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new SMSF strategy?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by ethereal, 20th Jun, 2012.

  1. ethereal

    ethereal Member

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    My wife is 67 & I'm 70. We have SMSF that started in 1980. I'm an employee & Sal Sac everything beyond my first $18K. We have been taking account based pensions for the past few years (yet to be calculated for this year.)

    Very recently, our accountant suggested we can stop the pensions and take lump sums. Portions will become taxable and should we die our non-dependent beneficiary benefits somehow. This is news to us and only as I understand him. (He's always in a rush and hard to contact.)

    Mixed up in this is something to do with the fact that our pensions are happily more than we need as some investments worked out well recently.

    I am hoping someone knows what our accountant is on about and can explain/clarify for us. I suspect it is something applicable to others.
     
  2. netd

    netd Member

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  3. funkandjunk

    funkandjunk Member

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    Agree with the previous poster - seems to implyba recntribution strategy.
    Couple of other advice points to consider

    Effective tax free threshold next year - $20,542
    Concessional cap coming down to $25K
    Commonwealth Seniors Health Care Card eligibility?
    Pension Bonus Scheme - depending on how old the working spouse was on 20 September 09
    Managing unrealised CGT upon death when no eligible beneficiary entitled to commence income stream
    Depending on retirement plans, how will the government proposal of people over 50 with superannuation balances less than $500,000 affect? Any strategical opportunities and planning around this?
     
  4. ethereal

    ethereal Member

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    Thankyou netd and funkandjunk.

    The accountant did mention that we can add more contributions. After days of searching I did not come across the re-contribution strategy. I believe we are getting somewhere now.
     
  5. funkandjunk

    funkandjunk Member

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    The rDepending on how big your fund is there may be other options of managing death benefit tax issues. Whilst you are working there is an opportunity to recycle $150K of SMSF money into tax free component. If the fund is really large, one could consider a retail fun that pays anti detriment for liquid assets if this was a really big concern for you.
     
  6. Terryw

    Terryw Well-Known Member

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    The suggestion by the accountant is a different strategy than the recontribution strategy - but that is worth looking at too.

    What he is suggesting is that if you were to die with large amounts of money in super then you could save your beneficiaries tax by taking the money out of super now and holding it personally. That way if you were to die it would form part of your estate.

    Since you are able to take lump sums tax free and or set up a pension and the SMSF can sell assets CGT free while in this stage then any assets with Capital gains could be sold tax free to the fund too. So this is worth looking at.

    If you leave the money in the fund and die your trustee is limited in who they can pay:
    1. Your estate
    2. dependants (spouse, children, financial dependants etc)

    If you and your spouse die together and you only have adult children then the children could pay up to 31.5% tax on this money (top marginal rate less 15% rebate).

    If your estate is paid then the tax will be born by those that receive the money.

    Knowing exactly when your will die would help you plan:confused: ,

    You should seriously look at setting up an appropriate power of attorney too so that if you have an accident, for example, and are about to die, then the attorney can make a withdrawal of your super just before your death. Of course you would need to consider someone who is able to think about financial things at such a time.
     
  7. ethereal

    ethereal Member

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    Damn you TerryW. Just when I think I'm getting an handle on things, you come out with other suggestions :confused:;)

    Seriously people, your input is appreciated.
     
  8. ethereal

    ethereal Member

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    Surprise surprise (so close to the end of the Financial year), the accountant offered to see me on Monday to explain things.

    Thanks everyone. I'll post what he says asap.
     
  9. ethereal

    ethereal Member

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    , I'm much clearer now I've spoken to the accountant, and I'm confident it will sink in with time.
    Thankyou everyone for the points raised. I am looking into them all.

    Here are the notes I made. I believe the gist is correct and that our example may be applicable to others.
    ````````````````````````````````
    We want to reduce tax to the fund and also reduce tax to beneficiaries.
    The fund consists of 2 parts which are the Accumulation part and the Pension assets part.
    Earnings on the Accumulation part are taxable @ 15% so we want to get them out and into the Pension assets asap as once there, they are non taxable to the fund.
    On death of both fund members, part of the fund will be highly taxed to beneficiaries. We want to reduce that part.
    Therefore, take a lump sum of $140K (ie on the safe side of the $150K limit)from the SF to personal bank a/c.
    Re-contribute it (it will go into the Accumulation part), then immediately start a pension from it so it becomes part on the Pension assets and therefore non-taxable to the fund. Not only that, because it came from a personal after-tax contribution, it will be a non-taxable portion to beneficiaries.
    Repeat annually for as long as necessary to zero the portion taxable to a beneficiary.

    Moreover, portions of the four Pensions we are currently running will be taxable to beneficiaries. In particular, of Pension 1 for myself, 89.84% would be taxed at 16.5% to beneficiaries, so we should draw from Pension 1 to dwindle away the taxable portions (eg if we buy a car). ~ 30% of Pens 1 for my wife would be taxed to beneficiaries, but all the other pensions for her are 100% tax free. ~ 56% of Pens 3 for me would be tax free.

    The accountant will do the pensions calculations and handle the “dwindling”. He's also balancing 50:50 between my wife and self.
     
  10. Lloyd Harris

    Lloyd Harris Member

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    See a financial adviser

    Hi there,

    It sounds like you should be speaking with a financial adviser about this sort of strategy, not your accountant. Some accountants know what they are doing in this space, but some just think they know what they are doing, and this is a scenario where a little bit of knowledge can be dangerous.

    Most financial advisers will offer an cost and obligation free initial meeting to discuss such issues as tax and super and estate planning considerations. This may be time well spent.

    Go to the FPA website (Welcome to the FPA - The Financial Planning Association of Australia) and search for a qualified planner near you.

    Hope this helps.