Depot Superannuation - Back to the Future Seminar

@business_DEPOT businessdepot businessdepot.com.au

PART 1 – WE’RE GOING BACK

• A quick trip back to the super rules pre July 2007

PART 2 – WHERE WE ARE NOW

• The golden years

PART 3 – A LOOK TO THE FUTURE

• Where the changes announced on budget night will take us

• Aged based limits – contributions

• Surcharge if earning over $99,710

• RBL’s - Reasonable Benefit limits

• Complex Pension rules

• Tax treatment on pension payments

• Compulsory cashing out

AGES DEDUCTIBLE[CONCESSIONAL]

UNDEDUCTED[NON-CONCESSIONAL]

Under age 35 $15,260 No restriction

35 – 49 $42,383 No restriction

50 and over $105,113 No restriction

2006/2007 FY REASONABLE BENEFIT LIMIT

Lump Sum $678,149

Allocated Pension $678,149

Term Allocated Pension $1,356,291

Lifetime Complying Pension $1,356,291

• Contribution caps

• Div 293 [reinvention of surcharge]

• No Reasonable Benefit limits / No Compulsory cash outs

• Pension rules

• Tax treatment

• Borrowings

AGES CONCESSIONAL [PREV. UNDEDUCTED]

NON-CONCESSIONAL[UNDEDUCTED]

Under age 49 $30,000 $180,000 OR$540,000 Bring forward option

50-64 $35,000 $180,000 OR$540,000 Bring forward option

65 and over $35,000 $180,000 No bring forward option

• Limited recourse borrowings were introduced in 2007

• This allowed super fund’s to once again borrowing to purchase property.

• Combined with the contribution caps this and the removal of RBLs the property

market for super funds began to increase again

• Contribution caps - $25,000 for all

• $500k life-time cap

• 5 year rolling cap – New “Aged based limits”

• Works test gone

AGES CONCESSIONAL [PREV. UNDEDUCTED]

NON-CONCESSIONAL[UNDEDUCTED]

Up to 74 $25,000 [from 1 July 2017] $500,000 lifetime limit [from 3 May 2016, but includes all contributions from 1 July 2007]

75 and over Compulsory super guarantee only

Not eligible to make contributions.

• We effectively are looking at a $1.6 million reasonable benefit limit

[this or Labour’s taxed pension from $75,000]

• Any balances in excess of $1.6 million will need to remain [or be returned] to

accumulation phase and taxed at 15%

[can still take tax free lump sums from accumulation phase]

SAME PENSION RULES APPLY

• A minimum percentage required to be drawn based on your age, but only a maximum if

paying a transition to retirement pension

• [Except no tax exemption for a TTR]

• No compulsory cashing [so could leave your super in a 15% tax bracket until you pass away]

• Planning out repayments for any old/new borrowings

• Government Relief?

• Size of property in borrowing & reduced tax benefits

• Everyone generally held off building up their super until closer to retirement

• Partly because the contribution limits were age based

• Partly because they didn’t want to exceed their RBLs

• They tended to focus on building up wealth in and outside of super

• If they had an RBL issue they would delay commencing a pension as much as possible

• Would make sure they were “employed” to avoid compulsory cashing

• Everyone just built up their super as much as possible

• If close to retirement or in retirement you would maximise your concessional and non-

concessional contributions

• Started a TTR as soon as you could [especially at age 60]

• But then had to work on strategies to get super tax effectively to next generation

• And if possible keep it in a super environment

• Draw min pension only on $1.6m

• Take extra payments as Lump Sum from accumulation

• Use non-concessional caps where you can

• Contribution split concessional contributions

• Small business CGT retirement exemption – consider who should make the

contribution

Super Balance $1,800,000 $600,000

Concessional Contribution $35,000 $35,000

Less: Tax [$5,250] [$5,250]

Contribution split [$29,750] $29,750

Super balance $1,800,000 $659,500

Super Balance $1,800,000 $600,000

Gain on sale of business / property $0 $500,000

Super balance $1,800,000 $1,100,000

• Your $1.6million will be assessed on 1 July 2017, or at the time that you commence

a pension.

