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Super Snapshot – June 2014

Clear Vision • Jun 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

 
Recently we featured a Super Snap Shot article in regards to different types of contributions. Here’s a quick recap:  Concessional contributions are contributions which are made from pre tax money . When you make a concessional contribution to your fund, the fund pays tax on this amount at a rate of 15%. Consequently the contributor (usually your employer or in some instances, you personally) can claim this amount as a deduction. Concessional contributions include: Superannuation Guarantee Contributions (that is, the 9.25% paid by your employer), salary sacrifice contributions and certain types of personal contributions. Non concessional contributions: are contributions made from post tax money . These contributions are not taxed when they are received by the superannuation fund as they have already been taxed in your hands. 

The type of contribution made is very important as this will govern how the money is held in the superannuation fund and ultimately, the taxation treatment when the money is paid out. Concessional contributions (pre tax contributions) will add to your taxable component. Non concessional contributions (post tax contributions) will add to your tax free component.

Example:
Terry is 62 and is the sole member of her superannuation fund. Terry is a widower and has 2 adult children who will receive all of Terry’s superannuation balance when she passes away. Terry works 3 days a week for her company Tex Pty Ltd. Tex Pty Ltd pays Terry an employer contribution of $25,000 in the 2014 financial year. Terry also makes a non concessional (post tax) contribution from her personal money of $5,000. Terry’s $25,000 employer contribution will increase her taxable component, Terry’s $5,000 non concessional contribution will increase her tax free component.

Pension Commencement

Once an income stream has been commenced the proportion of taxable and tax free balance on the start date of the income stream are locked in and will not change for the life of that income stream.  When you begin to draw down on your income stream, the money coming out of the fund is made up of taxable and tax free components in proportion. (e.g. if the Fund has 70% taxable balance, each payment will be made of 70% taxable money).For members over the age of 60, the taxable vs. tax free proportions do not have a direct tax effect as ALL withdrawals are tax free. There is however, an indirect effect and this arises when Terry passes away. Upon death, Terry’s two adult children are non-dependant beneficiaries for tax purposes and therefore are liable to pay tax on the taxable component of Terry’s superannuation balance.

The Withdrawal and Re-Contribution Strategy

Using the withdrawal and re-contribution strategy, Terry’s taxable and tax free balances can be ‘refreshed’ so that her beneficiaries don’t receive an unexpected tax bill with their inheritance. A withdrawal, re-contribution strategy cycles money out of the superannuation fund as a income stream payment and then immediately deposits it back in again as  a non concessional contribution. A new income stream is immediately started on the non concessional contribution on the date of deposit to isolate this money and lock in the 100% tax free status. Because the money is deposited as a non concessional contribution, no tax is payable by the Fund and because the member is over the age of 60 at the time of withdrawal, no tax is payable by the member. In addition, neither party is better or worse off as the money ends up where it started – the benefit will be to any adult beneficiaries of your superannuation benefits when you pass away.

Trustees should note, while the actual process may appear simple enough, throughout this process, care needs to be taken in regards to optimum timing, maximum withdrawal limits, non concessional contribution caps and eligibility to make contributions as well as preparation of new pension documentation. Please do not attempt this strategy without contacting us. Harsh penalties can be imposed by the ATO for exceeding contribution caps or early access to superannuation balances including taxes of up to 93%! We will not only ensure that this strategy is right for your situation but also guide you through the process to ensure everything is conducted in accordance with tax and superannuation legislation.

If you are interested in the above strategy or would like to discuss how your superannuation can work harder for you please 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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