Superannuation Tips and Traps. Kim Guest / Tim Sanderson March 2014

Transcription

1 Superannuation Tips and Traps Kim Guest / Tim Sanderson March 2014

2 Disclaimer This presentation is given by a representative of Colonial First State Investments Limited AFS Licence , ABN (Colonial First State). Colonial First State Investments Limited ABN , AFS Licence (Colonial First State) is the issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale Pension and FirstChoice Employer Super from the Colonial First State FirstChoice Superannuation Trust ABN and interests in the Rollover & Superannuation Fund and the Personal Pension Plan from the Colonial First State Rollover & Superannuation Fund ABN and interests in the Colonial First State Pooled Superannuation Trust ABN The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our Investor Service Centre on All products are issued by Colonial First State Investments Limited. Product Disclosure Statements (PDSs) describing the products are available from Colonial First State. The relevant PDS should be considered before making a decision about any product. Stocks referred to in this presentation are not a recommendation of any securities. The information is taken from sources which are believed to be accurate but Colonial First State accepts no liability of any kind to any person who relies on the information contained in the presentation. This presentation is for adviser training purposes only and must not be made available to any client. This presentation cannot be used or copied in whole or part without our express written consent. Colonial First State Investments Limited 2014.

3 Tips and Traps Tip # 1 - Adjust contributions to make best use of the new concessional contribution cap Tip # 2 - Adjust contributions to make best use of the new nonconcessional contribution cap Tip # 3 Consider making personal concessional contributions for nonresidents Tip # 4 - Consider the reserve strategy in SMSFs to claim a double deduction for personal concessional contributions Tip # 5 SMSFs need to plan carefully for overseas absences Tip # 6 Review insurance in superannuation

4 Tip#1 Adjust contributions to make best use of the new concessional contribution cap Concessional contributions General cap $25,000 $30,000 Age 50 to 59 $25,000 $35,000 Age 60 or more $35,000 $35,000 Increase salary sacrifice amounts Review optimal amount in TTR pensions Review amounts outside super to fund salary sacrifice Increase personal concessional contributions

5 Tips for Concessional Contributions LISC Proposal to abolish from 2013/14 No point in low income earners making concessional contributions that reduce taxable income below $20,542* Save on Medicare increasing to 2% in 2014/15 Tax saving of 6% for clients on 19% MTR (21% - 15%) High income earners earning over 300K will pay 30% contributions tax Still worth it but not as good * Assumes not eligible for other tax offsets like SAPTO or pension tax offset

6 Tips for Personal Concessional Contributions 10% test No more than 10% of assessable income + reportable fringe benefits + reportable employer super contributions attributable to employment Only need to meet 10% test if employee for super guarantee purposes Don t actually have to receive SG (eg. Could earn <$450 per month) Directors are employees Employment termination payments count as income attributable to employment

7 Tips for Personal Concessional Contributions Strategies to meet 10% test Reduce employment income by: Ongoing vs lump sum leave payments Timing when to receive lump sum termination payments Timing when to cease work Increase assessable income by: Triggering capital gains Increasing dividends Lump sum super withdrawal between 55 to 60 ABP payments between 55 to 60

8 Case Study Meeting the 10% test - Timing retirement John is age 63 and retiring Unused annual and long service leave of $50,000 payable John would like to make a personal concessional contribution in 2014/15 to offset capital gains If John retires on 30 June 2014, even if the lump sum leave payments are not paid until 2014/15, they will not count as income from employment in 2014/15 10% test does not apply If John retires on 1 July 2014, lump sum leave payments would be attributable to employment in 2014/15 10% test applies

9 Case Study Does Jill meet the 10% test? Jill is age 58 and is both self employed and an employee Income from self employment $100,000 Income from employment $20,000 Jill would like to make a personal concessional contribution however her employment income exceeds 10% $20,000 / $120,000 = 16.67% If Jill withdraws $80,000 (100% taxable component) from her superannuation fund, she pays no tax however it adds to her assessable income $20,000 / $200,000 = 10%

10 Trap Super withdrawals under age 60 can affect tax offsets & benefits Taxable component included in assessable income, nil tax payable due to tax offset Super lump sums are the top slice of assessable income - they do not increase MTR on other taxable income What is affected? Spouse contribution tax offset Low income tax offset Family Tax Benefit Part A & B Childcare benefit Dependant spouse tax offset

11 Tip#2 Adjust contributions to make best use of the new non-concessional contribution cap Non-concessional contributions General cap $150,000 $180,000 Bring forward $450,000 $540,000 Wait to trigger bring forward in ? Wait until late June to see if Govt freezes cap again? To trigger bring forward must be age 64 or under at 1 July

12 Case Study How can Peter maximise non-concessional contributions? Peter is age 63 and retiring at age 65 Contribute now Time contributions 2013/14 $450,000 $150, /15 - $180, /16 - $540,000 Total $450,000 $870,000

13 Trap Watch out for fund capped limits Super funds are limited by fund capped limits as to the amount they can accept as a non-concessional contribution in a single contribution $450,000 for a person who was under age 65 at any time during the financial year $150,000 for a person age 65 or over for the whole financial year Forward planning required to make sure contributions are not refunded

