2016 Federal Budget Summary

/in /by

In this Special Issue we summarise the key announcements of the 2016 Federal Budget. 

Personal taxation

Personal tax rates: small tax cut from 1 July 2016

From 1 July 2016, the 32.5% personal income tax threshold will increase from $80,000 to $87,000 in an attempt to address tax bracket creep. The Government expects this will stop around 500,000 taxpayers facing the 37% marginal tax rate and prevent average full-time wage earners from moving into the second-top tax bracket until 2019–2020.

Budget deficit levy not extended

In the lead-up to the Budget, the Treasurer indicated that the 2% Budget deficit levy (tax) on incomes over $180,000 would not be extended beyond its initial three years. The levy applies for three years from 1 July 2014, and is due to cease at the end of the 2016–2017 financial year.

Business taxation

Company tax rate to reduce to 25% by 2026–2027

The Government intends to reduce the company tax rate to 25% over the next 11 income years.

The measure will be phased in from 1 July 2016, depending on company size (ie aggregated annual turnover). Small businesses will benefit sooner. The phase-in for all companies will be completed in the 2026–2027 income year.

Franking credits will continue to be calculated in the usual manner, by reference to the amount of tax paid by the company making the distribution.

Small business threshold to increase to $10 million

The small business entity threshold will increase from $2 million to $10 million from 1 July 2016.

As a result, a business with an aggregated annual turnover of less than $10 million will be able to access a number of small business tax concessions, including:

  • the simplified depreciation rules;
  • the simplified trading stock rules;
  • a simplified method of paying PAYG instalments calculated by the ATO;
  • the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO;
  • immediate deductibility for various start-up costs;
  • a 12-month prepayment rule; and
  • the more generous FBT exemption for work-related portable electronic devices.

CGT concessions

The threshold changes will not affect eligibility for the small business CGT concessions, which will only remain available for businesses with annual turnover of less than $2 million or that satisfy the maximum net asset value test (and other relevant conditions such as the active asset test).

Reduced tax rates for small business

The company tax rate for small business entities will reduce to 27.5% (from 28.5%) from the 2016–2017 income year. The rate is set to reduce further to 27% in 2024–2025 and then by one percentage point per year until it reaches 25% in 2026–2027.

Unincorporated businesses

To complement the company tax rate reductions, the tax discount (or tax offset) for unincorporated small businesses (eg sole traders and partners in a partnership) will increase over a 10-year period from 5% to 10%.

The tax discount will increase to 8% on 1 July 2016, remain constant at 8% for eight years, then increase to 10% in 2024–2025 and13% in 2025–2026, reaching a new permanent discount of 16% in 2026–2027. The maximum value of the discount will remain at $1,000.

From 1 July 2016, access to the discount will be extended to individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $5 million (the current threshold is $2 million).

GST

GST and importation of low-value goods

From 1 July 2017, GST will be imposed on goods imported by consumers, regardless of the goods’ value. The GST liability will be imposed on overseas suppliers, using a vendor registration model. This means suppliers with Australian turnover of $75,000 or more will be required to register for, collect and remit GST for all goods supplied to consumers in Australia.

These arrangements will be reviewed after two years to “ensure they are operating as intended and take account of any international developments”.

GST small business taxpayers: election to use cash basis

From 1 July 2016, the Government proposes to extend the option for taxpayers to use the cash basis of accounting for GST to small businesses with an annual turnover of less than $10 million. Such entities would be able to account for GST on a cash basis and pay GST instalments as calculated by the ATO.

Superannuation

Superannuation pension phase: $1.6 million transfer balance cap for retirement accounts

From 1 July 2017, the Government proposes to introduce a transfer balance cap of $1.6 million on the total amount of accumulated superannuation an individual can transfer into a tax-free “retirement account” (also known as retirement phase or pension phase). Subsequent earnings on these pension transfer balances will not be restricted.

This transfer balance cap for amounts transferred into pension phase is intended to limit the extent to which the tax-free benefits of retirement phase accounts can be used for tax and estate planning.

Non-concessional contributions: $500,000 lifetime cap from Budget night

A lifetime non-concessional contributions cap of $500,000 is effective from 7.30 pm (AEST) on 3 May 2016. The lifetime non-concessional cap (indexed) will replace the existing cap of up to $180,000 per year (or $540,000 every three years under the bring-forward rule for individuals under 65).

