I just received my first pension payment of $907.90 (every four weeks) from Britain and I'm wondering if this will be taken into account in assessing the $1.6 million self-managed super fund pension cap. In addition to the UK pension I also have $1.2 million in an SMSF in pension phase. I am assuming that the UK pension will be treated as personal taxable income and won't affect my Australian SMSF pension. I also have $15,000 income from an investment property. With the $12,000 pension, I expect the tax to be less than $2000, which I am very happy to pay considering all the tax concessions I've already received building the SMSF. R.B.
Your British pension should have no consequences on your $1.6 million "transfer balance cap", which is the maximum amount that can be transferred to the "retirement phase" in which fully funded pensions (ie the money was saved and taxed in an accumulation fund before the pension began) are received tax free over age 60.
In effect, the philosophy is that the transfer balance cap limits the tax benefits ultimately paid for by the Australian taxpayer. Since the Australian taxpayer is not on the hook for a British pension, which is taxed as income here in Australia, and therefore quite welcome, it would not be included in the TBC. Moreover, you can reduce the taxable amount of your British State Pension (which I assume is the one you are receiving) by claiming the standard 8 per cent "deductible amount" as a tax deduction. This represents the amount you contributed after tax back in Britain, but you can claim more if you can prove it, using ATO form NAT 16543.
It is interesting that you have just started a British pension given that the "pension age" around the world is being increased in the face of increased longevity.
Britain toughened its rules from April 2016 for its new State Pension for men born after April 1951 and women after 1953. You now need at least 35 years' National Insurance contributions or credits to get the full pension (previously 30 years) and at least 10 years of contributions to qualify for a proportional pension. The UK state pension age is 65 for men and 63 and nine months for women and is intended to gradually increase to 68 for both by 2039.
I'm 58, on a Commonwealth Super Scheme defined benefit pension, a small SMSF pension, and also have an accumulation account with Unisuper, and some CBA shares purchased at $2.50 and gifted to me in my youth (I'd love to sell them and put them in super, but you can see why I don't! Not complaining!). Including the accumulation account my total super is just over the $1.6 million cap. My taxable income is a substantial proportion of the CSS (no recognition of this full marginal rate taxation in calculating the cap - surely that should not be considered as concessionally taxed super - but that's another issue), plus the share income. I make concessional contributions to my accumulation fund, which reduces my overall tax and encourages me to save. It's the way this works that is my question. To make this concessional contribution, I am required to initially make non-concessional contributions to my accumulation account with Unisuper. Then the following tax year, before I lodge my tax return I notify Unisuper of my intention to claim a tax deduction for these contributions. This changes the status of my contributions to concessional. However, as I read the new rules, I am in breach if I make non-concessional contributions. Does this mean I can no longer use this method of making concessional contributions? Is this in fact, a Catch-22 situation? Or does the Tax Office assess the status of my previous year's contributions only after I submit my tax return? J.A.
You are correct in that the Tax Office assesses your contributions by matching your tax return with data supplied by your employer should there be any employer contributions. Remember that the maximum concessional or deductible contribution has dropped to $25,000 in 2017-18.
In another change, anyone can now make a personal deductible contribution, whether an employee or otherwise, although you still need to be under 65 or, if between 65 and 74, to have worked 40 hours in 30 days this financial year. To claim the deduction for a concessional contribution, you must submit the form "Notice of intent to claim a deduction", which you can download either from the Unisuper website or the ATO's.
While you are required to submit the form either with your tax return or by the following June 30, whichever is the earlier, my suggestion is that you submit the form with each personal contribution. Unfortunately, Unisuper has not yet updated its forms to interactive PDFs, allowing you to save a partially completed form but there's no reason you cannot photocopy a partially completed form and then handwrite the final details, plus date and signature, for each contribution.
I wish I had bought CBA shares on listing! But you'd better check your records, CBA was privatised via three issues, or "tranches" in the jargon, the first being at $5.40 in 1991, then at $9.35 in 1993 and finally at $10.45 over two instalments in 1996 and 1997. At the time of writing they are selling near $76!
Could you explain how, in a recent column, where the writer's wife had a defined benefit PSS pension of $40,000 and $1.2 million in an SMSF, the wife's transfer balance was stated at $1.76 million? D.P.
Well spotted! The lady's transfer balance would be determined by multiplying her defined benefit pension by 16 to credit the transfer balance account or TBA with $640,000. If she were to begin a pension with her full SMSF benefit, her TBA would total $1.84 million, some $240,000 above her $1.6 million transfer balance cap. Thank you for that.
While on the topic, the Tax Office has launched its TBAR, or Transfer Balance Report, which super funds, including SMSFs, must use to report a fund member's transfer balance at June 30, 2017, or any subsequent commencement of a super pension (including a change from a taxed Transition to Retirement pension to one in the untaxed "retirement phase), plus a number of other events that affect a person's transfer balance.
Such other events to be reported in the TBAR include any pensions or annuities that cease; any contributions stemming from personal injury payments, or "structured settlements" in the jargon; any lump-sum commutations; any limited recourse borrowing arrangement payments, notably by SMSFs and also where a fund complies with a commutation authority issued by the Tax Office.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1300 780 808; pensions, 13 23 00.
