Rahul Singh –ANZ Technical Services

Strategies unique to SMSFs
Unrestricted non-preserved benefits and TtR strategies
Contribution reserving – claiming double the concessional contributions cap in one year and allocating part of it to the next FY
Has the SMSF reached its shelf life?
Lessons from recent estate planning cases
2

John - 56
Have a SMSF
Have sought advice elsewhere
Second opinion - want their adviser to consider all options available
Gloria - 50
3

Salary $100,000 pa
Balance $400,000 all taxable component
$100,000 unrestricted non preserved benefits
Wants to do TtR
Issues
Can he commence a TtR just with preserved benefits?
o Beware some public offer funds
If the TtR is commenced with UNPB
+ PB, what is the order of payments coming out?
Strategies?
Cash out & recontribution
Electing lump sum to count towards the minimum
4

Cash out and recontribution
Condition of release - can only do it as has unrestricted non-preserved funds
Contribution caps
Decreases taxable component
Increases tax-free component
Reduces tax payable on pension payments
Preservation age but under
60
Tax on lump sums
• First $195,000 tax free
• Excess 17%
5

Unrestricted non-preserved and TtR strategies – cash out and recontribution
Salary
SG
Salary sacrifice
Default
100,000
9,500
25,500
TRIS drawdown 20,467
Tax payable 21,914*
Net pay 73,053
Cash out & recontribution
100,000
9,500
25,500
19,251
20,698*
73,053
Issues
Tax savings $1,216
Loss of accessibility
*
Does not include 15% contributions tax
6
Better than default, but still tax on pension payments

Electing for lump sum to count towards minimum payment
SMSFD 2014/1 & TR 2013/5
Make an election for a benefit to be taxed as a lump sum o Can do so because of UNPB
Lump sums within the low rate cap are tax-free
Lump sums, whether cash or in-specie count towards the minimum requirement but not maximum
Akin to a TtR for someone over 60
7

Unrestricted non-preserved and TtR strategies – electing for lump sum to count towards minimum payment
Cash out & recontribution Elect for a lump sum….
Salary
Net pay
Default
SG 9,500
Salary sacrifice 25,500
TRIS drawdown
Tax payable
100,000
20,467
21,914*
73,053
100,000
9,500
25,500
19,251
20,698*
73,053
100,000
9,500
25,500
16,000
17,250*
73,251
Tax savings $4,664
*
Does not include 15% contributions tax
8

Unrestricted non-preserved and TtR strategies – electing for lump sum to count towards minimum payment
Summary
Look out for clients with unrestricted non-preserved benefits in the 56-59 bracket
Some public offer funds also have this functionality
This opportunity can also have application for retired high SMSF balances in the 56-59 bracket
9

Contribution reserving – doubling up on the concessional contributions cap
Now 60 and retired
Only income is taxfree ABP pension payments
Sold investment property with total capital gain of
$200,000
Issues
Concessional contributions o “Less than 10%” test
CC Cap limits how much tax advantages Gloria can receive upon contributing
Strategies?
Personal deductible super contribution
Contribution reserving and allocating it across two years
10

Contribution reserving – doubling up on the concessional contributions cap
Is Gloria eligible to claim a tax deduction upon contributing to super? o “Less than 10% test” o Income attributable to employee related income + reportable employer super contributions + reportable fringe benefits needs to be less than 10% of total income (including RESC + RFB) o Gloria has not and will not be an employee in the relevant FY o She is automatically eligible to claim a deduction for contributing to superannuation
Gloria is over the age of 50, so concessional cap is $35,000
11

Contribution reserving – doubling up on the concessional contributions cap
No advice ($)
Assessable income 100,000
Personal deductible contribution
Taxable income
Tax payable
Net
Nil
100,000
26,947
73,053
Tax savings
Personal deductible contribution of
$35,000
100,000
35,000
65,000
13,947
51,053
7,750*
* inclusive of contributions tax
12

Contribution reserving – doubling up on the concessional contributions cap
ATO ID 2012/16 & TD 2013/22 o $25,000 contribution is received by fund on 30 June 2015. This amount is applied to an unallocated contributions account in accordance with the governing rules of the fund. o On 2 July 2015, the trustees allocate $25,000 to the member’s account in the fund with effect from 2 July 2014
In which year can the contribution be claimed as a deduction?
o 2014-15 or 2015-16
In which year is the contribution counted under the concessional contribution?
o 2014-15 or 2015-16
13

