Question: Would you recommend acceptance of the recent LNK 4 for 11 share take-up at $6.75. I have 450 shares, which entitles me to 164 shares at $ 6.75 per share = $ 1,107.
Answer (By Paul Rickard):
Yes, because the shares are trading at $7.85 and the new shares are priced at $6.75. Rights trading on the ASX has now ceased. If you don’t have the cash or don’t want to accept, do nothing and your rights will effectively be auctioned to the institutions. This will probably result in a payment to you.
In terms of the acquisition, I think it is broadly ok – but it will take a while for the market to be convinced. You can read my analysis here [1].
Question: I am 70 and my wife is 65. We have our own SMSF, of which we are the sole members and directors of the trustee company.
Both my wife and I are still working part time and meet the work test. We want to convert the SMSF from accumulation to pension phase.
Up to now, we have undertaken the annual accounting duties, financial statements preparation and tax return submission ourselves and the only outside input has been the external audit. Can you please advise on what do we have to do and how we should go about this conversion?
I recognise that we will need to engage an actuary to “value” our individual shares of the fund. How do I do this? Do we need to engage external resources to do the paperwork or can I simply purchase some of the blank forms advertised?
Also, do we need to have the 2017 audited accounts completed before we can do this?
Answer (by Graeme Colley): The amount of work you do in relation to the operation of your SMSF just depends on you and your wife. If you wish, you can continue with the annual accounting for the fund, preparation of financial statements and submission of the fund’s tax and regulatory returns. There will continue to be a few things that need to be undertaken by external parties, such as the annual audit of the fund and, if required, a report from an actuary concerning the taxable and tax exempt income of the fund.
As I understand, the fund is currently in accumulation phase and you and your wife wish to commence pensions from the fund. There are some basic steps to commence a pension in your SMSF. In your situation, it is possible to commence an account-based pension, as you are both older than 65, the age at which you are able to withdraw your superannuation as you wish.
To commence an account-based pension in the fund, the member(s) and the trustee(s) need to consider the following steps:
- You must have reached your preservation age (55+ in the case of you and your wife) and be retired, or meet another condition of release – as you and your wife are older than 65 there is no restriction on the commencement of an account-based pension for either as you both meet a condition of release.
- A minimum pension payment must be paid each year which is calculated on the pension account balance at the commencement of the pension (pro-rated on a daily basis). In subsequent years the minimum amount of the pension is calculated on the pension account balance as at 1 July in the financial year.
- The minimum pension payments change based on your age. The minimum pension percentages are:
- There is no restriction on the maximum amount of pension that can be withdrawn.
- You have flexibility as to how often you pay the pension payment, as well as withdraw lump sums from your pension balance, subject to meeting the minimum payment each financial year. If a pension stops during a financial year, a pro rata minimum of the pension is required to be paid. The minimum pro rata is not required in the case of a pensioner’s death.
- The pension can be commuted (converted) to a lump sum, stopped and started, if required.
- The capital value of the pension cannot be added with amounts in accumulation phase, further contributions or rollovers, unless the pension is stopped and re-stated.
- You can nominate a ‘reversionary beneficiary’, such as your wife, to receive your pension upon your death.
- The maximum total amount that can be used to commence your pensions after 1 July 2017 is restricted to no more than $1.6 million. This is referred to as your transfer balance cap.
When commencing a pension from your superannuation fund, the steps that are required to be followed are:
- A written request from the member to the fund trustees that they wish to commence a pension from the fund. This should include details about:
- The date the pension is to commence.
- The amount of the member’s account balance that is to be used to commence the pension.
- The frequency of the pension payments.
- Whether the pension is reversionary and the name of the reversioner who is to receive any death benefit.
- The trustees should accept the request in the minutes of the fund subject to any variations, if required.
- The member’s account balance as at the commencement of the pension should be determined by the trustees and the minimum pension calculated.
- The member should be notified of the terms of the account-based pension. This could include the terms of the pension in a pension agreement for the fund.
- The fund should arrange for the direct debit of the fund’s relevant bank account to transfer the pension payments, if required. However, the transfer could take place manually.
You can engage external resources if you wish, however, the pre-printed forms and packs that are available from many SMSF administration companies are worthwhile as they can ensure that all the required documents have been completed.
There is no requirement to have the fund’s financial accounts audited as the audit of the fund is for purposes of the superannuation legislation, to ensure that it satisfies various compliance requirements. However, it is up to the trustees if they wish to have a financial audit of the fund, which may assist in providing a level of confidence that the value of the fund’s investments is reflected appropriately in the member accounts.
The question of whether the fund requires an actuary to provide a certificate will depend on a number of factors. If the taxable and tax exempt income of the fund is determined on a proportional basis or a member of the fund has a total superannuation balance of greater than $1.6 million, as at 30 June in the previous financial year an actuarial certificate will be required. An actuarial certificate is not required if the fund’s taxable and tax exempt income is determined on a segregated basis.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.