SMSF - is this really true?

[yonnie]

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?

hi happy (hope you are )

undeducted contributions are contributions you dont claim against your other income.

what I understand is that you can deposit funds into your super up to a certain amount depending on your age without paying any tax.

from 55 years of age you can take out an allocated pension and it stops your SMSF from paying any tax from that moment on profits.

Allocated pension must be at least 4% per year of your total balance in your SMSF.

The total balance is in deducted (say 20%) and undeducted contributions (say 80%).

Now your total balance in your SMSF is $ 1 million and you take out an allocated pension of $ 40,000 between 1 July 2007 and 30 June 2008.

The deducted part of that allocated pension is 20% of $ 40,000 = $ 8,000 and you pay 15% tax of that amount.

The undeducted part is 80% of $ 40,000 = $ 32,000 and is tax-free.

See explod, I dont know much about these things and I`m still not scared to "advise" people

well who`s going to shoot me down on my interpretation?

 

[Happy]

hi happy (hope you are )

The total balance is in deducted (say 20%) and undeducted contributions (say 80%).

Now your total balance in your SMSF is $ 1 million and you take out an allocated pension of $ 40,000 between 1 July 2007 and 30 June 2008.

The deducted part of that allocated pension is 20% of $ 40,000 = $ 8,000 and you pay 15% tax of that amount.

The undeducted part is 80% of $ 40,000 = $ 32,000 and is tax-free.

Thanks for that.

How do you come up with 80% / 20% scenario?

Is it your decision at the stage when you decide to draw pension?
Or it all depends on how it was accumulated?

 

[YELNATS]

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.

Hi Trueblue, just to understand it better, based on your example how much total tax would you pay on the $76k? Would it be $17,500 or something else?

Using the new personal income tax table starting 01/07/2007, ie.

0 - 6000 zero tax
6001 - 30000 15%
30001 - 75000 30%
75001 - 150000 40%.

thanks YN.

 

[yonnie]

Thanks for that.

How do you come up with 80% / 20% scenario?

Is it your decision at the stage when you decide to draw pension?
Or it all depends on how it was accumulated?

hi happy (well are you?)

the 80/20 is just an example in that your total super stands at $ 1mil and your contributions over the year(s) have been 80% undeducted and 20% deducted.

when you are 55 or older YOU decide when to draw a pension and you just write to ATO that you had enough of always contributing and that now is the time to draw some pension and paint the town red

 

[Happy]

Thanks yonnie,

I am happy that super rules will be simplified after 1 July

 

[explod]

lol, not mellowing out yet explod

As promised my report on the visit to my advisor. After July 1 I can draw 4% or more, no upper limt from my super as an allocated pension, tax free. However if I draw more than 4% as an allocated pension it will effect my wife's aged pension. (she being 7 years older than myself) However on top of that we can take lump sums whenever we like of any amount that makes no difference and is not taxed. No that's how it works for us but why it works I do not fully understand or care, just that if I keep growing the shares as now we have found the perpetual money tree. My answers are for my circumstances so may be not the answers you want. But I can say that Uncle Peter from Canberra has done this thing very good for us.

And yonnie, if you will not accept my apology I am pleased to continue the battle. Oh.. explod actually signifies "redundant" ...so.... I am probably a spent fuse and you win

 

[yonnie]

well everybody seems happy.....

happy is happy and explod is happy

good to know what your name stands for explod.

my thoughts were exploding or ex-plodder or.........

an ex-plodder for sure now your super has been sorted out.

 

[YELNATS]

Hi Trueblue, just to understand it better, based on your example how much total tax would you pay on the $76k? Would it be $17,500 or something else?

Using the new personal income tax table starting 01/07/2007, ie.

0 - 6000 zero tax
6001 - 30000 15%
30001 - 75000 30%
75001 - 150000 40%.

thanks YN.

G'day again. Further to the above post, I too also saw my tax accountant/advisor today.

According to him after 01/07/2007 if I draw payments from my allocated pension fund which I am about to set up, there is zero tax payable on the the withdrawn amounts, and also there is zero tax is payable on earnings remaining within the pension fund. In fact you don't even have to declare your pension payments in your annual personal tax return at all to the ATO, they just don't want to know about it.

So, if you're still also earning wages or salary from another source you still have to pay your normal PAYG tax, but this is unaffected by any pension payments you would be receiving.

regards YN.

 

[Wysiwyg]

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

Yes yonnie my man...prospector is right and you are correct arlso.

 

[Happy]

According to him after 01/07/2007 if I draw payments from my allocated pension fund which I am about to set up, there is zero tax payable on the the withdrawn amounts, and also there is zero tax is payable on earnings remaining within the pension fund. In fact you don't even have to declare your pension payments in your annual personal tax return at all to the ATO, they just don't want to know about it.

So, if you're still also earning wages or salary from another source you still have to pay your normal PAYG tax, but this is unaffected by any pension payments you would be receiving.

So if pension is not reported at all, earned first $6,000 is also tax free ?

 

[yonnie]

so I`m 57, wify 54

so I take an allocated pension to stop the SMSF from paying any tax.

do I really have to retire completely and trade in the SMSF only or can I still be self-employed (share trader) and earn wages?

