Hello … technical ?
ANZ wealth technical services
How does this session work?
Three “mock” adviser phone calls
1
First call: Troy and Peta
Troy: Technical Services, this is Troy
Peta: Hi Troy, my name is Peta. I am a financial adviser,
and wanted to know if you can help with me with putting
a strategy in place for a client.
Troy: Yep, sure, how can I help?
Peta: I have a client, Aiden, who has just turned 54. His
birthday was on 16th July. He just received an inheritance
from the estate of his late father. We are going to make a
large non-concessional contribution with a view to
commencing a TTR salary sacrifice strategy on 16th July
2015.
Can we commence a TTR for Aiden?
3
Account based pensions
Case study #1
Aiden turned 54 in 16th July 2014. His financial planner has recommended that he
commence a Transition to Retirement Pension on 16th July 2015. Is it possible to
commence a TTR?
1.He is able to commence a TTR pension on 16th July 2015
2.He is able to commence a TTR pension on 16th July 2015, however it would be a
poor strategy for someone under 60
3.He won’t be able to commence a TTR pension on 16th July 2015
4
Preservation age
Commencing a transition to retirement pension
To be eligible to commence a transition to retirement (TTR) income stream the super fund member
must have attained preservation age.
Those born after 1 July 1960 are subject to a gradual increase in the preservation age with those
members born after 1 July 1964 having a preservation age of 60 years.
5
Preservation age
Remember Aiden?
He is turning 55 in July 2015 (less than 12 months away) and is seeking some early
advice from his planner about how to commence a TTR income stream. Aidan was born
on 16 July 1960 and has a preservation age of 56, not age 55. He is unable to commence
a TTR income stream until age 56 in two years.
There are a number of financial planning measures that relate to preservation age.
•Permanent retirement condition of release
•Low rate cap applicable to lump sum withdrawals
•Severe financial hardship (39 week rule)
•Withdrawal re-contribution strategy (the ability to withdraw)
Eventually preservation age will align with age 60 and tax free payments.
6
Peta: Ok, that’s really interesting. One of the paraplanners came back
and said that Xplan wouldn’t allow the TTR pension to start until 2016.
We thought that it may have been an error.
Troy: Yeh, we have seen a few of these cases pop up recently. We
wrote a piece on our monthly technical newsletter on the effect of
preservation age and TTR’s.
Peta: Ok, can I hit you up with another question?
Troy: Sure, that’s what we are here for.
Peta: I have another client, Julie, who we commenced an TTR pension
for on 1st August this year. Don’t worry, she was above 56!! Actually she
turns 60 in December. How do I work out the tax on her pension
payments?
7
Account based pensions
Case study #2
Julie commenced a TTR pension on 1st August 2014. She turns 60 in December. Her pension is
100% taxable. How do you calculate the tax on her pension payments?
1.Pension payments are 100% taxable
2.Pension payments received before her 60th birthday are taxable. Pension payments received after
her 60th birthday are tax free
3.Pension payments are taxable based upon a prorated basis (counting the days before her 60th
birthday and after her 60th birthday)
4.Pension payments are 100% tax free
8
Second call: Andrew and Natalie
Andrew: Hello, technical Services, Andrew speaking
Natalie: Hi Andrew, my name is Natalie. I’m an adviser, and need some help with a
small business CGT exemption.
Andrew: Ok. That can be a complex area. Has your client received any advice from
their accountant about whether they are eligible to use the exemptions?
Natalie: No. Well, im not sure. I have just had a meeting with the client, and I thought
that the exemptions would apply. I roughly remember the rules. Ah .. can I send the
details through to you and ask if you the small business exemptions apply?
Andrew: Unfortunately, we aren’t tax advisers, so we can’t provide any advice in that
area. Really, the clients accountant or tax agent should be providing them an
assessment as it is tax advice. And they probably understand the clients business very
well.
Natalie: Ok. Can you give me a refresh of how the rules operate?
10
Small business CGT exemptions
What are the rules?
•Basic conditions
•Turnover or maximum net asset test
•Active asset test
•Additional conditions where the asset is a share in a company or an interest in a trust.
Seek advice from a licensed tax agent
11
Small business CGT exemptions
15 year exemption
•Entity must continuously own the asset for 15 years before the CGT event.
•Individual must be at least 55 and the sale of the asset is in connection with their
retirement.
•Entire capital gain is disregarded
Retirement exemption
•Disregard up to $500,000 of capital gain
•If individual is under 55, then disregarded capital gain must be contributed to super
•If individual is over 55, there is no requirement to contribute to super
12
Small business CGT exemptions
CGT cap contributions
•Lifetime cap of $1,355,000 (2014/15)
•Notice must be given to trustee with contribution
•Generally must be made by the later of:
– Due date of tax return, or
– 30 days after the receipt of sale proceeds
•Work test applies for those above 65
13
Small business CGT exemptions
Retirement exemption
Active asset reduction
50%reduction
Cost base
CGT cap
Sale proceeds
Sale proceeds
Retirement exemption
15 year exemption
Capital
gain
CGT cap
Cost base
14
Small business CGT exemptions
Natalie: Ok. Thanks. I understand the basics. From what you are
saying, I don’t think that the 15 year exemption applies to my
client as he is 54. Can I give you some details of the clients
situation, and then can we work out how much we can contribute
to super?
Andrew: Yep, sure. What are the figures?
15
Small business CGT exemptions
Case study #3
James sold his business. The sale proceeds are $1,000,000 (CGT cost base of $350,000).
