SMAS No Income and Capital gains tax over 65

Discussion in 'Superannuation, SMSF & Personal Insurance' started by redsquash2, 19th Feb, 2020.

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  1. redsquash2

    redsquash2 Active Member

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    What is one of the better ways to make sure no income tax tax or Capital gains tax is paid on the SMSF investments?

    Two parties in a SMSF .

    One person is over 65, part way through the financial year and the other
    60 years old partway through the financial year.
    The Total of all superannuation accounts combined is well below $1 million.

    Both parties also have QSuper accounts.


    I believe tax is not paid on investments for those over 65 which is why I ask.


    Terminating the fund and transferring to each individuals QSuper account could be a strong option, but this isn't the main thrust of the question at the moment.
    Thanks in advance
     
  2. Ross Forrester

    Ross Forrester Perth business advisor and founder

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    If you are over 60 in a superannuation pension when the pension commencement balance is under $1.6m (with transitions for people when TBAR started) you will not incur Capital gains tax.

    so in answer to your question - just make sure that the 60 year old is retired, started a pension and has properly noticed the smsf trustees.

    in terms of how much to withdraw from the pension or what asset to sell to access pension cash: you should contact a licensed investment professional.
     
  3. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Age alone is not the qualifying factor for super tax changes. Superannuation is split between three account types
    - Accumulation accounts
    - Pension accounts that are pre 60 years of age; and
    - Pension accounts that are 60 and over
    Other rules may limit IF a pension is permitted. eg I just completed a fund where the member has $1.6M in defined benefit commonwealth super so they are not permitted to have a pension in a smsf at all.

    When members in a smsf are both 60+ the easrnings on pension balances are 0% in most instances and it can be effective to ensure all balances are maximised to pension accounts to minimise accumulation balances as this would leave a % subject to tax (based on a actuarial certificate). There may also be strategies around segregation of assets if one member is aged 60+ and the other younger.

    Take care that proportioning affects all tax. The % subject to pensions is exempt where the accumulation is not. Ina year a pension commences there is also a issue with apportioning as you cant draw a line and have pre-pension tax on CGT events and post pension. So if a pension starts half through the year and a CGT event occurs the next day then 50% would still be taxed.

    If the fund holds an asset with a large unrealised gain it would be wise to confirm the tax position etc prior to selling to ensure the CGT is exempt. This is especially the case when a rollover to another fund is contemplated. Its also critical that the fund pays the minimum pension or the whole pension is then non-complying and makes the earnings taxable.
     
  4. redsquash2

    redsquash2 Active Member

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    My question about no tax on on income or Capital gains was premised on the assumption that no funds would be leaving the SMSF.
    How does that affect your response?
    Is your response the same if it is a SMSF or a large fund like QSuper
    I think the take Home message if I understand correctly is to avoid having funds in an accumulation account.
     
    Last edited: 22nd Feb, 2020
  5. Marg4000

    Marg4000 Well-Known Member

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    To take advantage of tax free status, the funds must be in a pension account with mandated minimum draw-downs, so funds would have to be leaving the SMSF and being paid to you.

    Same conditions for all types of superannuation funds.

    As always, take professional advice before acting.
     
  6. redsquash2

    redsquash2 Active Member

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    Thanks for the info draw down. That was the clarification I was seeking,
     
  7. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Tax free earnbings occurs when 100% of the fund is applied to paying pensions to persons aged 60 or over for 365 days a year and none of them have super balances of funds elsewhere which triggers them to apply the $1.6m cap.

    Defined benefit funds can really complicate the tax free element in other super funds. eg I have a client with Commsuper with a notional DB balances of $1.6M+. The SMSF cannot choose to pay a pension as the cap is exceeded ....even if the member wanted to.
     
  8. SatayKing

    SatayKing Well-Known Member

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    Not rare situation especially in Canberra. Impacts those who have yet to leave the workforce and established a SMSF before the May 2016 budget.

    Awkward but a nice problem to have depending on one's point of view.
     

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