• So if you assets take a sudden dip because of the market [that might be the right

time to commence a pension]

• Transition to retirement pensions will lose tax exemption. So it will be crucial to

consider if you can meet another release requirement to commence an accounts

based pension instead

• Pick and choose which assets are in pension phase and which are in accumulation

For example:

You might want your fixed interest assets in accumulations[2% return]

High growth and high yield in pension phase

Or

Put property in pension phase if planning on selling in near future

• But don’t forget to allow for cash flow to pay a pension

Value Return Unsegregated[tax exempt income]

Segregated[tax exempt income]

Property $1,200,000 $84,000 $51,660 $84,000

Shares $400,000 $28,000 [including FC]

$17,220 $28,000

Fixed interest $1,000,000 $25,000 $15,375 $0

Total $2,600,000 $137,000 $84,255 $112,000

TAX SAVING $4,162 PER YEAR

Value Return Unsegregated[tax exempt income]

Segregated[tax exempt income]

Property $1,200,000 $84,000 $51,660 $84,000

Capital Gain on Property

$400,000 $246,000 $400,000

Shares $400,000 $28,000 $17,220 $28,000

Fixed interest $1,000,000 $25,000 $15,375 $0

Total $2,600,000 $537,000 $330,255 $512,000

TAX SAVING $19,562 IN THE YEAR THE PROPERTY IS SOLD

1500

1550

1600

1650

1700

1750

1800

1850

1900

Year 1 Year 2 Year 3 Year 4

GROWTH OF PENSION ACCOUNT

Unsegregated Segregated

• $1.6million earning tax free income - can’t beat that!

• 15% tax on earnings on the excess of $1.6million - also pretty good!

• [except potential death benefit tax]

• Maximise your individual tax free income rates

• Removes death benefit tax issue

• Less legislative requirements

• Can always pull money out of super tax free after 60 [if retired]

• Cheaper to run then SMSF BUT 2 separate accounts

Combined Super Individual / Trust Assets

Balances $4,000,000 NIL

5% Return $200,000 NIL

Tax consequences $6,000 NIL

Combined Super Individual / Trust Assets

Balances $3,200,000 $800,000

5% Return $160,000 $40,000

Tax consequences NIL $NIL after tax offsets applied

Super Balance $400,000

Salary $0

Taxable capital gain $150,000

Concessional contribution [$125,000]

Taxable individual income $25,000

Retire from one employment role after age 60

• Makes it an accounts based pension instead of TTR

• Tips and traps

• Make sure you actually pay out all leave entitlement from that employment

• Have to be aged over 60 at the time of terminating that employment

• We still have 2 year of $30,000 or $35,000 concessional caps – use them!

• Then contribution split concessional contributions

• From 1 July 2017 with the works test removed more people can use concessional contributions [if

they have the income to deduct it against]

• Consider what entity is the best to make your contributions. [i.e. company tax rate is reducing, so

may be better making extra contributions from your personal cash and getting deduction in

individual tax return]

• Higher concessional contribution caps

• Lifting cost bases

• Could still get a year of Transition to Retirement pension in

• Election 2 July

• Looking at getting legislation by November at the earliest

• Senate??

• Is the $500,000 going to get through? Is it retrospective?

• Is $1.6m going to be enough?

• More aggressive or exotic strategies

• Deliberate non-arms length income?

• From 1 July accountants will need to be licensed to provide advice in certain areas

• Advice caught by the licensing legislation

• Pensions [initial, stop/restarts]

• Contribution strategies

• Borrowing arrangement

• Set up or wind up of a SMSF

• This legislation comes into play just when we believe clients will need advice more

than ever

• The changes to super have made it complicated

• Need to get the right advice to ensure you are on track

• Same valuable advice

• Same people

• New process

• Class Super – Understand how your SMSF is going ongoing

• Real time reporting!

• Day to Day / Monthly / Quarterly reporting

• Performance reporting against benchmarks

• Asset allocations

• This is going to be crucial moving forward

• Commencing pensions

• Being on track with contributions

• Tracking minimum pension payments

• Lump sum benefit payments will happen regularly and you will need to report

these every time. This means your accounts need to be up to date.

Information provided in this seminar and on this website is general in nature and does not constitute financial advice. Every effort has been made to ensure that the information is accurate, but information may become outdated as legislation and new government announcements are made. Individuals should not rely on this information to make a financial investment decision as it does not take into account their personal circumstance. Before making any decisions we recommend you consult a licensed adviser to take into account your particular financial situations and needs.Depot superannuation pty ltd is a corporate authorised representative [no. 1240831] of hunter green pty ltd AFSL 225962.

• Building & Construction• Property• Small to medium business

[email protected](07) 3193 30020404 869 255

@mgarrone

• SMSF Advice• Estate Planning Expert• SMSF Association Specialist

[email protected](07) 3193 3020

@megankellybD

Megan Kelly