General Superannuation

Question 1

NCC: a person aged 66 or younger at the start of the financial year is able to bring forward up to three-years of non-concessional contributions in a single year. From 1 July 2022, available to under 75. No work test.

The normal restrictions that apply to non-concessional contributions remain in place including:

The contributor must have a total superannuation balance at the previous 30 June of less than $1.7m (or less than $1.48m if seeking to contribute $330,000)

If the contributor was aged 66 on 1 July 2021 and they have since turned 67, they will need to have met the work test if contributing after their 67th birthday

The three-year bring forward rule has not been triggered in either of the two previous financial years.

Answer 1

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Question 2

Super contributions:

1) SG - no work test - no max age
2) Voluntary (inc Sal Sac, additional employer CCs) - Work test - Yes if 67+ at time of contribution - max age 75 (must be received within 28 days of end of month in which member reaches 75.)
3) Personal (NCC, PDC, overseas transfers) - Work test - Yes if 67+ at time of contribution - max age 75 (must be received within 28 days of end of month in which member reaches 75.)
4) Spouse - Work test - Yes if 67+ at time of contribution - max age 75 (must be received within 28 days of end of month in which member reaches 75.)
5) Downsizer (65+) - no work test - no max age (changing to 60+ 1 July 22)

From 1 July 22 - no work test for 67-75 for NCC or sal sac.

Question 3

Work test exemption:
- only in the FY following the last year the member met the work test.
- TSB less than $300k at previous 30 June
- Only used once in a lifetime.
(can do sal sac, NCC, PDC, small business CGT, spouse contributions)

Question 4

Div 293 tax:

• additional 15% contributions tax
• the 30% applies to the part of your before-tax contributions that are over $250,000
• only on the low tax contributions (SG + sal sac + PDC). Not their income.

Question 5

Catch up CCs:

• from 1 July 2018
• max 5 years
• balance under $500k at previous 30 June
• additional CCs will first reduce earliest accrued unused CCs
• unused CCs managed by ATO (no paperwork required)

Question 6

PDC’s (Notice of intent to claim)

• submitted by earlier of
  - date of lodged tax return
  - end of FY following FY contribution was made.

When INVALID:

• no longer member of the fund (e.g. a rollover)
• fund no longer holds the contribution
• contribution used to start a pension

Question 7

NCC Caps:

Nil $1.7m+

LT $1.48m $330k

1. 48 - LT 1.59m $220k
2. 59 - LT 1.7m $110k

• Once triggered remaining bring forward NOT indexed
• unused amount can be used in subsequent years even if over 67 (subject to work test) CHANGE from 1 July 2022
• subsequent contributions for bring forward possible only if TSB is under $1.7m

Answer 7

A

Question 8

Downsizer:

• age 65+, no upper limit (changing to 60+ from 1 July 22)
• max $300k per individual for qualifying dwelling
• owned by individual OR spouse for at least 10 yrs prior to sale
• full or part CGT exemption
• contribution made within 90 days of change of ownership (settlement)
• fill in approved form
• no previous downsizer
• not required to purchase another dwelling
• can make contribution even if they buy a more expensive house

Answer 8

• Property does not need to be main residence at time of sale
• does NOT count to NCC cap
• no work test
• not impacted by TSB, therefore, can contribute at $1.7m+, but then forms part of the TSB for other contributions.
• can’t claim a tax deduction

Question 9

TSB

Catch Up - $500k
Work test exemption - $300k
NCC - max $1.7m

Answer 9

A

Question 10

TSB limits

Catch Up - $500k
Work test exemption - $300k
NCC - max $1.7m
also bring forward rule

Answer 10

Government Co- contributions

• can contribute (NCC) any amount under cap
• $1,000 NCC will get $500 Govt co-cont

Assessable Income $41,112 or less - max $500 (0.5 x contribution)
reducing between $41,112 to $56,112

Question 11

Spouse contributions:

L.T> age 75
under general transfer cap ($1.7m)
67-74 - spouse must meet work test, or work test exemption

Max rebatable cont = $3,000
Max offset = $3,000 x 18% = $540
Spouse earns $37k of less - full
$37k - $40k (reducing)

Question 12

Conditions of Release:
Reaching Preservation Age - start a TTR (max 10% of account balance)

Preservation & Retired - cease employment & satisfy the fund trustee they never intend to be gainfully employed again (full or part time)

Termination after age 60 - cease employment, any new contributions or growth on accumulation account will need to meet ANOTHER condition of release.

Age 65 - can access super, lump sum or pension

Answer 12

Temporary incapacity - non-commutable income stream

Permanent incapacity - lump sum or pension

Terminal condition (death likely within 24 mths) - lump sum or pension (if rolled over - is NCC and is preserved)

Also FHSSS, Death, Financial hardship, Balance under $200, transfer from Kiwisaver, departing Australia

Question 13

Income Streams:

General transfer balance cap $1.7m

If existing pension - Increase in cap:
Unused cap% = (1 - (used cap)/TBC)) x 100

Used cap = highest ever transfer balance account (TBA) balance. Therefore, any commutations DO NOT reduce the used cap.
TBC - is the TBC at the time of the highest value.
Unused cap% rounded down to nearest whole number

Includes - ABPs, death benefit pensions, super annuities, defined benefit income streams, TTRs after age 65.

