Recently, our TAG Superannuation Strategies Seminar wrapped up, and we thank all of you who attended both in person and virtually.
Each year, we receive lots of really interesting and relevant questions from our attendees.
Here is PART 2 of some great SMSF questions (and answers from our super experts).
1. Do we need to revalue the property inside the superfund every year? I.e in the past it has been every 3 years.
Every 3 years has been the industry ‘norm’. Technically yes, assets should be revalued each financial year as per the SIS legislation. You can see the increased focus by the ATO on ensuring these are valued annually – whether this is a trustee valuation one year, with independant value/appraisal every other year might be the best solution. In any event value is determined based on a number of factors (yield, floor space, location, rates notice, comparable sale etc). With the division 296 proposals and other caps that depend on total super balance, it is becoming more prudent to update investments more frequently (including property and unlisted investments).
2. Sole member has passed away and BDBN points to the estate – how is the death benefit treated in the super fund and the estate. The estate is distributing to 3x testamentary trusts for each adult child who are non-dependants. Who pays the tax?
Where the superannuation benefit is distributed to the deceased’s estate in accordance with BDBN/Will, then the Estate is liable for the death benefits tax. This is particularly beneficial where there are liquidity issues in the fund, as there are generally other assets in the Estate that could be utilised to pay the death benefits tax. In the SMSF, the death benefit is treated as a lump sum transfer out.
3. Do we need to double check how long is the BDBN valid for? Is it 3 years?
We find that Deeds in place since around 2012 generally allow members to make non lapsing BDBNs. Naturally a review of the deed to ensure this is prudent is required, but this is a good rule of thumb. If the deed is older or doesn’t expressly allow for non lapsing nominations be made, then an upgrade is required so members can put non lapsing nominations place (the nominations would need to be re-done and re-executed in this instance). SIS Legislation regarding BDBNs doesn’t apply to SMSFs (s59 and Reg 6.17A) in which limits BDBNs to 3 years. So, the trust deed is crucial here. deed is important here.
4. Is it necessary to start a reversionary pension from the date of the members death? Then what is that 12 month time frame for?
The reversionary pension automatically continues being paid to the surviving spouse and this needs to be reflected in the accounts on the date of death (transfer pension between members). The 12 month timeframe is when the balance of this pension counts to the recipients Transfer Balance Cap (TBC) for assessment against their TBC. The 12 months allows the beneficiary time to sort out their affairs if they would be in breach of the TBC. ECPI continues during this time, even if this period exists with the beneficiary receiving both a death benefit pension and their own pension.
5. How many times can a downsize contribution occur? Can you use the downsizer contribution more than once IF you didn’t use the full $300k the first time?
The downsizer contribution is a once off contribution, up to the $300k per person maximum. If it is not used in full, it is lost forever. This may need to be a conscious decision (age dependant) – for example, a member aged 55 is likely to have more opportunity for another qualifying property in the future. Also, remember, the contribution could be made by an in-specie contribution (considering flow on capital gains tax implications of doing so).
6. If you want to use both non concessional limits as well as the downsizer, is there an advantage to making these in any particular order?
Yes, there certainly is. Non-Concessional Contributions (NCC) limits are subject to the Total Superannuation Balance (TSB), whereas the downsizer is not. So, in terms of an order – it would be advantageous to have NCCs made first, then the downsizer as this can be made even where the member’s TSB is greater than $1.9M.
7. Are you assuming that the in-specie contribution of property into an SMSF is exempt from stamp duty?
Yes, in some states (and in certain circumstances) stamp duty exemptions may be available. A good starting base would be to consider the transaction with stamp duty and discuss the cost/benefit with the client with this in mind – if the strategy still is advantageous with stamp duty, then any exemptions available would only make the strategy more beneficial.
8. If client has balance > $3mil & 100% ABP would you start using tax effect accounting in 24? We use tax effect accounting when at least part of the fund is in accumulative phase.
Yes, we agree tax effect accounting would be beneficial in the context of the Division 296 tax, although when 100% in pension phase, the tax is nil on all earnings anyway.
If you have any questions, please contact us on 03 9886 0800 or via email.
MISS PART 1? VIEW IT HERE.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2023. Please do not reproduce without the expressed written consent of the author.