What if your SMSF account exceed 1.6m?

Discussion in 'Accounting & Tax' started by PandS, 21st Feb, 2020.

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  1. PandS

    PandS Well-Known Member

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    Any tax expert can help with this question

    say you reach retirement age and start accessing your SMSF

    Say your SMSF has 1.4 mil in equity holding, and through hard work and luck that portfolio grow to 2m
    in a few years

    do you have to sell down the shares back to 1.6m to get tax free status? what is the tax treatment for the extra cash or what if you don't sell and hold on to portfolio of 2m and maybe bigger as time goes by?
     
  2. Ross Forrester

    Ross Forrester Well-Known Member

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    If you convert your $1.6m to a pension phase and the asset increases beyond $1.6m the balance is still tax free.

    you do not need to sell down.
     
  3. PandS

    PandS Well-Known Member

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    So i got to keep track of the dividend paying on a 2m portfolio work out the 400K that received the dividend and pay tax on that? and at what rate?

    and another question what if before I reach retirement and my SMSF balance has more than 1.6m ? what happen when I convert it to pension? same deal applied 1.6m tax free, the rest get tax?
     
  4. Ross Forrester

    Ross Forrester Well-Known Member

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    If you convert $1.6m super to a pension phase and the investments in a pension phase then generate a $400k dividend the dividend is free of tax. Any franked dividends attached to that dividend will be refunded in full to the smsf.

    if you have more than 1.6m in superannuation the excess will be left in the super fund in accumulation or can be withdrawn free of tax(60+)

    the monies in accumulation will incur tax at 15% on dividend income.
     
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  5. Ross Forrester

    Ross Forrester Well-Known Member

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    An investment advisor is a good person to talk to as to how much of a pension to take after looking at your future forecast investment returns.
     
  6. SatayKing

    SatayKing Well-Known Member

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    If I understand @PandS correctly the situation referred to is:

    Person retires at 60. SMSF value on date of retirement is $1.4m. Pension starts based on that amount, ie 4% of $1.4m.

    Then through wise investment decisions the fund grows to $2m in 5 years despite pension being drawn down. What happens?

    Nothing at all as far as I know.

    Pension at 65 yo would be 5% of $2m.

    Tax free.
     
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  7. JasonC

    JasonC Well-Known Member

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    Something I've wondered from an admin perspective, if you have $2m in a SMSF and are rolling the limit ($1.6m) into pension phase, does pension mode phase funds have to be separated within the fund from the rest of the funds?
    Or is the "rolling into pension phase" as paper transaction only which affects tax?
    And can you freely select what assets are rolled in the $1.6m pension and which are left outside?

    Regards,

    Jason
     
  8. PandS

    PandS Well-Known Member

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    Thanks, very helpful then I keep pump it up in my SMSF then
     
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  9. Ross Forrester

    Ross Forrester Well-Known Member

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    If you commence a pension in a SMSF you are not required to sell assets, transfer them or otherwise move the asset into a different name. The pension payment will require an asset to be transferred to you out of the fund.
     
    Last edited: 23rd Feb, 2020