Discussions around how to address the proposed Division 296 tax will need to be accompanied by estate planning and trustee succession advice for SMSF members who choose to retain high balances inside their fund, a superannuation legal specialist has noted.
DBA Lawyers director Dan Butler said SMSF members who consider the superannuation system to be a more tax-effective environment and will not move money out as a result of the new impost need to have a range of preparations completed when the measure takes effect.
“The discussion around estate planning and succession should cover, among other things, whether they need to be ready for a timely super payment,” Butler explained during a recent online briefing.
“Have they got everything in order because you never know the hour nor minute, it strikes like a thief in the night, so we need all the documents there.
“We need their wills. We need their enduring powers of attorney. We need their binding death benefit nominations, the trust succession, successor director nominations, SMSF deeds and more in order to act swiftly should they suffer from a loss of capacity or should they be close to death.
“[We need these] so that you are able to get their money out while they are still alive and it’s tax-free because any of the benefits from keeping the money locked up in super before they die could be taken away by death taxes.”
Butler also pointed out the death of one member and the transfer of their benefit to their partner needed to be handled correctly to avoid triggering the Division 296 tax.
He gave the example of a couple who both had a $1.9 million superannuation balance and on the death of one spouse the surviving individual would have $3.8 million in their fund.
“In that instance, the $1.9 million would not be immediately added to the surviving spouse because there is an adjustment, that is, a reduction to the adjusted total super balance for the contribution under section 296-55(1)(d) [of the Division 296 bill],” he said.
“However, be careful there if there’s a fresh income stream as there can be no tainting of the super interest coming over to the surviving spouse.
“The superannuation income stream should be solely funded by the deceased super interest as section 296-55(3) precludes a rollover superannuation benefit or amount commuted from a superannuation income stream of the surviving spouse.”
