I am 72, retired, with some $532,000 in our self-managed super fund while my husband, aged 62, has about $822,000 and is taking a transition to retirement pension. The main asset of the SMSF is a small commercial building currently leased with an income of about $76,000 a year. Is it correct that we should withdraw 5 per cent and 4 per cent respectively of our benefit entitlement every year? My concern is what if we lose tenants then there will be no income to meet withdrawals. Where do we stand with regards to this compliance? (We do not need this whole amount to live as we have other sources of passive income.) How many hours a week can my husband work being in transition to retirement? Can he retire now so the SMSF income can be untaxed? If he retires, can he still work for no more than 10 hours a week? F.B.
For your SMSF to be regarded as a pension fund, and thus be exempt from tax on its income, it must pay a minimum pension of 4 per cent to people aged 56 to 64, 5 per cent to those aged 65 to 74, then 6 per cent to those 75 to 79, etc, and ultimately 14 per cent to those over 95.
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By investing too much of the fund into a single asset, you have fallen into the well known "liquidity trap". If you cannot meet the full required pension payment, the Tax Office will not allow the fund exemption from tax and it will be taxed as an accumulation fund.
Since your husband is under 65 and you tell me that you have other investments, you may be able to get around the problem by having your husband make a large contribution into the fund. In 2016-17, he can make a non-concessional contribution (NCC) of up to $180,000, i.e. no tax deduction is available, but neither is any 15 per cent tax payable on entry. Further, if you have the cash, he can place up to three years' worth or $540,000 before June 30 but then no further NCCs until July 2019 or later.
Your husband can work as many hours as he likes while claiming a transition to retirement pension. From July 2017, that portion of the SMSF paying his TTR pension from "preserved benefits" will be taxed as an accumulation fund.
For your husband to convert his super benefits to "non-preserved status", and thus allow his super pension to no longer register as a TTR pension, the rules state that, being over 60, he requires "an arrangement under which the member was gainfully employed has come to an end". In other words, if he is working at two jobs, he simply needs to retire from one. If he has one job, he needs to retire. There is nothing to stop him from changing his mind and looking for another job later. While 10 hours a week is considered to be working part-time, this is irrelevant and he can then work as many hours as he likes.
As a self-funded retiree I hold a small parcel of shares in Arrium. Because of financial stress I shall soon need to sell some other shares at a capital gain. There will be obvious tax advantages, as well as preservation of my Commonwealth Seniors Health Card, if the Arrium loss can be discounted in the same tax year. How does one ascertain when Arrium will be declared a capital loss? T.S.
Arrium was placed in administration in April 2016, owing some $4 billion. In early November, receiver KordaMentha announced the sale of the company's main assets, its Moly-Cop subsidiary, for around $1.6 billion.
At the same time, creditors approved the 94 companies in the Arrium group entering into proposed Deeds of Company Arrangement, in other words, they are possibly prepared to settle for a small return on each dollar they are owed.
In other words, secured creditors may get some return on their debt but I'd be surprised if shareholders, being unsecured creditors, receive anything. In the meantime, Arrium will continue to operate on a business as usual basis, and the Deed Administrators will continue to progress the sale and recapitalisation process.
I suggest waiting until around May to see whether the administrators will issue a declaration that the shares are worthless. If not, and you want the loss for your 2016-17 tax return, contact delisted.com.au who will buy a parcel of worthless shares from you for $1 but charge you $151 for the administrative costs. Download their Product Disclosure Statement and talk to your accountant.
I am 56 and have been seriously under-employed for the past 10 years. As such I have accumulated a large amount of debt. What little income I do have comes primarily from self-employment and casual/contract work. However, I have two dormant retail superannuation funds totaling about $65,000. Would I be able to access these funds to pay off some or all of my debts? K.P.
Being 56 or over, your funds can become "non-preserved" and accessible if you declare that you are fully retired. You should note that a lump sum up to $195,000 is taxed at a zero rate.
What this means is that, if you sign a statement that you have no intention to seek work again, you can withdraw your $65,000 without paying tax. However, at tax time, you may be shocked to see your taxable income that year increased by $65,000 although this will not be taxed. What it may mean is that you could lose any tax offsets or Centrelink benefits that are measured by taxable income.
Is there anyway you can get a job that meets your expectations, or take a course to increase and confirm your skills?
In 1959 in a will, it was stated that a quantity of Australian shares should be assigned to me. However, the dividends were to go to another person for her life before I was to receive the shares. In 1993, I was advised by the trust looking after the estate that the shares would now be transferred to me. In these circumstances am I liable for GST on the sale of these shares? If so, from what date? J.M.
I'm not sure whether you mean GST or CGT (capital gains tax). If sold, a flat 10 per cent GST is payable on the brokerage alone.
Regarding, CGT, the terms of the will could be crucial. If you have been the beneficial owner and able to benefit from any capital gain from 1959, then I would expect the shares to be sold as pre-1985 shares and thus have no CGT liability.
However, if the shares were held in a "legal life estate" until 1993, then they are likely to be deemed to have a cost base from 1993 on. If your accountant cannot help you, ask the ATO for a free private ruling, using the ATO form "Private ruling application form (not for tax professionals), NAT 13043", downloadable over the internet and include a copy of the will with your application.
I am 59 in January and earn $190,000, my wife is 56 and retired – her income is about $10,000 from superannuation and shares. We have two negatively geared investment properties in my name only, with fixed interest loans until December 2018 totalling $970,000, and variable interest loans totaling $360,000 on a combined property value of about $2 million – rents total $1200 per week. Offset accounts have been set up for the variable loans. We have just sold our home for $2.3 million with settlement to occur early December and will be renting in the city while I continue working for another three to four years. We are going to put the maximum $540,000 in each of our super accounts, leaving about $1.1 million to consider what to do with in the meantime. Would it be preferable to fully offset the variable loans so no interest is paid on them or put that money into an alternative investment, such as a cash management account, in my wife's name. If we pay into the offset account that will reduce the loan interest paid but that will also lessen the amount able to be claimed to reduce my higher marginally taxed income. On a similar tack, once the fixed interest period expires in 2018 would it be preferable to pay off some or all of the combined loans to either balance or positively gear those properties? I assume that once I finish work we should then consider whether to sell the properties. R.T.
There is a general consensus that the low point in interest rates has passed, so you need to keep an eye on rising interest rates. You are earning a gross rental yield of 3.1 per cent, which after expenses possibly drops to about 2 to 2.5 per cent.
Your mortgages comprise two thirds of the value of the properties and, since you indicate you are negatively geared and claiming a deduction for losses, that implies your expenses outweigh your net rent. I estimate are paying more than 4.7 per cent on your mortgage.
I'm always in favour of reducing investment losses since a deduction only reduces the loss. In your case, earning more than $180,000 and thus being taxed at 47 per cent, you can thus reduce your income by 47 per cent of the loss, but your are still left with a 53 per cent loss. I would prefer that you place $360,000 into offset accounts so as to negate the interest payable on the variable loans and do the same when the fixed loans mature. Note that some fixed rate loans can be linked to a mortgage offset account. Check finder.com.au.
Where are you going to buy your next home and how will you pay for it?
If you have a question for George Cochrane, send it to Sunday Money, PO Box 3001, Tamarama, NSW, 2026. All questions answered. Helplines: Financial Ombudsman, 1300 780 808; Centrelink pensions, 13 23 00.