We recently held our annual Superannuation Strategies Seminar.
From the feedback, our attendees told us that the day was a great success:
“It was brilliant – covered a lot of topics in one day”
‘Fantastic seminar with great presenters”
“Very professional and all presenters – thoroughly enjoyed the content”
“You guys have nailed this format!”
There were some great questions asked during the seminar and we have chosen the best ones for you…
Accumulating Wealth
If the loan documents don’t state limited recourse – what is the “fix”?
I am assuming here you are referring to the bank & 3rd party loans …. in this situation I would recommend the loan get re-financed to correct the terms. The worst scenario I have seen is a client setting everything up but then the loan given to the Bare Trust company itself (with no SMSF reference).
If a related party loan I would rectify immediately based on the terms available within the loan agreement.
In relation to LRBA, when the loan is exhausted, can we retain the title of the property & listed shares in the bare trustee’s name or is it mandatory to transfer to SMSF’s trustee name?
Is there a time limit this must be executed and any stamp duty implications in regard to the property?
If the shares are retained in the bare trustee’s name (if allowed), can the shares be sold in drips and drabs when the LRBA is fully repaid?
There is no rule but always check what the Bare Trust allows – however practically it makes sense to transfer into the SMSF trustee names once all debt is paid off. Especially with property assets it makes transacting down the road smoother.
Additionally, clients may have ASIC costs for the bare trustee they can eliminate i.e. annual ASIC fees, greater complexity in the structure. No stamp duty applicable (this is the role of the bare trust deed arrangement).
Is there any issue with the SMSF acquiring 50% of units in a Unit Trust that was owned by a non-related SMSF?
There’s no issue in acquiring units in a UT from a third party (would naturally need to ensure compliance with the investment strategy etc).
What you would need to consider though is if the acquisition makes the UT a related trust, e.g. if the Fund already owned (say)10%, and then it is buying 50% from an unrelated party, then the total SF unitholding will now be over 50% and the Trust would become a related trust, and need to comply with the conditions contained in the SIS Regs (e.g. no debt, no investments in other entities etc).
Also, assuming the UT holds land then also be conscious of potential land rich trust provisions (differing state to state) that may impose duty on the transaction.
SMSF invest in related UT . Can UT borrow and build properties?
If the SMSF trust investment is after August 1999 then it needs to comply with the SIS Regs in 13.22 and so a related trust cannot borrow and the asset (i.e. property) cannot be used as security. If the Trust investment is pre-August 1999, then borrowing is possible.
In House Assets
So, rectifying a bank overdraft in the unit trust is not sufficient to rectify the overdrawing. How can this be rectified? Closing the bank account? Winding up the unit trust? Selling the units to another party? Hopefully something not so harsh?
Unfortunately, regarding related trusts, these somewhat trivial breaches create heavy consequences and the trust would be tainted forever.
Are there any issues if the unrelated unit trust which has loan from family trusts of the SMSF members, the Unit Trust does not distribute to the SMSF but use the profit to reduce the loans?
So effectively, the SMSF has increasing amount of Distributions receivable as they are not receiving cash distributions as the cash is used in the Unit Trust to pay down the loan. I think Jason mentioned it needs to be paid to the SMSF, then subject to meeting COR withdraw the cash from the SMSF to pay down the loans.
How does this work though, how do you reduce the loan in the UT as the money did not flow back to the UT?
There’s a couple of things to consider here. Firstly, if the Trust is an unrelated Trust then there are no issues with the approach (although I would throw caution to the investor as a large receivable would be building up – this may have a significant impact on the cash flow for the SMSF).
Where we have a related trust however a build up over time of distributions unpaid (i.e. receivable) would become a breach of the SIS Regs 13.22D. So essentially it is possible but only if we deal with an unrelated trust.
Can an unrelated unit trust – with 3 or 4 unit holders – become a related unit trust because the unit holders – who may be members of the super funds that own units – go into business together?
It is possible for unit holder “status” to change over time and so yes you may have an unrelated trust become a related trust due to changes in the relationship/affairs of the respective unit holders – some examples may be where unit holders enter into a partnership together, or where unit holders become related by marriage (or marriage of siblings, etc). Conversely, you may have a related trust that becomes unrelated (for example when business dealings between unit holders cease).
Preparation for Retirement
If you have 2 pensions in a SMSF, can you choose to pay pension from pension 1 only and leave pension 2 out? How does the tax works there?
Each pension will need to ensure its annual minimum is satisfied to ensure that ECPI can be applied against it. The extension then is to consider how to treat amounts in excess of this annual minimum – where the pensions have different taxable & tax-free components for example.
Residency
If the trustees / members leave Australia permanently, how long do you have until the fund must be wound up?
