Tim Miller, technical and education manager for Smarter SMSF, said the concept of the superannuation life cycle “has basically been blown up”.
In the latest SMSF Adviser podcast, Mr Miller said the traditional life cycle – setting up a fund, contributing to it, then retiring – no longer exists which means there are a lot of things to consider at tax time to ensure members get the most out of their SMSF.
“Now we’ve got this period of ultimately 15 years, from age 63 to 75, where people will be potentially transitioning to retirement but won’t be in that full retirement and they’ve got the capacity without any work test requirements to be able to contribute alongside commencing pensions,” he said.
“So we’ve got the inevitable question that’s going on at the moment of do you delay your pension commencement until 1 July next year purely for personal transfer balance cap purposes?
“If you are looking at a 1 July pension commencement date, then you’re probably contemplating all these other contribution strategies from a personal deductible contribution point of view.
“And then there’s the question of whether you’re aware of your requirements that you have to lodge your notice of intention to claim a tax deduction prior to commencing the pension?”
Mr Miller said there is a lot of nuance between pension commencements and climbing personal deductible contributions and the decisions made are critical.
“To take that one step further, all those clients that potentially start pensions on 1 June, have to contemplate whether they can claim a personal tax deduction and it might be too late if they’ve nominated a 1 June start date for the pension commencement,” he said.
“I guess with the concept of this massive tax planning, we think about the immediate tax benefit that is here, but for someone now that has the capacity to undertake contributions and the planning of contributions through to 75, it means we do have this 15-year window where we could be actually interchanging pensions and contributions and therefore, tax as a driver,” he says.
“Then things like re-contribution strategies also come into it and whether you defer or not on making that pension commencement on 1 July 2023, because of the indexation of $1.9 million.
“There may be some tax issues inside the fund in the current year that you may be better to get the CPI claiming this year because of asset disposals or other high levels of distributions.
“I guess the tax planning concept, even when we think about pensions, does have a very broad application now, because we’re not only looking at the immediacy of the deduction, but we’re also looking at the planning that presented both inside the fund and then more broadly from an estate planning context as well.”
