Estate Planning, Tax

Good tax outcomes need context

Incapacity Power of attorney Estate planning Income Tax Assessment Act

Certain estate planning strategies require specific communication to allow trustees to avoid triggering the Part IVA provisions of the tax act.

A specialist superannuation lawyer has warned practitioners and their SMSF clients to properly communicate and provide context around certain estate planning strategies that will deliver significant tax advantages to avoid compliance issues.

Peter Bobbin Lawyers principal Peter Bobbin noted this practice is especially important if a member withdraws all of their superannuation benefits upon imminent death so the monies will be treated as part of their estate and therefore receive more favourable tax treatment when distributed.

“If it’s being done for a tax purpose, then I’m telling you Part IVA [of the Income Tax Assessment Act] applies. However, if it’s being done because a recommendation [to the member] is to get their affairs in order for your estate [and estate planning], there is no Part IVA [breach],” Bobbin told attendees at the Institute of Public Accountants National Congress 2023 hosted in Sydney recently.

“What I’m telling you is to contextualise [these moves].

“The promotion to quickly take the money out, put it in your bank account because that way you’re saving [your] kids tax – that’s just saying [it’s] tax cleaning.

“Change the language, if you want to not mention the tax use outcomes language. The reality is the client really does want to sort out their affairs and get them ready before they die.”

According to Bobbin, the same principle applies when an elderly parent suffers from mental incapacity and the children, who have been granted a power of attorney, exit all of the money held in the mother’s or father’s superannuation account.

“[The action] is Part IVA if it is done for the tax cleaning purpose … but if the children are removing it because they want to get the estate in order, then that’s not an unreasonable thing [especially seeing] how many claims go to AFCA (Australian Financial Complaints Authority) because super funds take so much time in getting assets out,” he said.

“[So to] contextualise [the action] is the critical, valuable thing here.”

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