The $500,000 lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007. Contributions made before 7.30 pm AEST on 3 May 2016 cannot result in an excess of the lifetime cap. However, excess non-concessional contributions made after commencement will need to be removed or be subject to penalty tax. The cap will be indexed to average weekly ordinary time earnings (AWOTE).

Concessional contributions cap cut to $25,000 from 1 July 2017

The annual concessional contributions cap will be reduced to $25,000 for all individuals, regardless of age, from 1 July 2017. The cap will be indexed in line with wages growth.

The concessional contributions cap is currently set for the 2015–2016 and 2016–2017 income years at $30,000 for those under age 49 on 30 June of the previous income year (or $35,000 for those aged 49 or over on 30 June of the previous income year).

Members of defined benefit schemes will be permitted to make concessional contributions to accumulation schemes. However, the $25,000 cap will be reduced by the amount of their “notional contributions”.

Concessional contributions catch-up for account balances under $500,000

From 1 July 2017, individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions for “unused cap amounts” where they have not reached the concessional contributions cap in previous years. Unused cap amounts will be carried forward on a rolling basis for five consecutive years. Only unused amounts accrued from 1 July 2017 will be available to carry forward. The measure will also apply to members of defined benefit schemes.

Superannuation contributions tax (extra 15%) for incomes $250,001+

The income threshold above which the additional 15% Div 293 tax cuts in for superannuation concessional contributions will be reduced from $300,000 to $250,000 from 1 July 2017.

Currently, individuals above the high income threshold of $300,000 are subject to an additional 15% Div 293 tax on their “low tax contributions” (essentially concessional contributions), effectively doubling the contributions tax rate for concessional contributions.

The extra 15% Div 293 tax does not apply to concessional contributions which exceed an individual’s concessional contributions cap (proposed to be set at $25,000 for all taxpayers from 1 July 2017). Such excess concessional contributions are effectively taxed at the individual’s marginal tax rate. The maximum amount of Div 293 tax payable each year will be limited to $3,750 (ie 15% of the $25,000 cap) from 1 July 2017.

Tax deductions for personal super contributions extended

From 1 July 2017, all individuals up to age 75 will be eligible to claim an income tax deduction for personal super contributions. This effectively allows all individuals, regardless of their employment circumstances, to make concessional super contributions up to the concessional cap.

To access the tax deduction, individuals must lodge a notice of intention to claim the deduction (generally before they lodge their income tax return) with their super fund or retirement savings provider. Individuals will be able to choose how much of their contributions to deduct.

Individuals that are members of certain prescribed funds would not be entitled to deduct contributions to those schemes.

Please contact our office for further information on (02) 9954 3843.

Article as seen at http://checkpointmarketing.thomsonreuters.com/

Changes in Higher Education Loan Programme (HELP) debt and/or a Trade Support Loans (TSL) Debt

/in /by

Australians with a Higher Education Loan Programme (HELP) debt and/or a Trade Support Loans (TSL) debt who are moving overseas for longer than six months will need to provide the ATO with their overseas contact details within seven days of leaving the country. The requirement follows recent legislative changes.

ATO Assistant Commissioner Graham Whyte has said that affected people can provide their international contact details using the ATO’s online services (for example, through their ATO account linked to myGov).

“Don’t worry if you don’t know your new international residential address yet. Just provide us with your best contact address while you’re away, like your parents’, and update your contact details when you’re settled. The most important thing is that you’re still able to receive correspondence from us while you’re overseas”, said Mr Whyte.

Australians who are already overseas need to update their details no later than 1 July 2017. From 1 July 2017, anyone living overseas and earning above the minimum repayment threshold will be required to make loan repayments, just as they would if they were living in Australia.

“We will be in touch closer to the time with more information about how to report income and make loan repayments”, Mr Whyte said. “For now, all travellers with a HELP and/or TSL debt need to do is update their details and factor in potentially making repayments from 1 July 2017”, he added.

Repayment income and rates

A notice has been gazetted specifying the 2016–2017 financial year HELP repayment income thresholds and rates. They are shown in the following table.

