A Federal election must be held by November 30 this year so now’s the opportunity to outline a wish list for some improvements to the super and retirement system for both parties to consider in their upcoming election promises.
Self managed super funds: intergenerational transfer of assets
Increasing the number of members from the current maximum of four would allow financial advisers to plan more effectively for the intergenerational transfer of assets.
For example, transferring real property normally results in capital gains tax and stamp duty. A solution could be to hold real property in a family superannuation fund, where both parents and children are members.
By holding the property in a family superannuation fund with the parents and their adult children as members, as the parents cease working and contributing to the fund subsequently commencing pensions, their children‘s SG contributions into the fund result in a change in the respective proportion of account balances, and consequently the ownership of the underlying assets.
Ultimately the parent’s accounts will be completely eroded by pension payments and the assets of the fund will be represented entirely by the member accounts of the next generation. The property will have effectively been transferred from one generation to the next, in circumstances unlikely to give rise to CGT or stamp duty.
Abolish superannuation ‘death tax’
At the moment, death taxes and rules around inheritance are complicated and, in some cases, unfair. For example, if someone was to pass away and their superannuation was left to a non-tax dependant, that superannuation money would be taxed at 15% plus Medicare in the hands of the beneficiary — a so-called death tax. Whereas, if it was left to a tax dependant, someone who was financially dependent on the deceased at the time of death, then the super benefits would be received by that beneficiary tax free.
Financial advisors are already looking at ways to assist non-tax dependants eliminate this tax, such as paying a pre-death ETP or recycling super components.
A person over age 60 who meets a condition of release may withdraw super and make a pre-death benefit payment to a non-tax dependant, such as an adult child. Tax-effective gifts can also be made to grandchildren (generally not permissible under super law). Another opportunity is where someone is terminally ill and an amount is cashed out tax-free directly to a non-tax dependant or via the deceased’s will. For example, where a client is being cared for by a sibling but does not meet the interdependency relationship definition.
More education and planning
The Government could stimulate interest in superannuation by providing more financial education to encourage people to take an active role in investing for their futures. People wishing to locate all their superannuation investments can do so online via the ATO website. But once super monies have been located, they should be reviewed by a financial adviser and an ideal investment plan put in place. This may simply be a consolidation of money but it could involve maintaining some super plans that may have superior benefits in comparison with others.
The Federal Election is the opportune time for politicians to look at their plans for developing the superannuation and retirement system so it becomes self-sufficient and also to look at making changes that will stimulate Australian retirement savings.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.