He would like to maximise his contributions to super. Calculate the maximum CGT cap
contribution that he can make under the retirement exemption
1.$650,000
2.$702,500
3.$865,000
4.$1,000,000
16
CGT cap contributions
Retirement exemption
James sold his business. The sale proceeds are $1,000,000. He sought advice and
decided not to apply the 50% active asset reduction, to maximise his contributions to
super.
Sale proceeds
$1,000,000
CGT cost base
$ 350,000
Gross CGT gain
$ 650,000
50% asset reduction
$ 325,000 (50% x $650,000)
Retirement exemption
$ 325,000
James can contribute
$ 865,000 ($325,000+ $540,000)
17
Third call: Andrew & Rob
Andrew: Technical Services, Andrew speaking
Rob: Hi Andrew, its Rob from blandville. How are you?
Andrew: Im well, how can I help?
Rob: I am working through the deeming of account based pension
proposals, and trying to understand how it operates.
Andrew: Actually, they are no longer proposals – but law. From 1St January
2015, account based pensions will be deemed unless they are
grandfathered. So locking in the grandfathering provisions is what is
generating a lot of questions at the moment.
Rob: Ok, so how does it work?
19
Deeming of account based pensions
What is changing?
•Account based pensions will be deemed (as a financial investment)
•Applies to account based pensions with a commencement date from 1 January 2015
•To be assessed under current rules:
o Account based pensions must commence before 1 Jan 2015
o Individual receives an income support payment immediately before 1 Jan
2015
o Since 1 Jan 2015, continuously receive income support payment
•Defined benefit pensions and annuities continue as per normal
20
Deeming of account based pensions
Death after 1st January 2015
•Reversionary pensions qualify for grandfathering where:
o At time of reversion, the reversionary beneficiary receives an income
support payment
o Since reversion, the reversionary beneficiary continues to receive an
income support payment
21
Deeming of account based penisons
• Jim (67) and Jane (62), homeowners
• $10,000 personal effects
• $300,000 account based pension for Jim
• Jane earns $50,000 pa from employment
Income tested amount
Age Pension
Grandfathered
Deeming 2%, 3.5%
Nil
$9,306 pa
$5,864 pa
$3,537 pa
22
Deeming of account based pensions
Date
Below the threshold
Above the threshold
20/03/2004
3%
5%
20/03/2007
3.50%
5.50%
20/03/2008
4%
6%
1/07/2008
4%
6%
17/11/2008
3%
5%
26/01/2009
3%
4%
20/03/2009
2%
3%
1/07/2009
2%
3%
20/03/2010
3%
4.50%
20/03/2013
2.50%
4%
2%
3.50%
4/11/2013
23
Rob: Ok, so I think I understand how the rules work. Can I ask you a
question on about a clients situation?
Andrew: Yep sure – fire away.
Rob: I have a client, Angela, who is 62. She is currently in receipt of
NewStart. She commenced an account based pension on 1st July 2014. If
today was the 1st January, has she locked in the grandfathering?
24
Deeming of account based pensions
Case study #4
Angela is 62 and in receipt of NewStart. She commenced an account based pension on 1st
July 2014. Lets assume that today is 1st January 2015. Has she locked in the
grandfathering provisions?
1.No, she has not locked in the grandfathering provisions as she was not in receipt of the
Age Pension
2.No, she has not locked in the grandfathering provisions as she was not in receipt of an
income support payment
3.Yes, she has locked in the grandfathering provisions as she was in receipt of an income
support payment
25
Deeming of account based pensions
Case study #5
Alfred is 68 and in receipt of the Age Pension. He commences an account based pension
today. He is married to Joanne. Fast forward, and assume that today is 21st June 2017.
Joanne retires and successfully apply’s for the Age Pension.
How is Alfred’s account based pension assessed for the couple?
1.As the grandfathering provisions were locked in as at 1st January 2015, it is assessed
under the pre 1st January 2015 rules.
2.As the grandfathering provisions were locked in as at 1st January 2015, it is assessed
under the pre 1st January 2015 rules for Alfred’s assessment. However it is deemed for
Joanne’s assessment.
3.I don’t know – better call technical.
26
Deeming of account based pensions
Case study #6
Remember Alfred & Joanne? Alfred is 68 and in receipt of the Age Pension. He
commences an account based pension today. He is married to Joanne. Fast forward,
and assume that today is 21st June 2017. Joanne retires and successfully apply’s for the
Age Pension.
How is Joanne’s account based pension assessed for the couple?
1.Joanne’s account based pension will be deemed.
2.As Alfred locked in the grandfathering provisions at 1st January 2015, Joanne’s
account based pension is also grandfathered.
3.50% of Joanne’s pension will be deemed.
27
Commonwealth Seniors Health Card
What is changing?
Increased income thresholds
Singles: $51,500 Couple $82,400
Deeming of ABP’s
Legislated
Abolition of seniors supplement
Proposed ($1,253/$943)
28
Wrap up
1st call: Peta & Troy
Account based pensions
2nd call: Natalie & Andrew
Small business CGT exemptions
3rd call: Andrew & Rob
Deeming of ABP’s
29
Disclaimer
Important Notice
RI Advice Group Pty Ltd, ABN 23 001 774 125, holds Australian Financial Services Licence Number 238429 and
is licensed to provide financial product advice and deal in financial products such as: deposit and payment
products, derivatives, life products, managed investment schemes including investor directed portfolio services,
securities, superannuation, Retirement Savings Accounts.
The information presented in this seminar is of a general nature only and neither represents nor is intended to
be specific advice on any particular matter. RI Advice Group strongly suggests that no person should act
specifically on the basis of the information contained herein but should obtain appropriate professional advice
based on their own circumstances.
30