SMSF - is this really true?

[Julia]

As luck would have it I will be discussing these issues with my advisor tomorrow. I believe as a trustee you may do anything to enhance your super by active proper investment within the meaning of the Act., and that includes as I understand it, actively trading a component within the fund. I beleive that you may take a transitional pension from the fund whilst working and still enjoy the benefits of no capital gains tax on the share trading, there are pro-rata fumulas for this. There has been no warning to me that I cannot trade within the fund as I have been doing for that past four years. Will get back to you after my meeting

Thanks. Look forward to the answers, and thanks to you too Adam, for your info.
I'm interested in the comparative benefits of continuing the fund in its existing form (accumulation ) but just pulling out lump sums as required to supplement other income versus having an allocated pension once retirement age is reached.

When you say that no tax is paid within an allocated pension, does this mean if e.g. the allocated pension is derived from a portfolio of shares which have capital gains plus they all earn dividends, no tax is paid on any of that?
Or does it just mean that no personal income tax is paid on the allocated pension?

With thanks

Julia

 

[Prospector]

Thanks. Look forward to the answers, and thanks to you too Adam, for your info.
I'm interested in the comparative benefits of continuing the fund in its existing form (accumulation ) but just pulling out lump sums as required to supplement other income versus having an allocated pension once retirement age is reached.

When you say that no tax is paid within an allocated pension, does this mean if e.g. the allocated pension is derived from a portfolio of shares which have capital gains plus they all earn dividends, no tax is paid on any of that?
Or does it just mean that no personal income tax is paid on the allocated pension?

With thanks

Julia

Or does it mean that once you turn 60 there may be no further need of allocated pensions; you can just withdraw money as you need it; and anything that the funds earn (CG, interest etc) is tax free, and anything that goes out to the individual is tax free. The allocated pensions may therefore only be of benefit when someone is aged 55+ (current preservation age to those born before hm, 1960?) when you are working, want to salary sacrifice to super but can use an allocated pension to make up the difference, so by drawing a pension you change the fund status from accumulation to draw down phase, in which case no more CGT for the Super Fund, and the individual has reduced their personal tax through Salary sacrificing into Super?

Oh, too many words for so early in the morning.......

 

[explod]

Or does it mean that once you turn 60 there may be no further need of allocated pensions; you can just withdraw money as you need it; and anything that the funds earn (CG, interest etc) is tax free, and anything that goes out to the individual is tax free. The allocated pensions may therefore only be of benefit when someone is aged 55+ (current preservation age to those born before hm, 1960?) when you are working, want to salary sacrifice to super but can use an allocated pension to make up the difference, so by drawing a pension you change the fund status from accumulation to draw down phase, in which case no more CGT for the Super Fund, and the individual has reduced their personal tax through Salary sacrificing into Super?

Oh, too many words for so early in the morning.......

As I am to understand I think what you are concluding is correct.

And an apology, my appointment with my financial adviser is Thursday, not today as I said last night

 

[yonnie]

thanks explod......good to take some issues from here to your advisor so that we all learn from that and you can pay the bill

are there not any simple SMSF books on the market with all the latest changes?
I read some older books and there is a lot of droning on to fill up the pages but at the end of the book I`m even more confused..........

 

[explod]

thanks explod......good to take some issues from here to your advisor so that we all learn from that and you can pay the bill

are there not any simple SMSF books on the market with all the latest changes?
I read some older books and there is a lot of droning on to fill up the pages but at the end of the book I`m even more confused..........

Go back to one of my posts here yesterday where I recommended such a book which is available within the Forums Bookshop

 

[grumpee boi]

If you do not take a pension then it is in accumulation phase and there will be tax on earnings and cgt.

 

[Happy]

If you do not take a pension then it is in accumulation phase and there will be tax on earnings and cgt.

Is pension set to run the funds dry?

Another question if I may, can pension be paid back into super account if not used up?

 

[Prospector]

Happy, I would think that if you take money out as pension, then put it back in again, these would be undeducted contributions. You would probably only worry about doing this if you were aged between 55 and 60 and wanted to change the SMSF from being in the accumulation phase to the er, pension phase or whatever it is called. (so no CGT on realised gains) Once you got to 60, then you would just keep the money in the SMSF until you needed it or maybe there are other reasons why you might take out and put back after 60.

 

[explod]

Is pension set to run the funds dry?

Another question if I may, can pension be paid back into super account if not used up?

The idea as a trustee is to grow the fund continually so that the funds do not run out and the reason why I actively handle it all myself

 

[grumpee boi]

Happy,

If you take out the maximum payments your pension will run out at age 80 if it earns 10% pa and the income stream is not indexed. Most people would want to index their income and so it is likely that it would run out before age 80. earn less than 10% pa and it will run out even earlier. (the figure is 83 if the pension started in 2006 due to a change in the pension valuation factors)

Life expectancy used to be around the 80 mark hence when they calculated the pension valuation factors (PVF), and in this case the MAXIMUM they did so with the intention that the pension would run out at 80. why they did not allow for an indexing of the income I have no idea.

It is for this reason that most people will not take out the maximum and if you can get by on the minimum then even better. Furthermore, this potential to run out of money before dying leads conservative types to go for the more conservative complying income streams such as lifetime annuities where you "buy" your guaranteed annual income stream with a lump sum at the start.

having said this, the flexibility associated with allocated pensions is what makes the combo of an SMSF with the AP so attractive to the hands-on types confident in their investment ability (or of their adviser).

