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Get a tax effective pension while you are still working!

Contributed by Brett Davies Lawyers - Please contact Norbert Cornell at or on 61 2 99568008 or 61 437 381288

If you are 55 and over, you now have the option of easing into retirement. You can reduce your working hours without reducing your income. You can top up your reduced income with a regular ‘income stream’ from your superannuation savings. This is called the transition to retirement measure.

Until recently, you could only access your superannuation once you turned 65 or retired. This meant it was difficult to reduce your hours of work and still maintain your standard of living. With this new measure, you can roll some or all of your superannuation over into a retirement income stream. Then you can top up your reduced income by drawing on your superannuation.
Access to superannuation benefits may only be allowed as:

  • A non-commutable complying income stream (complying lifetime, life expectancy, or market linked income stream), or
  • A non-commutable allocated income stream (with restrictions on the ability to commute a lump sum).

How does it work?

A transition to retirement income stream is commonly used with a salary sacrifice arrangement. People are able to sacrifice their salary into superannuation and supplement their income by withdrawing money from their superannuation fund as an income stream.

Since 1 July 2007, withdrawals from a complying superannuation fund for people aged 60 and over are now tax free. This increases the tax effectiveness of the strategy for people who continue to work after age 60. Contributions to the fund are taxed at the concessional rate of 15% rather than a person’s marginal tax rate and pension income drawn from the fund will be tax free.

For people aged 55 to 59, the transition to retirement strategy is still tax effective as the taxable pension income drawn from superannuation attracts the 15% pension tax offset.

The concessional contribution cap will impact people using a transition to retirement income stream/salary sacrifice strategy. There is also the disincentive of salary sacrificing amounts above the cap, as excessive contributions are taxed at 46.5% (instead of 15%) and count towards the non-concessional contribution cap.

Under the new pension standards, a transition to retirement income stream will have a minimum and maximum pension payment. Since 1 July 2007, the income stream needs to pay a minimum pension payment of 4% of the total purchase price of the pension and a maximum of 10% per year. If an individual is looking to commence this strategy and to maintain their net income position, this could potentially limit the amount of income that an individual can withdraw. The amount an individual can draw will be limited by the thresholds and the amount of capital they have, as the payments are based as a percentage of the total fund balance.

Can I access my superannuation benefits in a lump sum?

No, this transition to retirement measure only allows you to access your superannuation benefits as a ‘non-commutable’ income stream, not a lump sum. This means that you generally still cannot take your superannuation as a lump sum cash payment while you are still working. You will need to take your superannuation benefits as regular payments.

You need to be aware what impact this measure can have on you and your personal circumstances. Some parts of this measure are complex, and equally complex to set up and maintain. You should see a financial adviser, accountant or your tax agent to help you decide if this measure is right for you.
Each year the Australian Taxation Office (ATO) announces its target areas in the Annual Compliance Program. Essentially, it is a bit like Dad telling you what the consequences will be if you are naughty - you know up front what is going to happen.

This year, the ATO is focusing on the activities of your high net worth clients.
How is the ATO going to do this? Well, the ATO has lots of friends (local titles office, listed company annual reports, police and authorities in other countries). It is also becoming clever with its data matching. It will find your interest and dividends, capital gains on disposal of property, mistress in Lombok and income from employee share schemes (especially by public company executives).

Posted in Accountancy, Commercial /Taxation Lawyers, Superannuation, Taxation, Wealth Creation | No Comments »

Where does my Super go when I die?

Contributed by Brett Davies Lawyers

Please contact Norbert Cornell at, 61 2 99568008 or 61 0437381288

QUESTION: I recently asked my adviser what happens to my superannuation when I die.

My adviser immediately turned to my Self Managed Superannuation Trust Deed and told me that the trustee of my superannuation fund will decide who will receive my superannuation.

This didn’t sit well with me. Although I trust my trustee, I want to decide who will get my superannuation.

My adviser told me I should update my trust deed to allow for a binding nomination.

What is a binding nomination and what should I know about them?

