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Q: SMSF - starting pension, what docs?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by pthm, 22nd Aug, 2008.

  1. pthm

    pthm Well-Known Member

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    We have an smsf, are over 55s and been thinking of starting the pension.

    We would like to ask questions from forum experts and those who have taken pension from their smsf before 60.

    We understand that we have to review and amend the smsf trust deed to allow us to start the pension. We have seen trustdeed.com.au advertised to update the deed for $110, whereas the accountant wanted $550 or more. Has anyone dealt with trustdeed.com.au?

    We only have shares in the smsf, and so thought it might be simple for us to do all the paperwork, instead of the accountant (who has the tendency to send us an invoice every time we phone him). Does anyone know what kind of paperwork is involved in the process? We have seen trustdeed.com.au selling "account based pension documents" for $275. We are not sure if these documents are all we would need.

    Should we wait until 60 to take a pension instead of now, to save all the hassles with the paperwork and tax - after 60, all the earnings in the smsf will be tax free.

    Thanks in advance!
     
  2. Rob G.

    Rob G. Well-Known Member

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    For documentation/admin try asking the ATO. They are very helpful.

    Contrary to what many legal advisory services suggest, the ATO is not trying to shoot down a SMSF on legal technicalities and are able to point you to the more relevant areas that you should address in your deed.

    You will need to register for withholding tax from payments.

    As to whether you should commence an income stream right away, I suggest you talk to a Financial Planner about whether a transition to retirement income stream is suitable to your needs. You are able to continue working and contributing concessionally to super whilst drawing concessionally taxed income from your fund.

    This gets even better if you are over 60 and still working as you are taking money out tax-free and putting it back in again and claiming a tax dediction on it as well.

    Hope the Government keeps this up long enough for you to benefit from that one as well !!!

    Super, and especially SMSF, should be a very important part of anyone's financial plan these days.

    Cheers,

    Rob
     
  3. AsxBroker

    AsxBroker Well-Known Member

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    Hi PTHM,

    Actually in allocated pension/age based pension/drawdown phase all the earnings in a complying fund are tax free (whether the recipient is 55, 65 or 75).

    It is only the payments that are received which are deemed taxable (while a recipient is under age 60) at the end of each financial year, once a recipient is age 60 or over the income is classified as Non-Assessable Non-Exempt (or NANE) which does not add to a recipient's taxable income.

    Cheers,

    Dan

    PS Before making a superannuation decision speak to your FPA registered Financial Planner. For Self Managed Superannuation Funds speak to your SMSF specialist before making a decision.

     
  4. pthm

    pthm Well-Known Member

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    Thank you, Rob, for some very helpful pointers. Appreciated it.
     
  5. pthm

    pthm Well-Known Member

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    Thanks, Dan, for the clarification. Agree with what you said about the difference in tax free for fund earnings, and taxable pension for fund members.

    We have worked out broadly the pension which hubby should take from smsf so not to negate the tax advantages from him being able to contribute part of his salary to smsf (under the transition to retirement rules). We're kind of understanding the principles, but need to know the nitty gritty of the mechanics. We cannot find any written resources pointing to how this should be done - the practical aspects etc.
     
  6. Rob G.

    Rob G. Well-Known Member

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    I still think the ATO is the first step for procedural advice.

    At the very minimum, you will need to pass minutes to allow payments of Account Based Income Streams and Non-Commutable Transition To Retirement Income Streams as per the SIS regulations.

    If your deed is more than a few years old, it may have old and illegal clauses which cause great consternation to Taxation Lawyers and might be worth getting checked. However, if the fund was initially comlying it is debatable whether these clauses void the whole deed or whether SIS just ignores it provided the Trustee abides by current law.

    Better get it checked to be safe rather than sorry ... especially if Governments change and attitudes harden.

    Also, you should expect to hear suggestions like the following - which is by no means exhaustive:

    1) Member writes to Trustee requesting commencement of an income stream, payment methods, frequency etc.

    2) Trustee acknowledges request.

    3) Minutes made and benefits calculated based on amounts in the fund, age of member, whether commutable.

