Hello … technical ?ANZ wealth technical services

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How does this session work?

Three “mock” adviser phone calls

First call: Troy and Peta

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Troy: Technical Services, this is Troy  Peta: Hi Troy, my name is Peta. I am a financial adviser, and wanted to know if you can help with me with putting a strategy in place for a client.  Troy: Yep, sure, how can I help? Peta: I have a client, Aiden, who has just turned 54. His birthday was on 16th July. He just received an inheritance from the estate of his late father. We are going to make a large non-concessional contribution with a view to commencing a TTR salary sacrifice strategy on 16th July 2015.

Can we commence a TTR for Aiden?

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Account based pensions

Case study #1Aiden turned 54 in 16th July 2014. His financial planner has recommended that he commence a Transition to Retirement Pension on 16th July 2015. Is it possible to commence a TTR?

1.He is able to commence a TTR pension on 16th July 20152.He is able to commence a TTR pension on 16th July 2015, however it would be a poor strategy for someone under 603.He won’t be able to commence a TTR pension on 16th July 2015

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Preservation age

Commencing a transition to retirement pensionTo be eligible to commence a transition to retirement (TTR) income stream the super fund member must have attained preservation age. Those born after 1 July 1960 are subject to a gradual increase in the preservation age with those members born after 1 July 1964 having a preservation age of 60 years.

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Preservation age

Remember Aiden?He is turning 55 in July 2015 (less than 12 months away) and is seeking some early advice from his planner about how to commence a TTR income stream. Aidan was born on 16 July 1960 and has a preservation age of 56, not age 55. He is unable to commence a TTR income stream until age 56 in two years.

There are a number of financial planning measures that relate to preservation age. •Permanent retirement condition of release•Low rate cap applicable to lump sum withdrawals•Severe financial hardship (39 week rule)•Withdrawal re-contribution strategy (the ability to withdraw)Eventually preservation age will align with age 60 and tax free payments.

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Peta: Ok, that’s really interesting. One of the paraplanners came back and said that Xplan wouldn’t allow the TTR pension to start until 2016. We thought that it may have been an error.  Troy: Yeh, we have seen a few of these cases pop up recently. We wrote a piece on our monthly technical newsletter on the effect of preservation age and TTR’s. Peta: Ok, can I hit you up with another question? Troy: Sure, that’s what we are here for.  Peta: I have another client, Julie, who we commenced an TTR pension for on 1st August this year. Don’t worry, she was above 56!! Actually she turns 60 in December. How do I work out the tax on her pension payments?

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Account based pensions

Case study #2Julie commenced a TTR pension on 1st August 2014. She turns 60 in December. Her pension is 100% taxable. How do you calculate the tax on her pension payments?

1.Pension payments are 100% taxable 2.Pension payments received before her 60th birthday are taxable. Pension payments received after her 60th birthday are tax free3.Pension payments are taxable based upon a prorated basis (counting the days before her 60 th birthday and after her 60th birthday)4.Pension payments are 100% tax free

Second call: Andrew and Natalie

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Andrew: Hello, technical Services, Andrew speaking Natalie: Hi Andrew, my name is Natalie. I’m an adviser, and need some help with a small business CGT exemption.  Andrew: Ok. That can be a complex area. Has your client received any advice from their accountant about whether they are eligible to use the exemptions? Natalie: No. Well, im not sure. I have just had a meeting with the client, and I thought that the exemptions would apply. I roughly remember the rules. Ah .. can I send the details through to you and ask if you the small business exemptions apply? Andrew: Unfortunately, we aren’t tax advisers, so we can’t provide any advice in that area. Really, the clients accountant or tax agent should be providing them an assessment as it is tax advice. And they probably understand the clients business very well. Natalie: Ok. Can you give me a refresh of how the rules operate?

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Small business CGT exemptions

What are the rules?•Basic conditions•Turnover or maximum net asset test•Active asset test•Additional conditions where the asset is a share in a company or an interest in a trust.

Seek advice from a licensed tax agent

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Small business CGT exemptions

15 year exemption•Entity must continuously own the asset for 15 years before the CGT event. •Individual must be at least 55 and the sale of the asset is in connection with their retirement. •Entire capital gain is disregarded

Retirement exemption•Disregard up to $500,000 of capital gain•If individual is under 55, then disregarded capital gain must be contributed to super•If individual is over 55, there is no requirement to contribute to super

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Small business CGT exemptions

CGT cap contributions•Lifetime cap of $1,355,000 (2014/15)•Notice must be given to trustee with contribution•Generally must be made by the later of:

– Due date of tax return, or– 30 days after the receipt of sale proceeds

•Work test applies for those above 65

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Small business CGT exemptions

Retirement exemption

Active asset reduction

50%reduction

Cost base

Retirement exemption

CGT cap

15 year exemption

Capital gain

Cost base

CGT cap

Sale

pro

ceed

s

Sale

pro

ceed

s

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Small business CGT exemptions

Natalie: Ok. Thanks. I understand the basics. From what you are saying, I don’t think that the 15 year exemption applies to my client as he is 54. Can I give you some details of the clients situation, and then can we work out how much we can contribute to super? Andrew: Yep, sure. What are the figures?

