Questions: My wife (67) and I (71) operate an SMSF but were badly advised by a big bank related adviser back in 2008, which resulted in us loosing 50% or $200,000 on very risky shares etc. We therefore have most of our remaining $800,000 fund in shares ($100,000), NAB loan units ($18,000) and the rest in cash in term deposits. We are shy of investing in more shares. Here are our details.
- I am still doing some minor work for clients through my consulting company, which is also the trustee of our SMSF. The company pays me a casual rate recorded for normal PAYG etc. and I meet the 40 hour in 30-day test period. I therefore assume that I can salary sacrifice if funds are available, as well as still contribute personal contributions up to $100,000 per annum. Is this correct?
- The fund still has large parts recorded as “taxable” being previous salary sacrifice contributions for both my wife and I. Can we withdraw these when term deposits mature and then re-contribute as personal contributions so as to enable our beneficiaries (our four kids) to avoid the 17.5% effective death duties on super inheritance? Also, I assume this forms part of the annual $100,000, which applies to such contributions? For the last 15 years my wife has, and continues to, project managed a cottage she owns as a holiday letting business. This generates gross income of some $70,000 per annum and she works about 15 hours a week on this. I assume that this meets the work test and therefore she can contribute personal contributions to the SMSF up to a $100,000 pa limit. Is this correct?
- All of our SMSF taxation affairs are up-to-date. In April this year (2018) we advised the Trustee in writing that we wanted to transfer all of our holdings to pension phase and have now been withdrawing the 5% “pension” on a monthly basis. Is there anything else we had to do or need to do when transferring to pension phase? I assume that the SMSF will no longer have to pay the 15% tax and still get the franking credits refunded? Is this correct?.
Answers (By Paul Rickard):
- Yes you can salary sacrifice, but only up to the limit for concessional contributions of $25,000. You can also contribute up to $100,000 in non-concessional contributions if your total super balance was under $1.6 million on 30 June 2018.
- Yes, you can withdraw and re-contribute as personal contributions. As you are both over 60, there shouldn’t be any tax to pay. You can contribute up to your $100,000 non-concessional cap. In order for your wife to make any contribution, she needs to pass the work test. This is defined to be “gainfully employed” for 40 hours or more over a consecutive 30-day period. The relevant Superannuation Act defines by regulation that gainfully employed means: “employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. Usually, this is interpreted to mean that work must be paid (ie the gain or reward part). You may wish to confirm with a superannuation lawyer but my interpretation is that as presented and in the absence of restructuring, your wife would not qualify. It could be relatively easy to restructure, so you may wish to check with your accountant.
- In regards to starting a pension, the main thing is to make sure your Trust Deed allows it and you follow the processes (formal in writing advice to the Trustees, resolution by the Trustees etc). You may also have obligations under the Transfer Balance Cap reporting (see https://www.ato.gov.au/Super/Self-managed-super-funds/Administering-and-reporting/New-reporting-obligations-for-SMSFs/ [1] . This year, when you lodge your annual return, you may need to obtain an actuarial certificate as your fund was part accumulation/part pension.
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