14 Case Study Fund capped limit - Timing contributions under age 65 James is self employed and age 52 He would like to make a $450,000 non concessional contribution and a $25,000 personal concessional contribution Options: $475,000 contribution accompanied by a tax deduction notice for $25,000 Two contributions each not exceeding $450,000 and lodge a tax deduction notice later

15 Case Study Fund capped limit - Timing contributions over age 65 Patricia is age 64 and wants to make the following contributions Age at 1 July Contribution amount 64 $200, $200, $50,000 Fund capped limit applies to the second $200,000 contribution Super fund would refund the $50,000 that exceeded fund cap Solution: two separate contributions under $150,000

16 Tip#3 Consider making personal concessional contributions for nonresidents Same contribution rules apply eg. Work test over age 65 Do not have to be physically present in Australia although check super fund rules Personal concessional contribution offsets assessable income in Australia

17 Trap Does the client have assessable income in Australia? Income subject to withholding tax not included Dividends Interest Royalties Capital gains distributed by a trust relating to taxable Australian property Foreign income including income from employment not included

18 Tips for non-resident contributions Strategy may be effective for clients with rental income or capital gains in Australia 10% rule Overseas employment income: generally not included in Australian assessable income generally not included in income attributable to employment

19 Case Study Can Diana make a personal concessional contribution? Diana is age 50 and a non-resident for tax purposes She works overseas for a foreign employer earning $100,000pa Diana owns a share portfolio in Australia that she wants to sell Net capital gains $100,000 (after 50% discount) Diana also earns interest of $10,000 and dividends of $15,000 10% test Assessable income in Australia $100,000 No income attributable to employment Meets the 10% test

20 Trap Check taxation implications in the country of residence Advisable to get tax advice on the implications in the country of residence Check double tax agreements May increase tax payable in country of residence

21 Tip#4 Consider the reserve strategy in SMSFs to claim a double deduction for personal concessional contributions Strategy: Make two contributions up to the concessional cap in one financial year and claim a tax deduction for both contributions Make the second contribution in June and don t allocate it to the members account Allocate the contribution to the member s account within 28 days of the month following the contribution (July) so that it counts towards the concessional cap when allocated to their account

22 Case Study Fred makes a personal contribution in April 2014 for $25,000 which is allocated to his account Fred makes another personal contribution in June 2014 for $25,000 which is unallocated Fred claims a tax deduction for $50,000 in 2013/14 which reduces the CGT payable on the sale of a share portfolio In July 2014, the trustee allocates the amount to his account. The contribution counts towards his concessional cap in 2014/15

23 Trap ATO will cross reference personal contributions to the amount the member has claimed in their ITR The member will claim $50,000 deduction but only $25,000 will be reported as a member contribution in that year ATO will challenge the amount of deduction claimed. ATO systems are not equipped for this strategy May receive an excess contributions notice and have to apply to have the contributions reallocated to the next year

24 Tip#5 - SMSFs need to plan carefully for overseas absences Tax implications of a SMSF failing the definition of an Australian Super Fund are severe 45% tax on all income and assets 2 tests to worry about: Central management and control Active member test

25 SMSF and residency Central management and control (CM&C) If trustees become non-resident the CM&C shifts overseas big problem for single member funds If at least 50% of the trustees are resident in Australia its OK CM&C refers to strategic and high level decisions: Formulating or reviewing investment strategy Formulating a reserve strategy Determining how assets are to be used to provide member benefits CM&C can be outside Australia for up to 2 years as long as ordinarily in Australia Absence from Australia must be temporary

26 Solution Appoint an EPOA LPR who holds an EPOA may be a director of the corporate trustee in place of the member EPOA can be an existing member of the fund The member must cease to be a director TRAP the LPR must be the one making the high level decisions. Cannot be following orders from the overseas member

27 SMSF and residency Active member test If there is an active member, greater than 50% of the total assets of the fund must be held for Australian residents Active member = accepted contributions or rollovers Solution is not to make contributions or rollovers. Contribute to public offer fund if necessary TRAP any type of contribution including employer or co-contribution can trigger the active member test

28 Solution Convert to Small APRA Fund Registered Superannuation Entity (RSE) becomes the trustee Types of assets may be restricted Costs Lack of control

29 Case study Both members of the SMSF become non-residents Bill and Jane are members of a SMSF with a corporate trustee They sell their principal residence in Australia and move to London on a 3 year contract with a continuation clause. They are both non-residents for tax purposes They appoint Jane s father as their EPOA and resign as directors. Jane s father is appointed as a director of the corporate trustee Jane s father makes all strategic and investment related decisions If the SMSF receives any contributions or rollovers for Bill and Jane it will fail the active member test All contributions are directed to a public offer fund

30 Tip#6 Review insurance in super From 1 July 2014 Trustees must not provide an insured benefit unless consistent with the following conditions of release: death (including terminal illness) permanent incapacity temporary incapacity Strategy Life / terminal illness TPD any occupation TPD own occupation Income protection basic Income protection extras Trauma Asset

31 Review insurance in super Existing insurance for members grandfathered Must have been a member and held that type of insurance prior to 1 July 2014 Can increase / decrease cover or pay different premium amounts after that time

32 Trap What about insuring where benefits will go to reserve/ other members (eg, LRBA insurance strategy)?

33 Questions

34 FirstTech : firsttech@colonialfirststate.com.au