Pension Phase

Discussion in 'Superannuation, SMSF & Personal Insurance' started by money, 16th Nov, 2020.

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  1. money

    money Well-Known Member

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    Homer wants to reduce the “taxable component” of his SMSF totalling $220k. He is still receiving compulsory super paid by Mr. Burns.

    In June 2019 Homer does a re-contribution strategy taking out $100k then puts it back in as a non-concessional contribution. In July 2019 Homer does the same strategy again, then immediately starts a pension with the $200k total. This leaves Homer with $20k sitting in accumulation phase.

    During the 2019/2020 financial year Homer's share trading in his SMSF makes a $30k loss based on his portfolio valuation on 30th June of each of those years. This means that a big portion of the losses won't be able to be offset with whatever is in pension phase.

    1. Would Homer have been financially better off NOT going into pension phase in July 2019 (even after doing a $200k re-contribution strategy) and just leaving the whole $220k sitting in accumulation phase? Is there much of a tax difference?

    2. When working out the profit/loss made on 30th June, is it based on the Portfolio Valuation provided by the broker showing the total holdings of both shares held & the cash held or only based on the total holdings of shares?
     
  2. Paul@PAS

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

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    As we dont know Homers age, taxable income or anything else its impossible to answer any specific questions. It would be financial advice. A financial adviser may even suggest Homer wind up the SMSF and invest in his own name or may recommend that the SMSF be retained as Marge is a member too and there is a broader strategy around reversionary pensions and more.

    I do observe that the recontribution strategy is flawed and that isnt a sound way to do it. It could leave a larger taxed element if adult kids were to inherit on Homers death
     
  3. money

    money Well-Known Member

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    Could you please go into more detail how a larger taxed element could arise if adult kids were to inherit on Homers death?

    I thought one of the main points of a recontribution strategy (for members between 60 and 75 years old) was to reduce the "taxable component" of a member's balance (Homer) to as close to zero so when they passed away, if the super were to go to a non-beneficiary (adult child) then the adult child could potentially receive this tax-free. In addition to income derived on the pension while Homer was alive will be entirely tax-free.

    https://growsmsf.com.au/re-contribu...indow-created-with-bring-forward-rule-change/


    The Recontribution Strategy - SMSF Review

     
  4. Paul@PAS

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

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    You will be adding $100K tax free to the untaxed element of $120K.
    If you maintain the elements in seperate accounts it is more direct. Its like adding water to cordial and then wanting to extract the water (only) again the second time. You cant ever reduce the untaxed elment to $0 with your proposed idea. The solution can be to effect a strategy over two financial years - ie June and July 2021 and never allow old accumulation and new accumulation meet until its all washed and done. But it important to look at big picture eg spouse etc. ie a whole plan not a member specific plan. A person aged 75 for instance may be unable to effect the strategy. Age 65-74 perhaps but with conditions. Depending on investments too it may be difficult. And if the member had no other assets or retirement income the merits of maintaining a smsf could be unnecessary.

    The best recontribution strategies occur before age 65.

    Financial advice from websites that are based on 10 year old law makes poor guidance
     
  5. money

    money Well-Known Member

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    Ok thanks :)
     

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