hpw client strategies

Hewison Private Wealth Client Strategies

BORROWING IN SUPER

Case Study

• Jim (45) owns his home with no mortgage

• SMSF - $800,000

• Property for sale - $1,000,000

Key Differences

• Limited Recourse Loan

• Single Acquirable Asset

• Can only improve asset under limited circumstances

• Cannot make use of the asset

Jim

Property

Bank

Loan

$50

0kPa

y $1

m

Inte

rest

Rent

SMSFJim

Bare Trust Property

Bank

Loan

$50

0kTr

ansf

er $

1m

Pay $1m

Inte

rest

Rent

Jim Bank

SMSF

Bare Trust

Loan

$50

0kTr

ansf

er $

1m

Pay $1m

Inte

rest

Property

Loan $500k

Interest

Rent

Estimated tax saving from Borrow in SMSF strategy $8,463 per annum

Traditional Borrow in SMSF

Jim

Salary $100,000 $100,000

Rental Income $70,000 $0

Loan Interest -$37,500 $0

Taxable Income $132,500 $100,000

Tax Payable $40,288 $26,950

Jim’s SMSF

Rental Income $70,000

Loan Interest

Taxable Income $32,500

Tax Payable $4,875

Total Tax $40,288 $31,825

-$37,500

Capital Gains Tax Saving from Borrow in SMSF strategy $162,750

Traditional Borrow in SMSF

In 15 years time:

Property Value $1,700,000 $1,700,000

Purchase Price

Capital Gains $700,000 $700,000

Capitals Gains Tax $162,750 $0

$1,000,000 $1,000,000

Case Study

• Jan is 70 and retired• SMSF of $2,000,000 & Cash of $1,000,000

• Option 1o Invest $1m in Jan’s personal name

• Option 2o Lend $1m to SF and invest within SMSF

Pension Strategies

Withdrawal & Re-Contribution Strategy

• Objective – Increase tax free component

Withdraw Re-contributeTaxable Tax Free

Component Component

SMSF

Withdrawal & Re-Contribution Strategy – Case Study

BILL o 64 years of ageo Retiredo Has a SMSF with benefits of $1 million o 100% of Bill’s super benefits are made up of

the taxable component

Withdrawal & Re-Contribution Strategy – Case Study

Withdraw Re-contribute$450,000 $450,000

SMSF

BILL

BILL

Withdrawal & Re-Contribution Strategy – Case Study

Before Strategy

Taxable Component $1,000,000 100%

Tax Free Component $0 0%

Death Benefits Tax $165,000 16.5%

If Bill were to pass away prior to undertaking this strategy?

Withdrawal & Re-Contribution Strategy – Case Study

After Strategy

Taxable Component $550,000 55%

Tax Free Component $450,000 45%

Death Benefits Tax $90,750 16.5%

Tax Saving $74,250

Withdrawal & Re-Contribution Strategy – Case Study

BILL o What if 50% of Bill’s super benefits are made

up of the taxable component and 50% are tax free?

Withdrawal & Re-Contribution Strategy – Case Study

After Strategy

Taxable Component $275,000 27.5%

Tax Free Component $725,000 72.5%

Death Benefits Tax $45,375 16.5%

Tax Saving $37,125

Withdrawal & Re-contribution Strategy Considerations

• Super Contribution Limitso Maximum non-concessional contributions of

$450K

• Withdrawals are proportionate to components

• Possible abolition of in-specie contributions from 1 July 2012

Separating Pension Interests

• What is it?o Create multiple pensionso Isolate tax free components in a separate pension

• Why?o Preserve tax free component

Separating Pension InterestsCase Study

SMSF

Draw remainder$47,500

Pension Payment

$550,000100% Taxable

Existing Pension

Pension PaymentDraw $22,500

(min pension of 5%)

$450,000100% Tax free

New Pension

Separating Pension InterestsCase Study

• Taxable Component in 10 years’ timeo Before Strategy $482,070o After Strategy $327,943

• Benefit = $25,430

Pension Payment Breakdown

What is it?• Management of a couple of pension payments

Benefit?• Reduce tax liability

Pension Payment BreakdownCase Study

Bob & Betty o Bob (62)o Betty (57)o SMSF value = $1 million ($500K each)o All benefits are taxable component o Income requirement, $150K per annum

Pension Payment BreakdownCase Study

Before

Bob Betty

Account Based Pension $75,000 $75,000

Taxable income $0 $75,000

Income Tax $0 $17,550

Less: Pension Rebate (15%) $0 $11,250

Tax Payable $0 $6,300

Tax Payable

Before $6,300

After $0

Tax Saving $6,300

After

Bob Betty

$130,000 $20,000

$0 $20,000

$0 $2,400

$0 $3,000

$0 $0