HELP repayment thresholds and rates 2016–2017
For repayment income in the range Percentage rate to be applied to repayment income
Below $54,870 Nil
$54,870 to $61,120 4%
$61,121 to $67,369 4.5%
$67,370 to $70,910 5%
$70,911 to $76,223 5.5%
$76,224 to $82,551 6%
$82,552 to $86,895 6.5%
$86,896 to $95,627 7%
$95,628 to $101,900 7.5%
$101,901 and above 8%

Getting help

From 1 July 2017, student debt holders will need to work out their worldwide income for the 2016–2017 financial year and report details to the ATO.

The arrangements will apply to both new and existing debts. Debts will continue to be indexed each year until paid off. Students can make additional voluntary repayments at any time to reduce their debt, and the debts can be repaid from overseas.

You may wish to seek professional tax advice to determine your residency status and assess your worldwide income. Please contact our office for further information on (02) 9954 3843.

Article as seen at http://checkpointmarketing.thomsonreuters.com/

Do You Have to Pay Capital Gains Tax When Selling a Home?

/in /by

Let’s say you have been living in your only home for many years but now you want to move to a smaller place. You have built up quite a bit of equity so you are likely to receive a large profit when you sell. Will you have to pay capital gains tax on the money? Generally speaking, you do not need to pay capital gains tax when you sell your home because it likely falls under the “main residence exemption” to capital gains tax.
The home is strictly residential and not used to produce income.Specifically, you may not be liable for any capital gains tax when selling your home if the following conditions are satisfied:

  • The place has been your home for the entire period of ownership.
  • Your property satisfies certain conditions related to things like the size.

If you satisfy some but not all of the above conditions, you may be liable for some capital gains tax, but perhaps not the full amount that would normally be payable. Please consult your adviser for details. There are many situations where tricky capital gains tax questions can arise relating to the sale of a home. For example, suppose you are in the process of moving from one home to another and there is a period of time during which you own two homes at the same time. How do the rules then apply when you sell your first home? Your adviser can provide answers to such questions.

When considering whether you may be liable for capital gains tax when selling your home, here are some answers to commonly asked questions:

What is a “Place?”

The place or dwelling must be mainly residential. It can be a traditional home, cottage, apartment, unit in a retirement village, houseboat or a mobile home.

Is the Place Your Main Residence?

Although there is no single decisive factor here, things you should consider are the type of things that make a place “a home” in the ordinary sense. For example, some important considerations include:

  • Are your personal belongings in the home?
  • Do you have utility services (telephone, gas or electricity) connected to the address?
  • Is your mail delivered to the address?
  • Is this your address on the electoral roll?

There are many other factors to consider that vary depending on individual circumstances. Ask your tax adviser what factors might work to your advantage.

What Is Your Ownership Period?

As mentioned above, the place must be your home for the whole time you own it in order to be fully exempt from capital gains tax. This is referred to as the ownership period. It generally starts on the date you get legal ownership under a contract and ends on the date of sale under a contract.

But there can be certain complications to this rule. For example, if after you buy a home, you cannot move in straight away for some reason. You generally may have to wait until you move in to claim the place as your home for capital gains tax purposes. Consult your adviser for your specific situation.

What if I Want to Build a Place on Land I Own?

There are also specific rules if you build a place on land you already own. Generally, land by itself may not be considered a main residence. Only after you finish building a place and it becomes your home, can you claim the capital gains tax exemption when you sell. However, there are certain circumstances where you can treat land as your main residence.

Further advice

The above is a discussion only, and further advice should be obtained before implementing a new strategy. Please contact our office to discuss your circumstances and to obtain tailored advice.

Article as seen at http://checkpointmarketing.thomsonreuters.com/

Are the costs of establishing a self-managed super fund (SMSF) deductible?

/in /by

Answer: 

The costs of establishing a superannuation fund would typically be classified as non-deductible capital expenditure. Clearly the SMSF trust – or any interest in the trust – does not qualify as a “depreciating asset” for the purposes of Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997).

A “blackhole” deduction under section 40-880 of the ITAA 1997 may be available (5-year write-off), but the key issue would be whether the SMSF proposes to carry on a business: see section 40-880(1). This is a complex issue, as typically superannuation funds are involved in passive investments rather than conducting a business.

However, a superannuation fund can carry on a business of investing or trading in shares – this is acknowledged in Taxation Ruling TR 93/17. (Whether an entity is carrying on a business is considered in Taxation Ruling TR 97/11.)

