I am 62 and on a disability pension, receiving $182.18 a fortnight. My husband is 71, on the age pension, plus care allowance, but he still works four days per week. He has a taxable income of $46,000 a year and receives an ESS pension of $669.84 a fortnight. I have an investment property currently being rented by my daughter. Centrelink values it from $575,000 to $625,000. As the rent does not cover all costs, my husband drew some money to put into the mortgage in June 2016. We lodged all financial documents with Centrelink. Early this year we received my husband's super half-year statement. I logged on to Centrelink to update it but found that it hadn't been updated since June 2016. In February I lodged my bank account statement asking them to update it again, but still nothing happened. The current asset showing on my online account is $363,824, but should be $412,383 from June last year. We are worried that Centrelink will blame us for not updating our financial situation with the 14-day rule period. My question is, as we receive the pension based on the income test, will this increase in assets change our pension amount per fortnight? L.L.
Without having all of Centrelink's figures at hand, I suggest that the best thing to do is to arrange an interview at Centrelink and explain that you've tried and tried and tried. Then show them your papers!
![Sometimes going to Centrelink in person is the best strategy.](http://web.archive.org./web/20170612083847im_/https://www.fairfaxstatic.com.au/content/dam/images/g/w/9/3/l/8/image.related.articleLeadwide.620x349.gwnel1.png/1496959406864.jpg)
My husband is 54 and runs his own business, earning about $50,000 a year. I am 51 and earn $100,000 per year. We own our home and have also shares worth about $1,000,000. We are thinking of setting up a self-managed super fund and making an in specie transfer of a commercial property that we own, this financial year, before the non-concessional contributions limits change. The property is worth around $950,000 so we would need to use the bring-forward rule in order to achieve this. We would be up for a big capital gains tax (CGT) bill though, about $95,000. Do you think this is still worthwhile? Would it be better to put our shares in an SMSF instead (we know we would still be up for CGT)? This year I have maximised my salary sacrifice and my husband has contributed the maximum concessional amount he can as well. S.S.
I really don't think that moving the property into the SMSF would be a good idea unless you also transfer your shares. The reason for that are the increasing rates of minimum pension that must be paid over time.
When an SMSF's assets are mostly centred on a single property, it usual turns out that, at some stage down the line, the fund does not generate enough income to meet the minimum pension standards, which start at 4 per cent of assets at age 55 and are phased up to 14 per cent at age 95. At some point, the trustees are forced to choose to either sell the property within the pension fund, and thus with no CGT. Or transfer it in specie back to the two of you, which would entail paying capital gains tax since it would be a lump sum transfer. An untaxed pension fund cannot pay a pension in specie i.e. with assets other than cash.
If you and your husband don't plan to retire for another 15 to 20 years, and then begin a pension, there may be a tax benefit to transfer the property, assuming it is a joint property, and both of you are entitled to claim the three-year roll-up option of $540,000 each. In such a case, you may be able to argue that paying capital gains tax now will be balanced by a stream of untaxed income when you retire and begin a pension.
Note that, in Victoria, no stamp duty is payable when business real property is transferred into a self-managed super fund where there is no change in beneficial ownership and where there is no consideration i.e. it is a transfer, not a sale. In NSW, if you both own the property jointly, and you transfer it into the SMSF where you each claim a benefit equal to half of the property i.e. there are no other members, then stamp duty is reduced to $500.
As employees, you can only salary sacrifice to achieve a deductible contribution of $35,000, although this rule disappears after July 1.
You replied to an elderly couple where the wife exceeded the upcoming transfer balance cap of $1.6 million and you gave four choices to them. My situation is very similar and I will have to make one of the choices. With respect to choice (b) I have just been reading the ATO's Law Companion Guideline LCG 2016/8. According to paragraph 25, the fund may not be segregated for the 2017-2018 income year and subsequent years because the TSB is greater than $1.6 million. What then is the point in having two separate accounts? I generally support the proposed changes in reducing 'middle class welfare' but it seems that they could not have made it more complicated if they tried. T.G.
Thank you for pointing that out. The draft version of that LCG was finalised in mid-March and, yes, there has been an unexpected level of complexity in this, and in all seven Law Companion Guides and three Practice Compliance Guidelines released, all dealing with July 1 changes.
For other readers, a "segregated" account is, for example, a wholly pension or wholly accumulation account, or one in which the accounts are separated, while an unsegregated account is a mixture. The above states, in a nutshell, that an SMSF with one or more members with $1.6 million cannot separate pension from accumulation assets and must run an unsegregated fund.
On the other hand, if an SMSF member has less than $1.6 million, they can segregate assets into pension and accumulation accounts.
It's all a little artificial. For example, if a person is running two separate pension funds, they can commute one to the accumulation phase. But, paradoxically, people with more than $1.6 million in an SMSF cannot roll over the excess into a second, accumulation-only fund, according to recent public statements by ATO officials who threaten to use Part IVA, the anti-tax avoidance rule, against them.
In short, the ATO is saying that an SMSF where one or members has more than $1.6 million, that fund's trustee has two choices, (a) to commute the excess to the accumulation phase and run an unsegregated fund, or (b) withdraw the excess as a lump sum from the super system. If you choose option (a), you must then decide whether you wish to use the "CGT relief" offered, which doesn't always work in your favour, so you really need to sit down with your tax accountant.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1300 780 808; pensions, 13 23 00.