Contribution reserving – doubling up on the concessional contributions cap
SISR Division 7.2 in respect of SMSF contributions are required to be allocated within 28 days of the month ending in which it is received
From a concessional contributions cap perspective, the year in which it is allocated to the member is when it is counted : 2015-16
Member claims a deduction in the year in which the contribution is made: 2014-15
Request to adjust concessional contributions – NAT 74851
Work with the accountant and/or administrator around practicalities
14

Contribution reserving – doubling up on the concessional contributions cap
Default Contribution reserving
100,000 Assessable capital gain
Personal deductible super contribution
Taxable income
Tax payable
Benefit*
35,000
65,000
19,197
70,000
30,000
2,397
6,300
* Includes contributions tax
15

Contribution reserving – doubling up on the concessional contributions cap
Summary
Generally only applies to SMSFs
Clients with “one-off” variation in income may benefit
Work with accountant / administrator to follow process and paperwork
16

John & Gloria have been great clients. Now entering their twilight years,
John passes away, leaving Gloria (80) with a single member SMSF.
John & Gloria SMSF
$1 million balance. Combination of
ASX 200 direct equities, ETFs and cash
17

Gloria would eventually like her super balance to go to her two non-dependant kids in equal share.
Super death benefit
Tax free component
Taxable component
Tax payable @ 17%
Net amount each
200,000
800,000
136,000
432,000
What can be done to alleviate the death benefit tax?
18

Investment considerations aside, wind up the SMSF to enable a rollover to a public offer fund to benefit from anti-detriment
Super death benefit
Tax free component
Taxable component
Anti detriment
Tax payable @ 17%
Net amount each
No anti-detriment Roll-over to APRA fund with antidetriment
200,000
Nil
136,000
432,000
800,000
141,200
160,004
490,598
19

Issues
Fees
Managed versus non managed
Bulky assets
SMSF tax o Losses
Commonwealth Seniors Health Care Card if considering cashing out of super
20

Recent superannuation estate planning cases – what have we learnt?
Ioppolo & Hesford V Conti 2013 WASC 389
Munro V Munro 2015 QSC 61
David Mandie
21

Recent superannuation estate planning cases – Ioppolo &
Hesford V Conti
What the deceased wanted?
Francesca through her will stipulated that her death benefit to be paid to her children. None to be paid to her husband
Facts
Augusto left sole trustee of the fund.
He set up a corporate trustee of which he was the sole director and shareholder
Resolved to make a payment entirely to himself
What did we learn?
Executor doesn’t automatically become a trustee. SIS allows but does not require
BDBN would have resolved the issue
Superannuation is not automatically dealt via the will
22

Recent superannuation estate planning cases – Munro V
Munro
What the deceased wanted?
Barrie Munro through BDBN wanted his death benefit to go the estate
Facts
Barrie’s two daughters from previous marriage were his executors
Barrie survived by his second wife, Suzie. Upon Barrie’s death, Suzie’s daughter replaced him as a co-trustee
Barrie in the BDBN nominated the “trustee of his deceased estate”
Instructions to the form among others stated “executor of your estate” could be nominated
Suzie and her daughter argued that the BDBN is invalid
What did we learn?
BDBN have to follow trust deed stipulations – a mismatch can be disastrous
BDBN can be non-lapsing in SMSFs with appropriate deed clauses
Trustee succession is crucial in the absence of BDBN
23

Recent superannuation estate planning cases – David Mandie case
What the deceased wanted?
He did not want his sons to inherit any estate assets
Facts
N.M Super Trustee resolved to make a payment to deceased’s three children in equal share
Subject to a SCT determination and Federal Court of Australia
In the absence of a BDBN, the trust deed stated that the trustee must pay the death benefit to either dependants or LPR
Where there are dependants, the trustee has general rules making a direct payment to the dependants
In 1995, the two sons agreed to a settlement renouncing any rights towards future estate
What did we learn?
BDN would have solved the issue
24

Thanks for your time
You can contact Technical Services on o 1800 444 019 o Technical@onepath.com.au
25