The factors that need to be considered include the following:

  • the purpose and intention of the taxpayer in engaging in the activities (to be assessed objectively);
  • an intention to make a profit from the activities (to be assessed objectively), even if only a small profit is made or a loss is incurred (although if a loss is incurred every year for a number of years, that suggests the activity may be more in the nature of a hobby);
  • the size and scale of the activities – they must be in excess of domestic needs, but need not be the only activities of the taxpayer and can be carried on in a small way;
  • repetition and regularity of the activities – however, the expression “carry on” does not necessarily require repetition (see FCT v Consolidated Press Holdings Ltd (2001) 207 CLR 235 at 81) and an isolated activity may constitute the commencement of a business;
  • the activities being carried on in a systematic and business-like manner typical of that type of business (eg detailed and up-to-date records and accounts should be kept); and
  • the existence of a business plan.

All relevant factors must be considered in combination and as a whole, and no one factor is likely to be decisive.

Sole purpose test

A significant issue would be whether a “business” element would trigger a breach of the sole purpose test that applies to SMSFs (s 62 of the Superannuation Industry (Supervision) Act 1993).

Establishing a business element to activate a blackhole deduction would not necessarily mean that the superannuation fund has breached the sole purpose test. Rather, a superannuation fund carrying on a business is just a possible indicator that the sole purpose test has been contravened. So if the trustee of an SMSF can demonstrate a business element, it may be possible to substantiate that there is no breach of the sole purpose test.

Other issues

While the costs of establishing a superannuation fund are not typically deductible, taxation advice may be deductible under section 25-5 of the ITAA 1997, to the extent that the advice is about the operation of tax laws or costs incurred are for managing the taxpayer’s “tax affairs”. However, in Drummond v FCT [2005] FCA 1129, a taxpayer was denied a deduction under section 25-5 for “taxation advice” when establishing a superannuation fund because the advice included matters outside the scope of managing the taxpayer’s tax affairs.

Also note that Taxation Ruling TR 93/17 discusses deductions that a superannuation fund may be able to claim.

Further advice

The above is a discussion only, and further advice should be obtained before implementing a new strategy. Please contact our office to discuss your circumstances and to obtain tailored advice.

Article as seen at http://checkpointmarketing.thomsonreuters.com/

Private Health Insurance Rebate Thresholds

/in /by

Eligibility for the private health insurance (PHI) rebate is income tested against the PHI income thresholds, which are usually adjusted annually.From 1 July 2015, the income thresholds used to calculate the PHI rebate and the Medicare levy surcharge will remain at the 2014–2015 levels for three years. That is, the income thresholds will remain at the 2014–2015 levels for 2015–2016, 2016–2017 and 2017–2018.The rebate amounts will continue to be adjusted annually on 1 April based on a “rebate adjustment factor”. The rebate adjustment factor for 2016 is 0.963, and the industry-weighted average premium increase for 2016, including rate protection, is 5.59%.

Income thresholds/status Base tier Tier 1 Tier 2 Tier 3
Single $90,000 or less $90,001–$105,000 $105,001–$140,000 $140,001+
Family $180,000 or less $180,001–$210,000 $210,001–$280,000 $280,001+
Age Rebate for premiums paid, 1 April 2015–31 March 2016
Under 65 27.820% 18.547% 9.273% 0%
65–69 32.457% 23.184% 13.910% 0%
70+ 37.094% 27.820% 18.547% 0%
Age Rebate for premiums paid, 1 April 2016–31 March 2017
Under 65 26.791% 17.861% 8.930% 0%
65–69 31.256% 22.326% 13.395% 0%
70+ 35.722% 26.791% 17.861% 0%
Note: Single parents and couples (including de facto couples) are subject to the family tiers. For families with children, the thresholds are increased by $1,500 for each child after the first.


Prepaid premiums If you paid for your current financial year’s entire private health insurance cover in a previous financial year, you still need to enter the private health insurance policy details in your current year’s tax return.This will confirm that you had an appropriate level of private patient hospital cover for all or part of the financial year and, accordingly, ensure that the ATO does not charge the Medicare levy surcharge.Your insurer should provide you with a private health insurance statement. This statement will assist in completing the private health insurance policy details section of your tax return.If you prepaid your insurance for 12 or more months, you may want to consider contacting your private health insurer to discuss your income and rebate tier, and nominate a different tier where necessary.There is no requirement for you to change the level of rebate you receive as a premium reduction. However, it can reduce the chance of you facing a liability next tax time.

