Non concessional contributions to super

Discussion in 'Superannuation, SMSF & Personal Insurance' started by John Smith, 20th Jul, 2020.

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  1. John Smith

    John Smith Well-Known Member

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    I wish to make some non concessional contributions to my wife’s super account. I want to place 400k into her super across two years by placing 100k in June 2021, and 300k in July 2021 by using the bring forward rule. Am I right in assuming this is a legitimate strategy?
    I need to access these funds by either transferring money from my accumulation account or from assets outside super. There will capital gains tax implications to consider if taken from the sale of assets. If money is taken from the accumulation account, I understand that the only way any money can be added to this account from this point ( as it is over 1.6 m) is via concessional contributions.
    Any thoughts?
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Depends upon her age. If her total super balance is $1.6m her cap is $0 and NO contribution is permitted. 47% tax applies as a penalty. If you take $400K from your accum account (not pension) there could be tax issues too. Depends on age once again (your age)

    Financial advice would be prudent especially if you are seeking to do this through your super account ....Yes tax considerations for realising to cash could be a issue.
     
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  3. John Smith

    John Smith Well-Known Member

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    Hi Paul.

    I will be 62 with a 2 mill balance and my wife will be 59 with 1.1m. The aim is to get her balance close to the 1.6m cap.
     
  4. Superman__

    Superman__ Well-Known Member

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    Your strategy is sound at a high level.

    Ideally when the NC contributions hit your wife's account, a pension should be commenced immediately to lock in the tax-free components which will help with your estate planning (death tax!).

    You've not indicated your whether you are retired, working or what the preservation status of your benefits are as this has an impact. Likewise in regards to potential CGT and using concessional contributions.

    Difficult to say exactly what's best without having a detailed overview of your situation (which is not appropriate if a public forum like this!).

    A re-contribution strategy may also be relevant dependent on your taxable / tax-free components.

    As Paul said, advice is worthwhile and prudent as there are many other nuances which could impact your strategy positively or negatively - which is why any professionals on here are typically going to be....helpful, but guarded in their responses.
     
  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Take care with the suggested pension. If its a TRIS its non-commutable but a pension withdrawal may be simple to assist a recontribution for another member. Start date for the pension/s is important too. The CGT realisation concern needs to be explored too. Starting a pension other than on 1 July of a year could trigger proportional CGT.
     
  6. John Smith

    John Smith Well-Known Member

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    Hi “Superman”.
    I am intending on retiring in the first half of next year and disposing of an asset in the second half being in the next financial year thus the reasons for the timing of the super contributions.
     
  7. John Smith

    John Smith Well-Known Member

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    Hi Paul.
    Apologies for my late reply however could you please explain the ramifications of your last statement for me? When I was going over old ground, I only just picked this up. Thanks in anticipation.
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Many people incorrectly believe that once a pension starts that CGT events are tax free. In a full tax year that is correct. However for a fund that commences a pension during the year and after the pension commences a asset sale occur will NOT be CGT exempt. Total income for the year must be apportioned on a actuarial basis.

    eg Fred & Mary have a SMSF and both realised on 1 October that they can commence a pension and turn off tax. So they do without seeking advice. Then in December Fred sells down all the shares and runs to cash as he hears about a new virus sweeping China. He is so happy knowing that the $100K of CGT profits are tax free. He later has the fund financials, tax and member reports prepared and is dismayed to see tax is payable. The fund income includes the $100K non-discounted gain and approx 1/4 (1 July to 30 Sept = 92 days out of 366) is taxable based on the number of days prior to the pension commencing being taxable. Fred calculates this misunderstanding cost $3750 approx.

    I have seen people start a pension in June and sell assets thinking its tax free to realise there is little if any exemption that applies so late in the year eg 11/12th is taxable. And I have seen tax advisers advise that issue and they didnt know. Anyways wise to ensure you enagage with a smsf savvy tax adviser. Starting or ending a pension can trigger tax consequences where the full year is not exempt.
     
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  9. John Smith

    John Smith Well-Known Member

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    Thanks Paul.

    My wife and I have our super in an industry fund. I haven’t seriously entertained the thought of starting a SMSF due to reasonable returns earned and avoiding the hassle of the associated administration. In light of what you have stated, how do your thoughts affect us. I will go into pension mode in July 2021.
     
  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I cant advise. The same issue affects members of any type of fund but unlike a SMSF which can have accumulation and pension balances a industry or public offer fund cannot and the manner of how tax is incurred on investments is hidden and not as direct but will be directly charged as tax or as reduced earnings. The mechanics of each fund and how it moves from accumulation to pesnion is a matter for that fund and its PDS
     
  11. John Smith

    John Smith Well-Known Member

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    Paul, your response has confused me.
    My understanding of superannuation in an industry fund is that you can hold both a pension account and an accumulation account at the same time. Are you saying that you can’t? If you have more than 1.6m in super and are retiring, I would set up a pension account with 1.6 and the remainder would be held in accumulation. Surely this is correct.
     
    Last edited by a moderator: 11th Aug, 2020
  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Well there you go you learned something. Pension and accumulation funds can look like the same fund but wont be. In ways they are sub-funds for trust purposes with different rules. Most members wont notice it. Some funds they will esp untaxed element and defined benefit schemes.