Planning for Retirement
CONSIDERATIONS
ACCOMMODATION
- Where will I live?
- How much will it cost to purchase?
INCOME - How much will I need per year?
- Where will it come from?
- Pension
- Interest
- Property lease
- Dividends
- Superannuation
-Sale of Business
INCOME TAX CONCESSIONS
-SATO (SENIOR AUSTRALIAN TAX OFFSETS) Concession – Pensionable Age
2009-10 - Joint income <36360 – no tax to pay
- Joint income >36360 – income is taxable therefore consider having investments
in Super Fund.
SATO applies to all taxable income.
ASPECTS OF SUPERANNUATION FUND
Death of a Member
- Tax deductible contributions and earnings are taxed at 16.5% in the hands of nondependant beneficiaries on death of a member – this may affect how your will is
drafted. A spouse is always considered a dependant.
- Non tax deductible contributions and earnings are tax free in hands of beneficiaries in a
will.
Taxation of Fund Income
-Fund pays no tax when it is paying pensions – Fund has to prepare financial reports, tax
return and be audited. Cost between $1100-$4000 +pa depending upon diversity of
investments and number of transactions.
- Superannuation pension income is tax free in hands of member.
- Possible to have $36k in taxable income and extra income from superannuation to
achieve desired income and still not pay any tax.
SUCCESSION PLANNING & CAPITAL GAINS TAX
- Sale of Business (including Farms)
- Passing business to next generation
Legal entity owning business
- Sole Trader/Partnership
- Can access easily Small Business CGT concessions
- Company
- Can access Small Business CGT concessions providing certain conditions are met
- Must have one significant individual who holds at least 20% of shares in company
- Trust
- Can access Small Business CGT concessions as long as a significant individual has a
participation percentage of at least 20%
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Sale of BusinessNo Small Business CGT concessions
- Individuals, Trusts and Super Funds (Partnership Capital Gains included in partner’s
personal returns)
- 50% discount for asset held more than one year (365 or 366 days)
- 331/3% discount for Super Funds
Small Business CGT Concessions
- Qualification as small business
-<$2m turnover or
-<$6m business assets, including assets of associated parties
- 15 Year Exemption
- all Capital Gains is tax free – must be used for business for at least 50% of the time
- 50% Reduction
- Asset has to be held for one year
- Active Assets
- Further reduction of 50% of remaining capital gain if asset has been an active asset.
Active assets are; - Business real estate – can be held in associated trust or partnership
- Goodwill
- Govt License – ex Rock Lobster license or Taxi Plate
- Stock, WIP and Plant & Equipment are subject to the income tax rules
before any CGT rules apply.
-Retirement Exemption
- An individual can put up to $500k from business sale proceeds for retirement benefits
and avoid any CGT liability up to $500k. The $500k is a lifetime total amount. The
contribution is not taxed if you put into a super fund. However, using the $500k to pay
off a debt counts as providing a retirement benefit. If the individual is < 55 years old
they must put the $500k into a superannuation fund and cannot pay off debt to get
concession. This concession does not prevent or override the usual tax deductible and
non –tax deductible contributions to superannuation in a financial year.
- Asset Roll – Overs
- Capital Gains Tax be deferred by rolling over the gain into another business within two
years. This can effectively defer any CGT liability until retirement when the other
concessions may be appropriate to minimise the CGT.
- Passing Business to Next generation
- If business turnover <$2m or nett assets <$6m consider using a trust as there will be no
CGT issues when control is transferred from parents to next generation.
- If business turnover >$2m or nett assets >$6m consider using a company with the
shares being held by discretionary trusts. Limits income tax to 30% and dividends can be
paid via family trusts to the most tax efficient beneficiaries.
- Need to ensure there are enough assets outside the business to provide for parents
retirement without imposing large amounts of debt on next generation.
ASSET PROTECTION
Personal
- Assets
- Investments
Personal Assets
- These assets will include such things as your home, vehicles, jewellery, antique furniture
etc. The best protection you can have is to;
a)
Don’t provide these assets as security for loans
b)
Have sufficient insurance in place so that you can afford to replace them.
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Personal Investments
These assets will include items such as share portfolio, managed investment portfolio, real estate
and collectables such as art works, vintage cars etc.
Protection of your share/managed investments portfolios is best done by having regular contact
with your share broker/financial advisor to ensure that your capital and income stream are
producing the desired results. One way to protect any capital gains in your share portfolio is to have
a stop/loss order in place.
This means that your shares will be sold if the price falls to specified level. This needs to be
discussed with your broker.
Real Estate investments can be protected by;
a)
Having a good agent manage the property
b)
Having insurance to cover the replacement cost of the property
c)
Having insurance to replace the rental income while the property is being
repaired/rebuilt
d)
As far as possible, don’t use the property as loans security for borrowings to
acquire other assets.
Collectables - The best protection is the right storage facility and minimal use. Adequate insurance
and security is also necessary.
Business Assets
The most important asset of the business is the management. There should always be enough “Key
Man” insurance in place so that the business can employ short term management until such time as
new management can be employed in the event of the sudden death/incapacity of a key person.
Insurance is vital for the protection of business assets. Not only can it provide for the replacement of
assets lost or destroyed by fire, flood etc, it can also provide sufficient funds to allow the business to
meet its commitments if a catastrophic event has stopped the business operating for a period of
time.
USE OF TRUSTS
When there are significant assets, whether it can be a personal investment portfolio or business use
assets such as land and buildings or vital equipment, an asset owning trust can be used.
As the trust is a separate legal entity to persons or business, if the business fails or the person is
likely to become bankrupt the assets of the trust cannot be sold to meet the debts. The exception to
this is where the trustees of the trust have consented to a mortgage etc being placed on specific
trust assets.
The other advantage of the trust is the ability to have assets go from generation to generation
without having to be included in the deceased’s estate. This is so even if the deceased is a trustee of
the trust. However, the deceased’s will or the trust deed will need to address the question of who
takes the deceased’s place as an appointor.
The other significant benefit of having assets in a trust is that there are no CGT triggers or
consequences when an investor/business owner dies because the trust owns the assets, not the
deceased.
STAMP DUTY – WA
On the transfer of certain assets, stamp duty is payable. Stamp duty is assessed on the transfer of
property. Property includes real estate, goodwill, lease transfers, transfer of government licenses
etc.
Stamp duty is not payable on share transfers whether they be for ASX listed companies, other public
companies and private companies. There is no exemption from stamp duty where the company is a
“land rich” company. Generally, if a company owns more than $2m worth of land, then transfer of
any of its shares will incur stamp duty.
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Stamp duty is assessed on the GST inclusive price of the property being transferred
CONCLUSION
All the information provided is a general nature only and your specific questions about your
circumstances should be addressed by the appropriate professional.
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