Answer 13

Transfer Balance Account:

• When a superannuation income stream is commenced you will start to have a transfer balance account.
• Is a notional account (different to ACTUAL balance of the pension)
• Credits - money in - commencing a pension
• Debits - money out commutations

Market movements and pension payments do not count

Question 14

Income Streams:

Proportional drawdown

• Income stream payments can consist of tax-free and taxable components determined at the date of purchase.
• the tax components of each income payment will reflect the same proportions.
• relevant for pensions under age 60 (for the taxable component)

Answer 14

TTR Pensions:

• Current min is 2% (normally 4%)
• Max is 10% of the account balance at 1 July each year.
• generally no commutation allowed (a few special conditions)
• earnings taxed at 15%
• TTR automatically enters retirement phase at age 65. Balance at that time = credit to TBA.

Question 15

Super Death Benefits:

• must maintain the deceased pension, otherwise it MUST be cash out of super (cannot be held in accumulation.
• the survivor can commute their pension (back to accum), take on the deceased pension, then either top up the pension (2nd pension) to the TBC and retain their former pension in super. This ensure the max is retained in the super environment

Answer 15

Death benefits cannot be consolidated with the beneficiary’s benefits.

Question 16

Super Death benefits:

The beneficiary DOES NOT inherit the deceased’s TBC.

Need to consider:

• The beneficiary’s personal TBC (including indexation)
• their TBA
• timing for when the credit for the death benefit pension is applied (12 mths for reversionary pension, as soon as the death pension commences for non-reversionary)
• any need to commute the beneficiary’s existing pension.
• death benefits cannot be rolled over into accumulation phase

Answer 16

Reversionary:
An advantage of holding a reversionary nomination is that the surviving spouse has 12 months, after the date of death, before the pension balance is included in their own TBC.

• if changing nomination, MAY need to commute and recommence. This depends on the provider.

Question 17

Super death benefits:

Binding appropriate:

• want flexibility as to who receives the benefits.
• going to the LPR (estate)
• going to multiple beneficiaries (SIS dependants)

Answer 17

Non-binding nominations can be valuable where it’s desirable to have flexibility at the time of death to determine how much is paid:
▪ to the estate, for example, to be placed into a testamentary trust
▪ as a lump sum to clear debts and pay immediate expenses
▪ as a pension, and
▪ to multiple pension beneficiaries.

Question 18

Super death benefits:

Super dependent
- Spouse (NOT former spouse)
- child under 18
- child 18 +
- financial dependent (including adult child)
interdependent relationship (including adult child)

To leave super benefits to non dependent- nominate LPR

Answer 18

Tax dependent:

• Spouse
• Former spouse
• child under 18
• NOT child 18 +
• financial dependent (including adult child)
  interdependent relationship (including adult child)

if a former spouse receives the super death benefit via the deceased’s estate, the estate will be eligible for the more favourable tax treatment.

Question 19

Super death benefits: p38

Lump sum

• Yes to all SIS dependents

TAX free lump sum

• Not to adult children (not dependent)

Answer 19

Death benefit pensions:

No to 25+ and financially dependent.
No to 18+ and NOT dependent

Question 20

Super death benefits:

Lump Sum tax:

Tax dependent - Tax free (includes former spouse)

Non tax dependent

• taxable - 15% plus medicare
• untaxed - 30% plus medicare

If lump sum death benefit paid from super to a non dependent - the taxable amount must be reported in beneficiary’s tax (a tax offset will apply so tax won’t be higher than 17%). However, Higher income could affect div293 or other benefits. Medicare Levy 2% so more tax.

If lump sum paid from estate - deemed a capital distribution from the trust and NOT required to disclose on tax as tax has already been withheld. ALSO - no Medicare Levy.

Therefore, maybe super paid to estate is better if no potential for will contest.

Answer 20

Taxation of death benefit income streams

Either over age 60 - tax free (includes taxable)

Both under 60 - taxable at MTR less 15% offset

Question 21

Super death benefits paid the estate does not attract the 2% medicare levy.

If paid to beneficiary is does.

For a large benefit could be thousands of dollars.

Answer 21

The death benefit taxable component is added to the beneficiary’s taxable income (even though the super fund withholds the tax) which is offset but counts as reportable income for div293 and other situations.

Question 22

SMSF

Unsegregated funds (most common)

With unsegregated funds, one pool of assets is held, corresponding to all member balances. The investment returns on those assets are spread across all members in proportion to their member balances.

Under this method, the proportion of the fund’s income that is exempt from tax is essentially based on what percentage of the fund’s balances were in the retirement phase on average over the year during which the proportional method was used.

Answer 22

So say the actuary determines that, over the year, an average of 70% of the fund’s balances were supporting retirement-phase income streams. In that case, 70% of the fund’s capital gains and income will be exempt from tax, while the remaining 30% will be taxed at 15%.

Question 23

SMSF

Segregated funds

With segregated funds, 2 or more asset pools are established. Each asset pool either corresponds to a member, pension balance, accumulation balance or combination of these. Some examples might be:

All pension balances correspond to one pool of assets, and all accumulation balances correspond to another pool of assets

John’s member balance corresponds to one member pool, and Mary’s member balance corresponds to another asset pool

The key requirement is that separate pools of assets are held.

Answer 23

The benefits of segregated funds

Here are some situations where segregated funds might be warranted:

1) Where the members have very different investment objectives, and keep their finances separate. Examples might be parents (who want more income and less risk) and children (who want higher growth) in the same fund; or a husband and wife in their second marriages.
2) Where one member is in accumulation and the other is in pension, and the fund owns some assets producing high income and others producing low income.

Question 24

Strategies to minimise tax from super death benefits:

1) keep life insurance outside of super (could be taxed at up to 32% if untaxed component)
2) withdraw funds out of super BEFORE death (if terminally ill or if PoA can do it)
3) Nominate only dependants as super beneficiaries
4) withdraw and recontribute (NCC) to increase tax-free component before commencing an income stream (cash will be taxed if not age suitable). But good for adult beneficiaries.

Answer 24

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