 

[YELNATS]

So if pension is not reported at all, earned first $6,000 is also tax free ?

Correct, the first $6k is always tax free for individual earners of wages, salaries, interest, dividends, CGT, etc. ie. the normal individuals tax scale applies.

However, the beautiful reality is that if you can draw enough to live on via your allocated pension and if you do still receive a salary or wage from some employment, you can then 100% salary sacrifice that entire salary/wage into your super fund and pay zero tax as your taxable income is then zero.

ie. result = zero tax on your pension payments and zero tax on your wages/salary and finally zero tax on entry into your super fund as it's an undeducted contribution.

Another important thing I was told by my accountant/tax advisor yesterday - some of us may have more than one super fund, eg. a retail fund as well as a SMSF. If you do, and you have an entitlement in your retail fund to
pre-1 July 1983 days, to create the same beneficial entitlement in your SMSF, you need to roll over a token amount, say $1,000, from your retail fund to your SMSF before 30/06/2007.

regards YN

 

[yonnie]

hey yelnats,

dont you pay tax @ 15% on your salary sacrafice?

 

[Julia]

If you begin an allocated pension and find the minimum withdrawal is more than you need to live on, can you recontribute it to the SMSF, and if so,
what are the tax implications of that?

 

[YELNATS]

hey yelnats,

dont you pay tax @ 15% on your salary sacrafice?

yonnie, I've just had a ruling on that, in my example you would pay the 15% tax on payment into the SMSF as it's a salary sacrifice, ie. it's not an undeducted contribution. sorry YN.

 

[YELNATS]

If you begin an allocated pension and find the minimum withdrawal is more than you need to live on, can you recontribute it to the SMSF, and if so, what are the tax implications of that?

Julia, I've just had a discussion with my AMP fund advisor and asked him that very question. The answer it appears is twofold:

1. if you need to, you can recontribute excess allocated pension fund drawings to the super fund without paying any additional tax, as tax would have already been paid when the money first entered the super fund, either

(a). via the salary sacrifice scenario, where 15% tax was payable on entry into the super fund, or

(b). via the undeducted contributions scenario where the applicable rate of PAYG income tax was payable on the money before it entered the super fund, upon which no super tax was payable.

2. if you continued to find that the 4% minimum annual withdrawal from the allocated pension exceeded your needs, you can "roll-over" some of the funds from the allocated pension back into the super fund. Again there are no taxation implications in doing this.

While you can reduce an allocated pension fund by rolling money back into the super fund, you are not able to roll money the other way, ie. from the super fund to the pension fund, once the pension fund is already established. If for some reason you wanted to do this, you would need to to establish a second allocated pension fund, which would be separate and independent of the first fund.

regards YN.

 

[Julia]

Thanks very much Yelnats. Much appreciated.

Julia

 

[legs]

Can someone tell me if I can withdraw my super balance from a super company, set up a SMSF and buy the block of land beside my house and use it as extra space... not build on..just as Play Area for the kids, probably fence it in (can be a SMSF expense for security of the land)???? Can i also then have SMSF and a normal fund as well? i.e. 2 funds going at once??

Thanks

 

[Prospector]

Can someone tell me if I can withdraw my super balance from a super company, set up a SMSF and buy the block of land beside my house and use it as extra space... not build on..just as Play Area for the kids, probably fence it in (can be a SMSF expense for security of the land)???? Can i also then have SMSF and a normal fund as well? i.e. 2 funds going at once??

Thanks

OK, this is not advice but my random thoughts about what I would do.
I would need to have set up my SMSF first, or the original super company wont transfer the funds to it, obviously. As part of that process I will need a Trust Deed and an Investment strategy. If both the Deed and the strategy allows for it, I could purchase a block of land. I think I would be open to audit if I bought a block of land next to my house, even without building on it, and my kids should not set foot on it. However, if this was allowed, then the SMSF would be required to pay for its share of fencing. But not the whole cost. And yes, I can have as many funds as I like, but the fees will eat up my money!

So see an accountant and an Investment adviser before going any further

 

[deftfear]

Can someone tell me if I can withdraw my super balance from a super company, set up a SMSF and buy the block of land beside my house and use it as extra space... not build on..just as Play Area for the kids, probably fence it in (can be a SMSF expense for security of the land)???? Can i also then have SMSF and a normal fund as well? i.e. 2 funds going at once??

Thanks

Hi legs,
If you were to buy the block of land next door and let your kids use it as a play area, the fund would probably be in breach of the sis act regulations. It is an asset in the fund that is being used to benefit people related to the fund and as such would be classed as an in-house asset. In-house assets are only allowed to account for 5% of the total assets of the fund. You would also have to pay a market rate for use of the land....best way to determine that would be to ask a real estate agent to give you a written valuation.

If the land was less than 5% of the value of the fund, and you paid a market rate you may be ok. But you may still fail the sole purpose test, that the fund is being run to fund your retirement...not your kids playtime activties.

Certainly get professional advice from your own accountant who will know your circumstances better.