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Super Snapshot August 2014

Clear Vision • Aug 03, 2014
This month we will expand on our age-based super strategies series by discussing the ‘withdrawal and re-contribution strategy’. This strategy is available for SMSF members who are over 60 and is a particularly useful tool for estate planning.

Cheers
Justin

 
This strategy is best presented as an example however there are some background facts about income streams (pensions) which are important to remember:
  •  Once an income stream commences,  no further contributions can be made unless that income stream is stopped.
  • Furthermore, on the date that the income stream has been commenced, the proportion of taxable and tax free balances is locked in and will not change for the life of that income stream.
  • When you begin to draw down on your income stream, this money coming out of the fund is made up of taxable and tax free components according to the locked in proportions. (e.g. if the Fund has 70% taxable balance, each payment will be made of 70% taxable money).

Worked example:
Terry is 58 and is currently drawing an income stream from her self managed superannuation fund. Terry’s income stream has a taxable percentage of 40%.  In the 2014 financial year, Terry makes a non concessional contribution of $150,000. This non concessional contribution (i.e. post tax contribution) will increase Terry’s tax free balance in the fund, however, this money is not automatically added to the Terry’s income stream as contributions cannot be added once the income stream has commenced.
There are several options available to Terry:

Keep the $150,000 in accumulation mode : this would mean that some of the income of Terry’s Fund will be taxable as it is no longer a 100% pension fund. The Fund would also need to apply for an actuarial certificate to determine the percentage of the fund’s income which is taxable. This strategy may be of advantage depending on Terry’s situation however assuming there is no other benefit for Terry to keep an amount in accumulation mode this is tax the Fund will be paying unnecessarily.

Stop the existing income stream, add the $150,000 contribution and commence a new income stream with the new balance : Terry’s current income stream has a taxable percentage of 40% whereas the $150,000 is 100% tax free money. If the income stream is stopped and the new money added, the new pension which is commenced will have a lower the taxable percentage. This essentially ‘muddies the water;’ as the taxable and tax free components of the pension are diluted. When this new pension commences, the taxable and tax free percentages are re-calculated at date of commencement. All withdrawals from the new pension will be made up of the new taxable to tax free ratio.

Keep the existing income stream and commence a second income stream with the $150,000 : Terry’s current income stream remains as is. The second income stream commenced with the $150,000 will have a 0% taxable percentage. This situation can now be used to Terry’s advantage. Each year Terry must withdraw the minimum pension amount from each of her pensions. Let’s say Terry’s minimum for the 2014 financial year is $10,000 however Terry withdraws $30,000. Terry must meet the minimum withdrawal requirement on both of her pension accounts however Terry has withdrawn $20,000 in excess of the minimum. Terry can now cherry pick which account the excess pension is allocated against:

  1. Because Terry is under 60 years old, her pension withdrawals are taxable in her own name. Terry could choose to allocate the extra $20,000 against her second income stream as this stream has a NIL taxable percentage. Under this scenario, Terry would only pay tax on the taxable portion withdrawn from her first income stream.
  2. Alternatively, if Terry has  minimal taxable income in her own name, she could choose to allocate the extra $20,000 against the her first income stream in order to lower the balance and therefore reduce the tax payable by any adult beneficiaries when she passes away.

Our strategy to run multiple pension streams allows for the most flexibility in terms of pension withdrawal and estate planning. In addition, with the proposed changes to the Centrelink deeming rules in January 2015, pensions commenced prior to 31 December 2014 will be grandfathered under the old deeming rules. If an existing income stream were to be stopped, new money added and then re-commenced this would count as a new pension and therefore be subject to the new deeming rules.

If you have any questions in regards to our pension strategies or would like further to discuss your superannuation options further, please do not hesitate to contact our office on 07 4688 2500.

 

Embracing the Bright Side: Finding Joy in Everyday Moments

By Caroline Gillies • 07 Mar, 2024
In a world that often feels chaotic and uncertain, it's easy to get caught up in the hustle and bustle of life, forgetting to pause and appreciate the simple joys that surround us. But amidst the challenges and hardships, there is always a glimmer of light waiting to shine through the darkness. Today, let's embark on a journey to explore the uplifting and positive aspects of life, reminding ourselves of the beauty that exists in every moment. Gratitude: A Key to Happiness Gratitude is a powerful tool that can transform even the most mundane of days into something extraordinary. Take a moment each day to reflect on the things you're grateful for, whether it's the warmth of the sun on your face, the laughter of loved ones, or the beauty of nature. By shifting your focus to the blessings in your life, you'll find that joy naturally follows. Embracing Imperfection Life is messy, unpredictable, and imperfect – and that's what makes it beautiful. Instead of striving for perfection, embrace the flaws and quirks that make you unique. Celebrate your successes, no matter how small, and learn from your mistakes with grace and humility. Remember, it's okay to stumble along the way – it's all part of the journey. Finding Joy in the Little Things Happiness doesn't always come from grand gestures or monumental achievements. Often, it's the little things that bring the most joy – a kind word from a stranger, a hug from a friend, or a quiet moment spent watching the sunset. Pay attention to the small moments of beauty and wonder that pepper your day, and you'll find that happiness is never far away. Spreading Kindness and Love In a world that can sometimes feel cold and indifferent, kindness is like a ray of sunshine breaking through the clouds. Make it a priority to spread love and positivity wherever you go, whether it's through a simple act of kindness or a heartfelt compliment. By lifting others up, you'll find that you lift yourself up in the process. Cultivating Inner Peace True happiness comes from within, rooted in a sense of peace and contentment that transcends external circumstances. Take time each day to nourish your mind, body, and spirit – whether through meditation, mindfulness, or simply taking a walk in nature. Cultivate a sense of inner peace that will sustain you through life's ups and downs, allowing you to navigate challenges with grace and resilience. Embrace the Journey Life is a journey filled with twists and turns, highs and lows, but it's also a journey filled with beauty, wonder, and endless possibilities. By embracing the bright side of life, finding joy in everyday moments, and spreading love and kindness wherever we go, we can create a world that is a little brighter, a little kinder, and a little more beautiful for us all. So let's embark on this journey together, with open hearts and open minds, ready to embrace all that life has to offer.

Boosting Your Superannuation: Seven Powerful Strategies

By Caroline Gillies • 22 Feb, 2024
Boosting Your Superannuation: Seven Powerful Strategies

Changes to Company details and ASIC – How to avoid a fee

By Caroline Gillies • 19 Oct, 2023
When it comes to being a Director of a company, there are administrative requirements that must be complied with, including keeping ASIC in the loop. We all hate paying unnecessary fees, and ASIC loves to charge fees. To avoid late fees, ASIC must be told about any changes to company details, including your business or residential address, within 28 days. If your company's information changes, please let us know so we can notify ASIC on your behalf. Example: Jarryd gets a late fee Jarryd recently moved his company to a new storefront. In the rush of changing to his new principal place of business, he forgot to update his address details with ASIC. A month later, Jarryd logged into his online account to change his address to reflect the address of his new principal place of business. Because it was outside the 28 day timeframe, the company was charged a $93 late fee. If he had waited longer and lodged the change of address more than a month late, the company would have been charged a $387 late fee. To avoid fees in the future, Jarryd realises it's important to update his details as soon as they change. In summary, be like Jarryd and realise the importance of advising Clear Vision Accountancy Group of any changes. Example supplied by ASIC
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