    4) If concessional contributions are still to be made, separate accounts must be kept since the accumulation fund will still pay tax on concessional contributions & earnings.

    5) Trustee registers with ATO for withholding tax from benefit payments.

    NB: You mention that you funds are mostly shares, so make sure any shares sold to pay benefits are realised after the account becomes tax exempt to avoid CGT.

    Make sure your binding death benefit nominations are updated.

    I won't write any more as it will start turning into financial advice which is not an area I work in.

    I also recommend joining a SMSF self-help group in your area.

    Taxpayers Australia also have a SMSF group.

    Cheers,

    Rob
     
  7. pthm

    pthm Well-Known Member

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    Thanks again, Rob, for your suggestions - all very helpful and valid. We will do more research - hubby said he has no intention of rushing into the pension, before we really understand the ins and outs well. Much appreciated the time you have taken to reply!
     
  8. manoj

    manoj Member

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    Dear PHM

    When you take a TRIP from a smsf - you get money from your pension account - this money is not tax free if you are under 60 - however you get 15% rebate if it comes from taxable source - if it comes from your own money (tax free - old name un-deducted) it is tax free to you.

    NO matter how you look at it - you must go on a TRIP as soon as you turn 55 years - you will save tax.

    Update your trust deed and convert your accumlation account to pension phase = doing it yourself at a website can be easy - try it
     
  9. pthm

    pthm Well-Known Member

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    Thanks, manoj, for your reply. I notice you are a "newbie". Welcome to the forum!

    A few weeks ago I attended a smsf seminar organised by the Australian Shareholders Association, and one of the speakers gave me a checklist for starting a pension from smsf. So, I am working on those at the moment - particularly updating the trust deed.
     
  10. manoj

    manoj Member

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    Dear Pthm

    The reason why i was interested in your thread was because i work as a technical director to TRUSTDEED.COM.AU Deeds you can trust and by chance whilst researching on installment warrants i ended up on this wesbsite and enrolled myself to this forum.

    I have over 19 years exp in SMSF as an accountant > adviser > now as an auditor. Mostly, i develop strategies and consult to other accountants and speak at various accounting bodies CPD monthly meetings on Super and pensions. Take it from me - the best time to go on TRIP is on your 55th birthday - For me 59 years, since i was born after 1960.

    On our website TRUSTDEED.COM.AU Deeds you can trust i have written many newsletters on TRIP - you can click on "previous newsletters" and read them and currently writing a newsletter on this issue. As it can be quite confusing for someone like you. Please register your self to this free newsletter service.

    I am speaking on this issue in Brisbane on 9th Dec - read the seminar tab on the website. If you need to speak to me - you know how to contact me! We live in a small world.
     
  11. pthm

    pthm Well-Known Member

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    Thanks, manoj. I have registered for trustdeed.com.au newsletters - and found them to be informative.

    I have 2 other questions and hope you can give your views:

    1. As you know, super funds all suffer losses in this market crisis. Our fund has incurred a capital loss of about $20K (this is real loss, not paper loss). If we convert our fund to a pension phase (ie we take a pension out of our smsf), how can use the capital loss? Is it lost in the conversion and can never be used in anything else - because earnings in the super fund in pension phase are free from tax? Or, can we transfer the capital loss in the new accummulation fund for new contributions? It is a very tricky situation - should we defer going into the pension phase and hope to sell some shares (when the market ever goes up) to offset the capital loss?

    2. Our super fund has just been audited and tax return filed for 30 June 2008 tax year. We are horrified by the accountant's fees, and not sure if they are in line with market. We pay about $1,650 for the tax return, and $550 for the audit of the fund. Our fund is small and only invests in the share market (no fancy transactions) and we keep very good records. Last year we paid about $1,200 fees for tax return and audit. Are we paying too much this year? Or?
     
  12. manoj

    manoj Member

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    Dear Pthm

    A) Since '08 accounts are done - you must go on pension on 1st July 08

    Any capital loss is capital loss of the fund and will be carried forward for ever - i think you are intending to be on Transition pension. ...

