Inheritance and tax implications on new superannuation rules

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There have been plenty of changes to government rules recently, including superannuation. It is important to take note of the details.

Individuals with retirement pension balances over $1.6 million are supposed to have time to transfer the excess into the accumulation phase where future investment earnings are taxed at 15%, instead of it being tax-free like before.

It could mean time to properly assess their circumstances ahead of time or consider another option which is to take the excess out of super where earnings are taxed at personal tax rates.

However, what happens to people with smaller retirement pension accounts who want to transfer it to an accumulation account and were not able to do so on July 1? These are often recipients of death benefit pensions inherited from a partner or spouse. They might want to add it to their own superannuation but it won’t be possible under the new rules.

This strategy is often used especially if a spouse or partner has started a pension from their super. What if they do not want to receive the death benefit as a pension and prefer to add it to their super to keep accumulating?

What if they want to stop taking the pension because of work or re-marriage? The rules impose restrictions on a person’s right to convert a pension to an accumulation account.

Under the old rules, an inherited pension can be rolled over or converted to an accumulation account after a death benefit period, which usually runs six months from the date of death. However, under the new rules, there is no longer a death benefit period and pensions may not be commuted and rolled back to an accumulation account at anytime.

These rules also apply to surviving spouses who were already receiving payments from death benefit pensions as of July 1. They must remain a death benefit pension or withdrawn as a lump sum.

This has certainly restricted death benefit recipients’ options in their broader flexibility of tax and investment planning.

On a different front, ATO published a position paper proposing events based reporting on the members’ transfer balance account which will undoubtedly put huge reporting responsibility / obligation to SMSFs.

This position paper is currently under public feedback until Fri 15 Sep 17. We and many industry groups in the SMSF community will keep an close eye on the further evolvement on this matter.

If you would like to know more about superannuation and how you can protect your assets, you can click here to know more about Chan & Naylor services. You can leave your details here and we can schedule you for a free consultation. We’ll contact you to explain more.

Whether you are a beginner, seasoned investor or business owner, we can give you guidance to maximise the financial areas of your life. We can give you an integrated and tailored solution of your superannuation, taxation, property investment, asset protection, estate planning and more.

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