Q: I’ve started my retirement phase planning with the SuperGuide checklists proving very helpful. I’ve got property assets in my SMSF. I was intending to allocate those property assets into my pension portfolio then sell them and re-use the liquidity in the pension phase investing / payments. Would going with a Transition to Retirement (TTR) plan rather than full retirement have an impact on CGT on the property sales.
A: Two points which need to be stressed here, Frank. Number one, the earnings on assets held within your fund that are used to pay transition to retirement pensions, and those earnings include capital gains tax, they are not exempt from tax. The tax exemption that we usually get on fund earnings only applies to retirement phase income streams.
The exemption doesn’t apply when the pension being paid is a transition to retirement pension. Based on your question around intending to sell an asset and using a TTR for tax, you won’t get the tax benefits that are typical to a retirement phase pension. In other words, you’ll be paying tax on those earnings, including capital gains.
Look, if the assets been held for longer than 12 months, you would get the usual one third discount. So essentially the capital gains would be taxed at 10 % rather than 15 %. TTRs don’t get those same tax concessions.
The second point that I wanted to make here is, be careful when you identify, when you allocate, when you segregate an asset to the pension phase of super, if the sole purpose is to get a tax benefit. What I mean by that is, you’ve mentioned your question, I was intending to allocate a property asset to a pension, then sell it. If the only reason you’re starting a pension or identifying and segregating an asset to be pension is for tax benefits, you can get in trouble with the tax office. So what I suppose I mean by that is, you would ensure that that’s not the sole reason for selling it.
The investment strategy might be that in retirement, you want more conservative assets in pension values and not property or growth assets. The point I suppose I just want to be clear on is, don’t use tax planning tools around segregation for the sole purpose of getting a tax benefit in retirement phase. Just be careful with that. If you’ve got an accountant or fund administrator that you use, have a chat to them about that and around the anti avoidance measures.
Now, one other thing I need to quickly cover off is a question around transition to retirement pensions. And it’s relevant for anyone who is currently accessing a transition to retirement pension where they are either turning 65 before 30 June, or where they’re retiring at 30 June.
So, in the next couple of weeks, if you’re turning 65 or retiring, and you’re receiving a transition to retirement pension, there’s something that you need to be careful with. When you are in receipt of a transition to retirement pension, and you meet a condition release that gives you full access to money (those conditions of release include turning 65 or retiring) what happens is your transition to retirement pension at that date, becomes a retirement phase income stream, and it gets assessed against your transfer balance cap.
Now, why I just want to stress this is, if that happens this year, you will be assessed against the $1.7 million transfer balance cap as this event occurred before 1 July 2023. After 1 July 2023, we know that that $1.7 million cap is going to be indexed to $1.9 million. But because this automatic event of retiring or automatic event of turning 65 took place in the current financial year, your TTR, will be assessed against the $1.7 million cap, not the $1.9 million cap. So, it’s just a trap to be aware of over the next couple of weeks.
If you are turning 65 or retiring, it might be worth turning the TTR off. I should say it’d be worth getting some advice around your personal position, but you might be able to turn the pension off, so it doesn’t automatically get assessed, and therefore you get the index $1.9 million cap. Just something to be aware of.
Some further resources for may wish to look at:
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