    Please note that capital loss can never offset tax on income - capital loss can only help to reduce future capital gain. Your fund will tax on new contributions irrespective of capital loses..

    This is what is going to happen to your fund - assuming you go on transition to retirement pension on 1st july 08.

    Say you have incurred $20K capital loss and you contribute say $50K in your accumulation account and say the fund makes another $25K income - dividend / interest etc..

    Your fund will pay tax on $75K @ 15% less any imputation credits etc

    As far as going on pension is concerned - You have two choices

    1) keep the two accounts segragated - which means separate bank account for accumulation account with separate investments etc... very easy in theory and very difficult to maintain....

    2) Mix all the money in one bank account and get an actuarial certificate Sec 283 certificates which costs less than $200 - what that means is that all the income is reported to the actuary with detail of the two accounts - in and out / new contributions and pension withdrawals etc - then actuary will decide how much % of total income is tax free and how much is taxable - then you apply this % in your super fund tax return... so much % of expenses are also not tax deductible - If there are capital gains or losses they will carry forward for future capital gains in the future -

    your problems are many - you should be thinking to convert your taxable component to tax free component - in death - non dependands pay tax death benefits 16.5% - you have to implement re-contribution strategy etc...

    B) Your accountant is not expensive - but not cheap - but your problem is bigger - does he understand any of the above - if he has less than 100 funds on pension - it is your time to say good bye to him

    Have a look at DIY Super Fund
     
  13. Rob G.

    Rob G. Well-Known Member

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    Was your realised capital loss specifically allocated to a particular member or group of assets ?

    Cheers,

    Rob
     
  14. pthm

    pthm Well-Known Member

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    Rob: No, the realised capital loss is actually on cashing out one of Navra's managed funds and it was not specifically allocated to a particular member of the SMSF.

    Manoj: Thanks for your reply. I will read it again, and may follow up with further questions.
     
  15. manoj

    manoj Member

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    pthm

    The point here is that once the assets are segregated than they belong to different members - if the moneys are all together - it is everybody's money - so allocated money in a smsf to one phase or to one member is very difficult

    You must go on pension - the loss is still in the accounts - once you go on pension - and we still have 7 months of the year left - you can further capital gains before the year ends - in any case - since most of the fund will be in pension - capital loss and capital gains means nothing.. as you pay no tax...



     
  16. pthm

    pthm Well-Known Member

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    Manoj:

    1. Yes, we understand that it is a nightmare trying to allocate assets in the smsf to individual members. Our accountant, when filing our tax returns, prepared a member statement for each - which in effect allocating the total asset to each based on contributions.

    2. I know you said we should start taking pensions now as we meet the criteria. But it is very unlikely that we will have any capital gains this year to offset against the "crystallised" capital loss - all our investments are in the REDS :mad: - it may take a few years to get back to where we were 12 mos ago?
     
  17. manoj

    manoj Member

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    Dear pthm

    What your accountant did was allocated the member contributions to each member and then income according to opening balance and maybe depending on daily balance method - that is fine for funds which are in accumulation phase. But when funds move to pension phase - some income is taxable and some is not if some members are still in accumulation phase - if assets are NOT segregated from pension assets then you need an acturial certificate which costs less than $200! Let me remind you that in theory segregation looks easy - but difficult when you actually do it.

    If there is a capital loss - remaining in accumulation phase will not make any difference - as staying in accumulation means that you can offset your capital gain (due to the loss) however you still have to tax on income like dividends and interest etc ... if you move into pension - you pay no tax - no tax on capital gain and no tax on income - so obviously it is better to move to pension phase - the downside is withdrawal and cash flow for withdrawal - but since you will be on TRIP - cash flow should not be problem as new contribution will constantly supply blood to withdrawals and all current investments can stay intact ... Here i am assuming that funds are NOT segregated - by the way for $200 it is not even worth it!

    As i mentioned earlier your problem is to find an accountant who can handle TRIP - by the way - you can also get co-contributions - depending on figures but maybe only for 2009 year as salary sacrifice will be added to adjusted income from 1st July 2009 ...

    Good Luck