Welcome to our first SMSF Q&A Corner!
In this segment, we aim to provide expert insights into the questions you may have. Whether you’re an experienced SMSF accountant or just dipping your toes into the realm of superannuation, our team at TAG is here to guide you through any challenges. So, let’s dive into our first question.
Remember, if you’re encountering a particularly challenging situation and could use some expert insight, simply shoot us an email at super@tagfinancial.com.au.
Q: Does the tax-free amount change over the life of a pension?
When you start a pension there is a % and an absolute amount shown as tax free and taxable.
Over the life of the pension do either of these stay the same i.e. does the % remain the same as the pension account balance goes up/down or do they both vary slightly as funds are drawn and asset values change.
And for an accumulation account does the tax free amount remain the same in absolute $ terms but the % decreases as the whole account balance goes up (after income and re-valuations etc annually).
Judith P.
Answer
Yes, the tax free component is crystallised when a pension is commenced. This remains constant over the life of the pension. Earnings allocated to the pension each year will also take the same proportion of tax free/taxable for the tax free component to remain locked in. The same applies for pensions paid from the pension also – the payment takes the same components.
For Accumulation accounts, yes, the tax free amounts ($) remains constant (when NCCs are made) but the percentage will change with the movement in the account balance.
Q: Implications of adding a new trustee when the SMSF invests in property?
I act for a SMSF with individual trustees, husband and wife. One of the major assets of the fund is a residential rental which has been owned for many years. The property deeds are issued in the joint names of the individuals.
The trustees wish to admit their son as a member of the fund. What are the issues regarding the property and the recorded name on the deeds. Does the Fund need to seek the property to be issued in 3 names or is there another way of achieving the admission of the additional member. If a conveyance of the property is the only option, does this trigger any CGT implications.
Robert J.
Answer
Yes, the property title should really be updated to reflect all 3 individual names (as trustees). However, it may be a good time to convert to corporate trustee (all 3 members are directors) and the company registered as trustee on title. There would be no further changes required if the membership changed. I just mention this as the title needs to change due to the 3rd member.
Updating the registered name on title of the property does not trigger capital gains tax and s33 of the Victorian Duties Act exempts stamp duty due to a change in trustee.
Q: The $3m cap and life insurance proceeds implications
With the new $3m cap coming in from 1 July 2025, I wonder how the proceeds of a life insurance policy proceeds on a member’s death would be treated where the member will have over $3m in their accumulated superannuation.
That if the member died post 1 July 2025, the life insurance policy is held by the superannuation fund and the proceeds of the life insurance policy are paid into the superannuation fund and the proceeds of the life insurance policy and the member’s accumulated balance was already over the $3m cap. Would that mean the insurance policy payout is part of the member’s account balance “increase” in the year and subject to the new tax? Let’s say the member’s spouse would be the recipient of the superannuation payout (including the insurance pay out) on the member’s death.
Be curious to know how the life insurance in super will be impacted by the $3m.
Andrew H.
Answer
From what I can see in the draft legislation, amounts received from death/permanent disability insurance proceeds are removed (i.e. it reduces the members balance for the purpose of the $3m threshold).
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