Identifying pension opportunities and traps approaching this EOFY
With a variety of super changes on the way, advisers can make sure to stay on top of the impacts on SMSFs’ income streams and ensure optimal timings for clients when drawing pensions this year.
When conducting a pensions review this year, SuperConcepts technical executive manager Graeme Colley said SMSFs should make sure that the minimum pension is paid for any existing pensions and that the maximum level is not exceeded for transition to retirement (TRIS) pensions.
“A pension that does not satisfy the payment rules will mean any income on assets supporting the pension will be taxed at 15 per cent rather than be tax-exempt,” he said.
When deciding to draw more than the minimum pension, Mr Colley noted clients may also wish to consider taking any amount over the minimum as a pension payment or as a lump sum.
“The reason is that lump-sum commutations of your client’s pension balance will result in a reduction of their transfer balance account and can be used to access additional pension benefits in future,” he said.
“If your client wishes to draw a lump sum from their pension balance, it is worthwhile to keep a note in the SMSF’s records; otherwise, it may be treated as a pension payment.
“If your client has more than one pension account or possibly an accumulation account in their SMSF, then part of the decision will be whether any additional payment comes from one or more of those accounts.”
Another thing to consider if clients have multiple pension accounts is the tax-free proportion of each pension, according to Mr Colley.
He said: “This also includes whether grandfathering could apply to qualify for Centrelink benefits or Seniors Health Care Card. Also, you may like to take into consideration whether the pension is reversionary or non-reversionary or the impact of any binding death benefit nominations.”
Meanwhile, if a fund is substantially in accumulation mode, SMSF Alliance principal David Busoli said advisers can also consider optimising the fund’s overall capital gains tax position.
Funds can do this by utilising capital losses where the fund has realised capital gains for this financial year.
“Be aware of the Wash Sale provisions which will apply if transactions simply adjust the cost base without altering the investment portfolio or without assuming some investment risk in the process,” he said.
“If a fund is wholly in pension mode and has realised net capital losses for the year, consider rolling a small portion back to accumulation, in this year only, as this will allow the capital losses to be carried forward indefinitely. Note that the fund will require an actuarial certificate.”
Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.
Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.