 

Disclaimer of Liability

Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

Article as seen at http://checkpointmarketing.thomsonreuters.com/

Why having a corporate trustee for your SMSF can save you from potential costs

/in /by

Some of the key advantages of having a corporate trustee include:

Continuous succession – a company has an indefinite life span. A company makes succession to control more certain on death or incapacity.

Administrative efficiency – on the admission or cessation of membership, that person becomes or ceases to be a director of the company. Thus, the title to all assets remains in the trustee company’s name. The situation is vastly different with individual trustees. Each admission or exit of a member, who is also a trustee, involves considerable time and paperwork.

Sole member SMSF’s – you can have an SMSF where one individual is both the sole member and the sole director of the Trustee company; as opposed to sole member funds with individual trustees where you must have two individual trustees.

Greater asset protection – as companies have limited liability, they provide greater protection. The advantages of limited liabilities should never be underestimated.

Administrative penalties – there are a number of penalties that can be readily be imposed under s 166 of the Commonwealth Superannuation Industry (Supervision) Act 1993 by the ATO where no questions are asked. Each individual trustee is subject to a penalty of up to $18,000 per offence. In comparison, a company is only liable to one penalty amount per office.

Advisors should encourage clients to move to corporate trustees

Key steps involved with changing an SMSF trustee

  1. A careful review of the prior document trail – preferably each prior deed and deed of change of trustee is carefully reviewed to determine what are the most appropriate provisions that apply to changing the trustee.
  2. A review of applicable legislation such as the Trustee Act and stamp duty legislation of the relevant jurisdiction. In some cases the SMSF deed does not contain adequate power and a resort to the provisions in the Trustee Act of the relevant jurisdiction is required.
  3. In cases where the deed is out of date and does not have clear power to undertake a change of trustee, updating the deed first is advisable to ensure there is clear and appropriate power.
  4. Ensure that the SMSF deed have an appropriate ‘appointor’ power as the ability to appoint and remove trustees is one of the most important powers that can be exercised in relation to controlling an SMSF.

We advise our SMSF clients who currently have individual trustees to consider switching to a corporate trustee as soon as practicable, as not having a corporate trustee may result in costly disputes. We advise clients to seek advice on this from experienced advisers or solicitors specialising in this area.

If you would like more information how you can go about changing your SMSF from an individual trustee into a corporate trustee, please contact us on 02 9954 3843.

‘Getting your clients on board with having a corporate trustee’ SMSF Adviser Magazine written by Daniel Butler (March 2016): 10-11. Print

Class hits 100,000 billable SMSF portfolios

/in /by

Source URL http://www.smsfadviseronline.com.au/news/13714-class-hits-100-000-billable-smsf-portfolios

Written by Staff Reporter from SMSF Advisor
Thursday, 03 March 2016

logo_class_super

Cloud accounting software provider Class has announced it now holds more than 100,000 billable portfolios following a busy start to the year.

As of 29 February, Class had a total of 100,025 billable portfolios on its system, an increase of 3,388 portfolios since 31 December 2015.

Of the 100,025 billable portfolios, 98,515 are SMSFs, with the remaining 1,510 being other non-SMSF investments administered on the new Class portfolio product.

“This brings Class’s shares of the overall SMSF market to over 17 per cent and the total number of customers to 865,” the company said.

Class chief executive Kevin Bungard said reaching 100,000 billable portfolios is a significant accomplishment.

“We’re happy with the momentum of the business, the addition of 3,388 portfolios since 31 December 2015 has been achieved in what has traditionally been our slowest period of the year,” said Mr Bungard.

logo

We have used Class Super platform for the last three years in relation to self-manage superannuation fund administration and tax matters. Please feel free to contact us for SMSF services including:

  • Establishment of SMSF and regulatory administration matters
  • Preparation of annual financial statements and taxation returns
  • SMSF audits and other annual compulsory regulatory requirements
  • Professional advice regarding above matters
  • Pensions and retirement strategies

The power of re-contributing

/in /by

The power of re-contributing

Re-contribution strategies can reduce the tax liability of an SMSF and its beneficiaries as well as allow members to qualify for Centrelink benefits. Karen Dezdjek illustrates how.

A re-contribution strategy for SMSFs is easy to implement. It has the potential to deliver significant tax savings to both the member and their beneficiaries when a member dies, not to mention potential access to Centrelink benefits they may have otherwise forgone.

