit note for any SMSF product worth $110.

 

 

How to book: online booking

Visit www.trustdeed.com.au/seminar and book online 

 

or Phone 02 9684 4199

 

 

 

Click here to find out how to purchase property in a SMSF with borrowing 

  

 

    

 

Speaker

 

Manoj Abichandani

SMSF Specialist Advisor (SSA)

SMSF Specialist Auditor (SSAud)

 

Manoj has worked in SMSF industry for the past 19 years as a tax agent, accountant and Auditor. Currently he audits Self managed super funds and consults as SMSF Specialist Advisor to other accountants. He has helped over 5000 trustees to set up their own funds and currently audits more than 400 funds each year for various accounting firms which puts him in the top 54 SMSF Auditors (as per ATO) in Australia.

 

He develops Pension strategies and advises trustees & practicing accountants on complex SMSF matters

 

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FEATURED ARTICLE CONTINUES BELOW

 

 

 

7. Benefit from co-contribution by contributing $1,000 after tax before 30^th June 2010.

 

 

Eligible personal superannuation contributions are matched dollar for dollar by the Government up to a maximum government co-contribution of $1,000.

 

For 2009/10 the maximum government co-contribution is payable to individuals on incomes at or below $31,920, and reduces by 3.333 cents or each dollar by which the individual's total income for the year exceeds $31,920 cutting out completely once an individual's total income reaches or exceeds $61,920.

 

It is possible that after tax contribution gives a better result than salary sacrifice.

 

 

Example

 

If your total income is $51,920 and you salary sacrifice $1,460 the tax benefit is 16.5% (marginal tax rate of 31.5% less tax on contribution of 15%) or $241 but if the same $1,000 (Gross $1460 less 31.5% tax) is contributed after tax to super, the benefit is $334 ($51,920 less $31,920 = $20,000 times 3.33 cents in each dollar or $666 which will be reduced from the full $1,000 co-contribution).

 

Self employed taxpayers should note that In order to be eligible for the government co-contribution, 10% or more of total income for the financial year must be attributable to either or both of:

1. employment-related activities, and

2. the carrying on of a business

 

 

 

8. Maximise number of members in your SMSF & Co-contributions

 

 

Co-contribution is paid by the Government to taxpayers who are eligible. To be eligible for this payment, among other things, the taxpayer has to be below 71 years and lodge their income tax return for the relevant financial year.

 

 

This is an opportunity for SMSF member to include their children who are over the working age (over 15 years and 9 months) as members of the SMSF.

 

 

Further, member's parents (even if they are over 65 years of age - but must pass the work test as above) can also join the SMSF as members and make the contributions before 30^th June 2010.

 

 

 

Click here to add members to your SMSF

  

 

 

9. Sell loss making assets to counter capital gain

 

 

SMSF which are in accumulation phase pay 15% tax on any capital gain. However, if the asset is held for longer than one year, the super fund pays tax only on 2/3^rd gain.

 

It is possible for a SMSF to realize capital gain on shares already sold and is holding shares which have down in value but not yet sold (unrealised), If this happens, the fund will pay capital gain tax on shares which are sold and carry forward unrealized loss.

 

If these loss making shares are also sold before the financial year ends, then the SMSF is able to negate tax on any capital gain already made by the fund.

 

 

 

Example

 

Joseph set up his SMSF in September 2009 and rolled over all his existing funds to his SMSF. He then purchased ten different company shares with all the money in the fund. In March 2010 five of the ten shares were sold at a profit of $50,000 and no more shares were sold.

 

Joseph now owns 5 different company shares and has a fixed deposit in his SMSF. If the remaining five company shares are sold today, Joseph will make a loss of $60,000.

 

Joseph has two options;

 

1)     Sell the loss making shares up to the gain of $50,000 before 30^th June 2010 and carry forward the unrealized loss of $10,000; OR

 

2)

     Pay tax of $7,500 on $50,000 gain on sale of 5 company shares and carry forward the unrealised loss of $60,000 in the other 5 company shares.

 

 

 

10. Close SMSF before 30^th June 2010

 

 

If you set up your SMSF before 30^th June 2010 and have realised that it is not for you - it is best to roll over the balance of your fund to another public offer fund before 30^th June and close the bank account of the SMSF, this way you will save administration cost for the fund and ATO's supervisory levy of $150 for the next financial year.

 

Simply prepare a roll over statement for your SMSF and attach a cheque of the balance of the fund to a filled out application form of the fund of your choice. You must ensure that the cheque is cashed by the new fund before 30^th June 2010.

 

 

Click here to update your SMSF trust deed

 

 

Click here to convert your pension to ABP

 

 

 

 

 

Manoj Abichandani SSA SSAud
SMSF Specialist Advisor
SMSF Specialist Auditor

Team Leader

Superannuation Technical Division

www.trustdeed.com.au