ANSWER: A binding nomination forces the trustee of your superannuation fund to give your superannuation to the people who you want to receive it when you die.

Binding nominations have only existed for several years so don’t be surprised if your trust deed doesn’t allow for them. Even now, many new trust deeds (particularly badly drafted trust deeds) don’t allow for them. Also, you might think you have completed a binding nomination but it may be a non-binding nomination (that is, you have made a suggestion to your trustee who you would like you superannuation to go to, but your trustee is not forced to follow your wishes).

A binding nomination must be current when you die. For your binding nomination to be current, you must ensure not only that you have made a nomination but you have also renewed the nomination every 3 years. This can be difficult if you do not have a power of attorney granting your attorney to renew your binding nomination when you have lost mental capacity.

If your binding nomination has expired, (this is probably 90% of the population) your trustee will be required to hand over your superannuation to one of 2 groups:

Your estate; or
Your dependants.
Your “estate” is of course your Last Will and Testament if you have made one. Your “dependants” is a strange legal term but includes your family, some relatives and de-factos.

If you had a retail or industry super funds the trustees of those funds (mostly in Melbourne) act as god when it comes to your superannuation when you die. Although I have to tell you that the trustees generally don’t like deciding what to do with your superannuation. They would much rather someone else tell them where your superannuation should go.

As you have a self managed superannuation fund then your next of kin, or other trustee such as your 2nd wife or children from your first marriage decide who will get your superannuation if you don’t have a current binding nomination.

Of course, as have a self managed superannuation fund then you can do update your trust deed to allow for non lapsing binding nominations.

Posted in Accountancy, Superannuation, Taxation, Wealth Creation | No Comments »

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14 July, 2007 – 1:29 pm

Posted in Insolvency | No Comments »

Is Your Will Up-To-Date?
30 March, 2007 – 1:15 pm
Please contact Norbert Cornell at , 61 2 99568008 or 61 0437 381288

Once upon a time, there was a very, very old billionaire named J. Howard Marshall. One day he met a beautiful model named Anna Nicole. J. Howard Marshall fell in love with Anna Nicole because of her wonderful personality. Anna fell in love with J Howard Marshall because of his chiselled good looks. Because they loved each other so much, they got married. Sadly, J. Howard Marshall died unexpectedly. The terrible tragedy in their family continued with Anna Nicole also dying, leaving an inheritance worth hundreds of millions of dollars.

Sorry, but we don’t think this story will have a happy ending. Why? Because Anna Nicole didn’t pay enough attention to her will

Anna Nicole’s Will is apparently out-dated. Everyone wants custody of her infant daughter. Her advisers are being threatened for not addressing her Estate Planning. The people most likely to end up with Anna’s estate are the lawyers.

Nicole’s Will surfaced last week. Her Will resolves nothing. It states that her entire estate goes to her son Daniel. Sadly, Daniel died in September of 2006. Who gets the dough now?

The Will is poorly drafted and is deficient in many areas. There is nothing regarding her new-born baby Danneilynn. Anna’s friend “Stern” is not mentioned at all even though Anna joined in a “commitment ceremony” with Stern late last year.

Adding to the confusion, Smith’s will contradicts itself. In one section, it includes a curious provision which appears to specifically disinherit future spouses and children, which would include Danneilynn. It reads:

“I have intentionally omitted to provide for my spouse and other heirs, including future spouses and children and other descendants now living and those hereafter born or adopted”.

However, in other sections, it specifically instructs the executor of Smith’s will to manage the estate to provide for her “children.” This language appears to provide a portion of the estate for the care of Dannielynn.

If there is still any chance that a husband and wife (or de factos) might have children a Will should include “unborn children” as beneficiaries. That’s how I would have done it.

The next issue is Guardianship. Money does not follow the Guardian. Money follows the Executor. The Executor generally keeps the money in trust for the minor. That money is protected by the financial planners and accountants. Often you may want the Guardian and Executors separate.

Regardless of the size of Anna’s fortune, the confusion surrounding her estate could have been avoided by following a few simple estate planning guidelines.

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