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Succession planning and the transfer balance cap

The superannuation transfer balance caps have been problematic for SMSF members who don’t take careful consideration when succession planning.

Failure to understand the impact of these transfer balance cap changes can have on your finances may force you to transfer large amounts of money out of your super.

The transfer balance cap of $1.6 million that was introduced as of 1 July 2017 limits the amount of superannuation that can be transferred into an individual’s retirement phase. The cap incorporates all accounts the individual holds balances in.

SMSF members ought be weary of the scenario in which a SMSF is paying two pensions, one to each party of a couple where both parties are receiving money under the transfer balance cap. When one of the spouses die, the remaining spouse could be in breach of the transfer balance cap because now they are the sole beneficiary of more than $1.6 million.

Luckily, if you take time to plan carefully how to avoid the above limitations, you can have control over where (and to who) your super will go to when you pass.

Consider the following:

Accumulation vs pension phase
The new transfer balance cap rules state that, at any given time, individuals cannot have more than $1.6 million in their pension phase. The money in the pension phase is taxed at zero percent; the money in the accumulation phase is taxed at 15 per cent. If you are already in the pension phase, and are with a spouse also in the pension phase, it is fruitful to think ahead as to what will happen to the money when one of you passes. Perhaps looking into what investments you can make now would be wise, particularly given that investment properties held for a period of longer than 12 months are taxed at a rate of 10 per cent.

Nominations
One option is to execute a binding death benefit nomination, which allows an individual to nominate who they would like their death benefits to be paid to. When preparing the BDBN, an individual can elect where their money goes and the trustee of their estate is bound to carry out these wishes. The other option is to execute a non-binding death benefit nomination, which allows the trustee some flexibility as to where they place your money. This is a good option if your wishes for your money are not as tax effective as possible; the trustee has the option to vary where you wanted the money to be placed.

In addition, when succession planning, it is important to remember that superannuation is not an asset that forms part of an individual’s estate; there are limitations as to who is a beneficiary of another’s superannuation. An individual must be a dependent of the deceased or a legal personal representative. If an individual fits this criteria, there are only two ways that they can be paid the benefit; through an income stream or via a lump sum.

To ensure you are not leaving your spouse or children the stress of the repercussions of breaching the transfer balance cap when you pass, speak to one of our accountants to establish the best possible plan for your estate.

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No More Shortcuts: The Methods You Can Use To Claim WFH Expenses

March 25, 2024

Ensure you’re up to date on how to claim your working-from-home expenses!

As the business landscape shifts back and forth between office, hybrid and home-based work opportunities, it’s important to remember what methods are available to you when it comes to claiming. If part of your role allows you to work from home, you may be able to claim certain expenses on your tax return this year using one of the following methods.

The Revised Fixed Rate Method:

Under the revised fixed rate method, individuals can claim 67 cents per hour worked from home during the relevant income year. This rate includes additional running expenses, such as home and mobile internet or data, phone usage, and electricity and gas for heating, cooling, and lighting. Importantly, using this method, you cannot claim separate deductions for these expenses.

To use this method, taxpayers must maintain records of the total number of hours worked from home and the expenses incurred while working at home. Additionally, they must keep records of expenses not covered by the fixed rate per work hour, demonstrating the work-related portion of those expenses.

What Records Do You Need?

Previously, taxpayers required a dedicated workspace at home. From 1st March 2023 onwards, the record-keeping requirement has shifted again, necessitating the recording of all hours worked from home as they occur.

How Does The Fixed Rate Method Work?

To utilise the revised fixed rate method:

The Actual Cost Method:

Alternatively, taxpayers can opt for the actual cost method, where deductions are calculated based on actual additional expenses incurred while working from home. This includes expenses for depreciating assets, energy expenses, phone and internet, stationery, computer consumables, and cleaning dedicated home offices.

What Records Do You Need?

To claim work-from-home expenses using actual costs, you must maintain records showing:

How Does The Actual Cost Method Work?

To claim actual expenses:

Australians need to understand their entitlements and tax deductions while working remotely.

Consulting with a tax advisor can provide valuable insights into available concessions, deductions, and offsets for your tax return.

By staying informed and adhering to ATO guidelines, taxpayers can ensure compliance and make the most of available deductions in the evolving landscape of remote work. Why not start a conversation with us today?