There is nothing in the legislation that specifically mentions a timeframe. As with a lot of things, they often say, as soon as practicable. If the decision is made beforehand to permanently leave, I would get the fund issues sorted before leaving.
If it was originally a temporary move, that converts to a permanent move, I would look to get the fund wound up as soon as possible. In the interim, you may appoint an enduring power of attorney to act in place whilst going through the process. If the changes that were announced in the 2021 Budget get legislated, it may make the whole process a lot easier.
If the fund assets are rolled over out to a SAF and the SMSF wound up, I presume that is a CGT event in the SMSF and there is no CGT rollover relief?
If you are going to go down the road of a SAF, this is just appointing an independent trustee. The fund would not be required to be wound up. The assets would need to be put into the name of the trustee (which you might put a declaration of trust in as an interim measure).
As the assets would not need to be sold, it would not constitute a CGT event. Similar concept of changing from say individual to corporate trustee. You would also need to think about the cost of the independent trustee when considering this option.
Death Issues
To comply with the law, how long do we need to update SMSF deed?
As a rule of thumb at least every 5-7 years. Unless there has been a major change in legislation. I would suggest a deed older than 2017 should be updated.
As an alternative would you consider the parents paying out some of their pension to the children to create an inter dependency relationship that would allow ultimate death benefit payouts on the deaths of the parents to the adult children tax free?
This is a potential alternative. You would need to ensure that a true inter-dependency relationship is created, and it is not seen as ad-hoc gifts. It is definitely something to consider.
Had in mind regular meaningful payments throughout the years that could be used by the adult children to help with say school fees for their children.
The test is essentially the person receiving the financial assistance would not be able to maintain the same standard of living if they were not receiving the payments.
So, if we can show this, it would be a potential alternative strategy.
Is death benefits tax 17% if goes to LPR or 15%?
15% death benefits tax when paid to LPR (estate). Add 2% when the death benefits are paid directly out to dependents (not via estate).
How quickly do you have to pay out the death benefit?
As soon as practicable. This generally means approx. 6 months, unless there is a genuine reason it cannot be paid out – i.e. property on the market to be sold etc.
We are guarantors on our adult sons housing loan and he would not have a home without that. I wonder if that is interdependency?
It is an interesting point. There was a case where a son was receiving Centrelink benefits, and living at home, and this was deemed to be interdependent on the parent, even though the parents were not making the payment. I imagine there is a lot of people that act as guarantor for their children.
I don’t believe this would be enough, as you are not making regular payments. But an interesting thought though.
Getting Money Out of Super
Do you have to meet a COR twice if moving from FT to PT employment if over 60yo? I understood the legislation referred to ceasing an employment arrangement. If you leave an employer after 60yo, does the whole super balance not become accessible?
Yes, the whole super balance becomes unrestricted once the member satisfies a COR. Should they go back to work in the future, another COR is required to access those further benefits made to super during that time.
How are the payments from SMSF that is in Pension Phase treated and processed when Fund sells Assets and members want to wind up the Fund?
Pension payments are treated no differently where a fund is winding up. The pension continues until just prior to wind up after all assets are sold and distributed (whether rollover or payout to member). All if 100% in pension, then CGT is exempt.
If min. pension not satisfied, only the pension balance of the relevant pension account is commuted back to accumulation on 1st July i.e. when the member has five pension accounts.
Yes, that’s correct. If other pensions can be satisfied, only the pension that fails is commuted on 1 July. Note for TBAR the debit occurs on 30 June.
Lump sum payment reduces the Transfer balance cap – Is it right? Meaning the member can put extra in later?
Where a ABP is commuted and lump sum paid, then yes. This frees up TBC space for future pensions to commence. Where a lump sum is paid from an accumulation account – there is no impact on TBC.
If the member chose to commence a pension by themselves and they don’t want financial advice. Is it ok?
I would be careful with this. If they have made the decision to commence the pension and they go and set up all the paperwork themselves, I would document in a file note that you have spoken to them about getting financial planning advice, what the benefits are and how it assists them in making sure all considerations have been made.
If they still decide not to get advice, this should also be documented in the file note.
Can you split one withdrawal amount to pension and lump sum payment?
It depends on the nature of the withdrawal. If it’s part of a regular income stream paid each month narrated, pension, then no this won’t be possible. Otherwise, yes, that could be OK.
If the member has a ABP and accumulation account, can the excess pension withdrawals treated as lump sum benefits from accumulation account rather than treat as lump sum payment from pension account.
Absolutely, this has the benefit of reducing income tax in the fund. If these benefits have a ‘taxable’ component, then both elements are being reduced (i.e. income tax and estate planning wise).
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