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Small business CGT exemptions

Case study #3James sold his business. The sale proceeds are $1,000,000 (CGT cost base of $350,000). He would like to maximise his contributions to super. Calculate the maximum CGT cap contribution that he can make under the retirement exemption

1.$650,0002.$702,5003.$865,0004.$1,000,000

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CGT cap contributions

Retirement exemptionJames sold his business. The sale proceeds are $1,000,000. He sought advice and decided not to apply the 50% active asset reduction, to maximise his contributions to super. Sale proceeds $1,000,000CGT cost base $ 350,000Gross CGT gain $ 650,00050% asset reduction $ 325,000 (50% x $650,000)Retirement exemption $ 325,000James can contribute $ 865,000 ($325,000+ $540,000)

Third call: Andrew & Rob

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Andrew: Technical Services, Andrew speaking

Rob: Hi Andrew, its Rob from blandville. How are you?

Andrew: Im well, how can I help?

Rob: I am working through the deeming of account based pension proposals, and trying to understand how it operates.

Andrew: Actually, they are no longer proposals – but law. From 1St January 2015, account based pensions will be deemed unless they are grandfathered. So locking in the grandfathering provisions is what is generating a lot of questions at the moment.

Rob: Ok, so how does it work?

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Deeming of account based pensionsWhat is changing?•Account based pensions will be deemed (as a financial investment)•Applies to account based pensions with a commencement date from 1 January 2015•To be assessed under current rules:

o Account based pensions must commence before 1 Jan 2015o Individual receives an income support payment immediately before 1 Jan 2015o Since 1 Jan 2015, continuously receive income support payment

•Defined benefit pensions and annuities continue as per normal

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Deeming of account based pensions

Death after 1st January 2015•Reversionary pensions qualify for grandfathering where:

o At time of reversion, the reversionary beneficiary receives an income support paymento Since reversion, the reversionary beneficiary continues to receive an income support payment

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Deeming of account based penisons• Jim (67) and Jane (62), homeowners• $10,000 personal effects• $300,000 account based pension for Jim • Jane earns $50,000 pa from employment

Grandfathered Deeming 2%, 3.5%

Income tested amount Nil $9,306 pa

Age Pension $5,864 pa $3,537 pa

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Deeming of account based pensions

Date Below the threshold Above the threshold

20/03/2004 3% 5%

20/03/2007 3.50% 5.50%

20/03/2008 4% 6%

1/07/2008 4% 6%

17/11/2008 3% 5%

26/01/2009 3% 4%

20/03/2009 2% 3%

1/07/2009 2% 3%

20/03/2010 3% 4.50%

20/03/2013 2.50% 4%

4/11/2013 2% 3.50%

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Rob: Ok, so I think I understand how the rules work. Can I ask you a question on about a clients situation? Andrew: Yep sure – fire away.  Rob: I have a client, Angela, who is 62. She is currently in receipt of NewStart. She commenced an account based pension on 1st July 2014. If today was the 1st January, has she locked in the grandfathering?

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Deeming of account based pensions

Case study #4Angela is 62 and in receipt of NewStart. She commenced an account based pension on 1st July 2014. Lets assume that today is 1st January 2015. Has she locked in the grandfathering provisions?1.No, she has not locked in the grandfathering provisions as she was not in receipt of the Age Pension2.No, she has not locked in the grandfathering provisions as she was not in receipt of an income support payment3.Yes, she has locked in the grandfathering provisions as she was in receipt of an income support payment

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Deeming of account based pensions

Case study #5Alfred is 68 and in receipt of the Age Pension. He commences an account based pension today. He is married to Joanne. Fast forward, and assume that today is 21st June 2017. Joanne retires and successfully apply’s for the Age Pension. How is Alfred’s account based pension assessed for the couple?

1.As the grandfathering provisions were locked in as at 1st January 2015, it is assessed under the pre 1st January 2015 rules. 2.As the grandfathering provisions were locked in as at 1st January 2015, it is assessed under the pre 1st January 2015 rules for Alfred’s assessment. However it is deemed for Joanne’s assessment. 3.I don’t know – better call technical.

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Deeming of account based pensions

Case study #6Remember Alfred & Joanne? Alfred is 68 and in receipt of the Age Pension. He commences an account based pension today. He is married to Joanne. Fast forward, and assume that today is 21st June 2017. Joanne retires and successfully apply’s for the Age Pension. How is Joanne’s account based pension assessed for the couple?

1.Joanne’s account based pension will be deemed. 2.As Alfred locked in the grandfathering provisions at 1st January 2015, Joanne’s account based pension is also grandfathered. 3.50% of Joanne’s pension will be deemed.

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Commonwealth Seniors Health Card

What is changing?

Increased income thresholds

Deeming of ABP’s

Abolition of seniors supplement

Singles: $51,500 Couple $82,400

Legislated

Proposed ($1,253/$943)

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Wrap up

1st call: Peta & TroyAccount based pensions

2nd call: Natalie & AndrewSmall business CGT exemptions

3rd call: Andrew & RobDeeming of ABP’s

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Disclaimer

Important Notice

RI Advice Group Pty Ltd, ABN 23 001 774 125, holds Australian Financial Services Licence Number 238429 and is licensed to provide financial product advice and deal in financial products such as: deposit and payment products, derivatives, life products, managed investment schemes including investor directed portfolio services, securities, superannuation, Retirement Savings Accounts.

The information presented in this seminar is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. RI Advice Group strongly suggests that no person should act specifically on the basis of the information contained herein but should obtain appropriate professional advice based on their own circumstances.