So what exactly is it?

As its name suggests, a re-contribution strategy is where money is withdrawn out of the SMSF from a member’s entitlement and then deposited back, allocated to the same member or even the member’s spouse.

A member’s balance typically consists of two components – a taxable and tax-free component. A taxable component is derived from employer or member contributions where they have claimed a tax deduction. The tax-free component results from a contribution into the fund where no one is claiming the amount as a tax deduction. The idea behind the strategy is to convert a member’s balance that is predominantly taxable into a balance that is predominantly, or entirely, tax-free.

Sounds easy. So what’s the catch? In order to use this strategy a member will need to meet a condition of release to be able to access their benefits and then be in a position to re-contribute the money back into the fund either for themselves or their spouse.

What are the benefits?

Like most strategies the main aim is to save on tax. This strategy has potential benefits for anyone who has a taxable component and is able to access their entitlement.

Members up to age 60

Those who are under the age of 60, have permanently retired, have a high taxable component in their member balance and wish to begin a pension to have the ability to save some tax can benefit from the strategy.

As we know, drawing a pension from the fund up until age 60 will mean there will be tax payable at the member’s marginal rate less the 15 per cent tax offset. However, if a condition of release, such as retirement, has been satisfied, a member can use their tax-free lifetime cap by withdrawing up to $195,000 (2015/16 rates) and then re-contribute this amount back into the fund as a non-concessional contribution. The non-concessional cap is currently set at $180,000 a year with the ability to bring forward an additional two years of non­ – concessional contributions. It is important a member checks they haven’t previously triggered the bring-forward provision before using this strategy, otherwise an excess contributions assessment will be issued.

Members aged between 60 and 65

As previously discussed, when a member turns 60 the pension is no longer included in their personal tax return. Many would argue there is no longer a need to use a re­contribution strategy and, from a personal tax perspective, they are correct (assuming the government continues not to tax pensions). However, there are still potential benefits that will arise from an estate planning perspective and, potentially, access to Centrelink benefits.

Many people are under the impression death taxes don’t exist in Australia. Unfortunately, there is a form of death taxes that are levied when non-dependants receive a death benefit that contains a taxable component. Members over 60 who anticipate there will be a benefit remaining after they die can potentially save their non-dependent beneficiaries (adult children) a significant amount of tax, ensuring the maximum entitlement possible is received.

Members aged 65 and over

Let’s consider Jim who has a super balance of $850,000. He is married to Sally who is 61. Jim will turn 65 in six months and would like to be eligible to receive Centrelink entitlements. In his current situation he will not be entitled to any Centrelink benefits as he has too much in his own name. Jim decides to withdraw $540,000 from his superannuation entitlement as a pension and re-contribute this back into the fund in Sally’s name. Doing this will allow Jim’s superannuation entitlement to drop below the cap and he will be eligible to receive a part pension. The good news is that by contributing to Sally’s balance, and if she remains in accumulation mode, her entitlement is not counted by Centrelink. Jim and Sally will enjoy some form of Centrelink benefits for at least the next few years until Sally turns 65.

Are there any disadvantages of using a re-contribution strategy?

While there are a number of advantages, like all strategies there are always a few points to consider. Fora re-contribution strategy to work, a member must physically withdraw the cash from the fund. If the fund is heavily invested in assets such as shares, there may be a need to sell down assets and incur costs such as brokerage.

Some of the assets may be held in investments that take time to liquidate and therefore there is the opportunity cost of not being fully invested.

If a member is currently receiving an entitlement from Centrelink, the amount withdrawn may affect the member’s ability to continue to receive the entitlement in the short term. This could mean loss of the pension, as well as the valuable health benefits card that could prove quite disastrous financially.

Finally, if a re-contribution strategy is used, the fund will lose the ability to use the anti-detriment provisions. This should be considered if the entitlement is to go to a dependant, as they will lose the ability to claim an anti-detriment payment.

 

Within this article, there are two case studies (not included in this posting) to provide a clearer understanding. If you would like further information, please contact our office on 02 9954 3843.

Please note that this article is not professional advice however only general information only. Please do not act on this article without further advice.

 

‘The power of re-contributing’ Self-Managed Super Magazine written by Karen Dezdjek (Quarter 1, 2016, Issue 013): 48-50. Print