Recontributing does in fact increase the undeducted contributions and the drawdown-recontributions strategy has been very popular for this reason.

Adam

 

[Happy]

Recontributing does in fact increase the undeducted contributions and the drawdown-recontributions strategy has been very popular for this reason.

Thank you all for info.

I am bit bacwards with understanding Sper language.
Now I noticed that language will change again after 1 July.

Undeducted contribution - what does it mean? And what does it do to tax liability when put to super, when in super and later when pulled out?

 

[yonnie]

Go back to one of my posts here yesterday where I recommended such a book which is available within the Forums Bookshop

yes explod (is that short for exploding and you need anger management? ) I saw you bought it, but not sure you recommended it.

so now you understand everything and actually dont need to see your advisor?

 

[explod]

yes explod (is that short for exploding and you need anger management? ) I saw you bought it, but not sure you recommended it.

so now you understand everything and actually dont need to see your advisor?

Thanks for pulling me up yonnie, guidance takes us forward and lively discussion can reassure, but not being licensed to do so makes me a bit cautious about handing out direct recommendations. Anger management, well we may need lots of that as time goes by

 

[trueblue]

I am 61 years and have had a SMSF set up for 8 years. A third of the fund is in shares which I actively trade on the market myself. I take an allocated pension so have cut out capital gains. It is a wonderful shelter and anyone near to or 60 plus ought to set up thier own fund and put in as much as they can afford before 30 June. I got rid of property to do it and I believe investments in resources will outdo property in the forseeable future anyway. I just recieved a book via the Forums bookshop "The Self Funded Superannuation Fund Handbook" which is invaluable if you are going that way.

cheers to all and happy trading and retirement combined

You sound as if you know what you are doing. How are you managing the other 66.6%. Are you into global shares? Where do you find good interest rate returns for your SMSF. Most Net banking with good rates, aims at private investors. I would like to think I am capable of running my own SMSF but I am unsure. Thanks in advance.

 

[Wysiwyg]

I think it is 15% under 12 months and 10% after 12 months?

I googled cgt on superannuation and....

If asset held for less than 12 months it is taxed at a rate of 15%.

If asset held for more than 12 months the capital gain is discounted at 33.33%.Then the discounted amount is taxed at 15%.

For example this copy and paste : Income Tax Year 2006/2007

Type of taxpayer = Complying Super Fund
Taxable income before capital gain = Not applicable
Date of purchase of asset = Jan, 2006
Cost base of asset (unindexed) = $20,000
Ownership costs and costs incurred at time of sale which are included in the above cost base.* = $33
Date of sale or redemption of asset = May, 2007
Proceeds of sale or redemption of asset = $30,000

*The ownership cost element cannot be indexed. Indexation is not relevant for costs incurred at the time of sale.

Indexed Not applicable Use this Discounted method
Proceeds of sale --- $30,000
Cost base (unindexed) --- $20,000
Cost base (indexed) --- ---
Discount capital gain --- $10,000
Discount (33.33%) --- $3,333
Capital gain --- $6,667
Tax attributable to gain** --- $1,000
Tax rate** --- 15.00%
**Excluding Medicare Levy.

 

[trueblue]

Or does it mean that once you turn 60 there may be no further need of allocated pensions; you can just withdraw money as you need it; and anything that the funds earn (CG, interest etc) is tax free, and anything that goes out to the individual is tax free. The allocated pensions may therefore only be of benefit when someone is aged 55+ (current preservation age to those born before hm, 1960?) when you are working, want to salary sacrifice to super but can use an allocated pension to make up the difference, so by drawing a pension you change the fund status from accumulation to draw down phase, in which case no more CGT for the Super Fund, and the individual has reduced their personal tax through Salary sacrificing into Super?

Oh, too many words for so early in the morning.......

This is true but although there is no tax on your allocated pension the amount drawn is added to any income earned on the outside for taxation purposes. If you draw an allocated pension of $30k (tax free) and earn $46k on the outside. You pay tax at 40% on the $46k (Based on the new bracket - 40% is $75 to $150K).I think I have that right. I am no financial advisor, just a gal struggling to succeed.

 

[explod]

You sound as if you know what you are doing. How are you managing the other 66.6%. Are you into global shares? Where do you find good interest rate returns for your SMSF. Most Net banking with good rates, aims at private investors. I would like to think I am capable of running my own SMSF but I am unsure. Thanks in advance.

No one has a total answer, I try to do the best I can. I have 33% tied up in property trusts and 33% in physical bullion, to insure against currency devaluation the rest as indicated in shares. I wish I could move the property trust but is tied up for a further 3 years. It yields 10% and the capital gain on the property has been about the same, which is pretty good. Advisers are worth their weight in gold but only as consultants, never let them take control (from someone who was burnt). With our dollar appreciating global shares would be suicide at the moment

 

[yonnie]

hey wysiwyg,

so to cut a long story short CGT in SMSF is charged @
<12 months = 15%.......>12 months holding period = 10%

thanks for your explanation

 

[yonnie]

sooooooooooooooo

anybody read a book on SMSF so damned clear, that no advisor was needed?
come on, tell me!!!!!!!

 

[yonnie]

Thanks for pulling me up yonnie, guidance takes us forward and lively discussion can reassure, but not being licensed to do so makes me a bit cautious about handing out direct recommendations. Anger management, well we may need lots of that as time goes by

lol, not mellowing out yet explod