SMSF – 60+ and satisfying the retirement conditions for superannuation benefits

Question

Clients over 60 years of age can withdraw all of their benefits in a superannuation fund tax free.  To do so they must satisfy a condition of release.  One condition of release is retirement.  Ordinarily, you think of retirement as requiring a person ceasing to be gainfully employed and never again intending to become gainfully employed.  Is this the case for clients of age 60?

Answer

A person who has attained the age of 60 years will satisfy the "retirement" condition of release if an arrangement under which the member was gainfully employed has come to an end and either they attained 60 years on or before the ending of that employment or the trustee of the relevant superannuation fund is reasonably satisfied that the person intends never to again become gainfully employed either on a part time or full time basis.  A member will satisfy this definition (and therefore satisfy a condition of release) if some employment ceases after age 60, even if they recommence some other employment immediately afterwards, or they have several arrangements for employment and only one of those ceases after they attain age 60 and others continue (eg acting as director).

SMSF – The limit for the Retirement Exemption under the Simplified Superannuation Regime

Question

In addition to deductible (concessional) contributions and undeducted (non-concessional) contributions, the simplified superannuation regime allows contributions of amounts attributable to the small business CGT concessions up to a CGT cap of $1 million.  Traditionally, the retirement exemption under the small business GST concessions was limited to a lifetime cap of $500,000.00.  Does the new simplified superannuation regime allow the retirement exemption to be claimed for $1 million per CGT concession stakeholder?

Answer

No, the new simplified superannuation regime does not allow $1 million per CGT concession stakeholder to be claimed under the retirement exemption. A person may contribute up to the amount of the CGT cap ($1.045 million for the 2008/2009 year) from monies received tax free as a result of either the retirement exemption or the 15 year exemption under the small business concessions.  This contribution is in addition to the deductible (concessional) and undeducted (non-concessional) contribution limits.  The retirement exemption remains at a lifetime limit of $500,000.00 per concession stakeholder.  The balance of the CGT cap could be utilised on a separate sale eligible for the 15 year exemption (or a sale of pre-CGT assets that would be eligible if it were post-CGT).

SMSF – Stamp Duty issues when moving assets from a Discretionary Trust to a SMSF

Question

There is a discretionary trust that owns business real property.  The clients are considering transferring the property to their superannuation fund to access superannuation money.  Is it possible to implement this kind of restructure without triggering a liability for stamp duty?"

Answer

Yes.  An opportunity exists to move business real property from Discretionary Trusts to superannuation funds without triggering a liability for stamp duty as long as certain conditions are met.  To access this opportunity, the restructure must be implemented by a particular method customised with the location of the property.  It can be applied for property in Queensland, NSW, ACT and Victoria.  For those in Queensland, the method has been processed though the Office of State Revenue who have stamped it without duty.  The method can also be applied to Unit Trusts.  However the types of property that can be transferred are limited to business real property, listed securities, units in widely held trust and in ungeared trusts satisfying the regulations.

SMSF – 60+ Are all superannuation benefits withdrawn tax free?

Question

I have a client who has recently turned 60 years of age.  Can he/she withdraw all of the benefits held in a superannuation fund tax free?

Answer

There has been a lot of grandstanding that once a person reaches age 60 they can withdraw all of their benefits and superannuation tax free.  That will only be the case if the member is permitted to withdraw the funds out of superannuation.  As was the case under the previous regime, to withdraw benefits out of superannuation it is necessary for the member to satisfy a condition of release.  Two relevant conditions are retirement after age 55 or reaching age 65.  The result is that for a person between the age of 60 and 65, they can only withdraw their benefits out of superannuation if they have retired.  For some this may mean that they cannot withdraw their benefits out of superannuation tax free until they reach age 65.  For those before age 65 they can still use transition to retirement pensions, with the pension payments after age 60 being tax free.

SMSF – Gearing property purchases

Question

The client is looking at purchasing a commercial property for $1.2 million.  They have $300,000 available for investment in their self managed superannuation fund.  The client would like to acquire the property in their super fund, or otherwise involve their super fund in the acquisition.  What are the options?

Answer

Amendments have recently been passed into law (24 September 2007) to allow super funds to borrow on a limited recourse basis in the form of an instalment warrant.  The Alchemy Warrant takes advantage of these amendments.  Under the Alchemy Warrant, the super fund pays its available funds of $300,000 as an initial payment to the trustee, the trustee then obtains the remaining $900,000 from a bank on full recourse terms and acquires the property.  The limited recourse loan is between the trustee and the super fund (the bank does not provide the limited recourse funding).  The trustee is an entity controlled by the members of the superannuation fund.

Question

For a number of years the law has allowed the implementation of binding death benefit nominations.  The law stipulates a process that must be followed where the fund is subject to the requirements of Section 59 of the SIS Act.  Is it necessary for self managed super funds to comply with those requirements?

Answer

Section 59(1) of the SIS Act provides a prohibition against the governing rules of a superannuation entity permitting a discretion to be exercised by a person other than the trustee.  However, the prohibition specifically does not apply to SMSFs.

Section 59(1A) overrides Section 59(1) to allow for certain death benefit nominations to be made in accordance with the regulations (namely, Regulation 6.17A of the SISR), provided the nomination satisfies specific requirements set out in the regulations.

Cleary Hoare's position has always been that a binding death benefit nomination in a SMSF did not need to comply with the in the regulations because the restrictions in Section 59 of the SIS Act did not apply to SMSFs. It was always our view that it is possible for the governing rules of an SMSF to permit a member to make a binding death benefit nomination whether or not in the manner and form set down in the regulations.

There were some other advisers, however, that asserted that binding death benefit nominations by SMSFs nevertheless had to comply with the specific requirements of the regulations.

The ATO has now issued a determination (SMSFD 2008/3) that agrees with our view.