The federal government needed to provide much more information on the practical implications of the $1.6 million transfer balance cap applying to the pension phase of superannuation announced in this year’s budget, according to an accounting firm partner.
Speaking at a recent industry briefing, HLB Mann Judd wealth management partner Michael Hutton pointed out the scenario in relation to the death of a spouse in an SMSF was now very unclear.
“So they’ve got a $3.2 million super fund, both spouses have already taken their $1.6 million pension, and one spouse dies. Can the surviving spouse take the death benefit as a pension or do they have to take it as a lump sum?” Hutton said.
“Can they not take it as a pension because they’ve already used their pension limit?
“Under the current system there is no pension limit as such, so under the current system they can take it as a pension or as a lump sum. Under the new system will they have to take it as a lump sum?
“That therefore would immediately reduce by half the amount, particularly in a self-managed super fund, at the time of death of the first partner.”
He said it seemed obvious the government had not properly thought through all the possible scenarios before proposing the new rules applying to superannuation.
To illustrate his point, he cited the situation where individuals might have to transfer any excess pension assets above the $1.6 million limit back to accumulation phase to avoid tax under the new regulations and how valuations in those circumstances might apply.
“What cost base do you apply for the assets going back into accumulation mode? Do they come back into accumulation mode at cost or do they come back into accumulation mode at current market value?” he said.
“If it does come back in at cost, then that’s a retrospective tax for me because then the capital gains tax would then apply at the time those assets that are currently owned might have to be sold.”
Further, he questioned how the $1.6 million cap should be applied to couples.
“It’s a $1.6 million limit, but does that mean it’s $3.2 million for a couple? Is there going to be any opportunity for a couple where $3 million is in one person’s account, $200,000 is in the other person’s account, a husband and wife say, does that husband and wife have the opportunity to get $3.2 million into pension mode?” he said.
“I think there are a few issues like that where the government really needs to quell the unrest among advisers and also in the community as to how these things are going to be dealt with.”