John Wasiliev

Chris Balalovski of Perpetual Wealth Solutions. Photo: Michel O’Sullivan

My sister and I have a $1.2 million do-it-yourself super fund that invests in shares, term deposits, cash and an apartment in Brisbane. She is 67 and I am 72 this year and we have been taking pensions from the fund for the past three years. Her part of the fund consists of a small amount of cash and a half share of the apartment, which is valued at $520,000 and was purchased 11 years ago for $230,000. My sister wants to transfer all her assets in the fund to another DIY fund she shares with her husband. What are the capital gains and other tax implications of this change of nominal ownership of the apartment?

The first point to make, says Chris Balalovski of Perpetual Wealth Solutions, is that the apartment cannot be transferred from the fund you have with your sister to the one she has with her husband.

That’s because the two funds are considered to be related under super laws. In super, related parties are prohibited from acquiring certain assets from one another. One such asset is residential property. It would be different if it was a business premises, which essentially means a commercial or retail property.

You also need to be aware that the members of a super fund don’t own its assets. The assets are owned by the trustee of the fund.

Your chief option is to sell the property on the market and then roll her proportion of the proceeds into her new fund in cash.

There should be no adverse tax consequences from such a strategy.

Your joint fund could potentially transfer other assets, perhaps the shares, to the other fund, but the disposal of an asset by transferring it to a member as a benefit may give rise to a capital gains tax liability. This can happen even when a fund is in the pension phase.

I’m 58 and started a pension from my DIY super fund last July. If I have $700,000 tax free and $300,000 taxable in the fund and take $40,000 as a pension for 2011-12, at which stage is tax calculated and how? Let’s assume the fund will earn $50,000 in interest from term deposits. I’m also receiving a $39,000 Commonwealth Super Scheme pension and wonder how this will affect my overall tax?

As you are under 60, the income payments from your account-based DIY pension will be partly taxable, says technical specialist Colin Lewis from ipac Investment Services.

Some of each payment will be tax-free, depending on the tax components of your income stream when it started. Also the taxable component receives a 15 per cent tax offset given you are between 55 and 59. If you can delay taking any pension payments until you turn 60, all income payments will be tax-free. Until then, given that about $700,000 of your super was a tax-free component and $300,000 was taxable when it started, 70 per cent of your pension is tax-free and 30 per cent is taxable. If you take $40,000 as a pension then $12,000 will be assessable and you will receive a 15 per cent tax offset of $1800.

Investment earnings and realised capital growth on assets that pay your DIY pension are tax exempt, so the $50,000 interest from term deposits will be tax-free in the fund.

Assuming your Commonwealth Super pension is from an “untaxed” source – meaning the scheme has not paid tax on contributions or fund earnings – this pension stream will be fully assessable, regardless of your age. From 60, however, you will be eligible for a 10 per cent tax offset.

So, based on the information you’ve provided, your assessable income for 2011-12 will be $51,000, comprising 30 per cent of your DIY pension and the entire CSS pension payment. This assumes you have no other income.

Tax payable will be $7160, including the Medicare levy, the flood levy and after deducting tax offsets. That is, $8850 tax on assessable income plus $765 Medicare levy and $5 flood levy less the $1800 pension tax offset and $660 low income tax offset.

How are minimum pension payments calculated for someone who inherits a super pension from a deceased partner. Are they based on the deceased member’s minimum or the surviving spouse’s minimum?

It will depend on whether the pension automatically transferred to the spouse under a reversionary pension arrangement or whether the trustees used their discretion to pay a pension to the spouse, says Tim Miller of Cavendish Superannuation.

If the pension automatically reverted on the member’s death, the minimum is the same as that which applied to the late member for that particular financial year. No recalculation is done at death.

The fund must ensure the annual minimum was paid either before the death of the late member or after the member’s death to the reversionary beneficiary. The minimum requirement can also be satisfied through a combination of payments to both members that add up to the minimum.

The pension is then recalculated the following July 1 based on the age of the reversionary pensioner.

If the pension is paid at the discretion of the trustees then it is a new pension and is calculated based on the age of the reversionary spouse and the value of the death benefit, as well as the proportion of the year it is paid. So if the member dies six months into the year, half the minimum must be paid just like a pension that starts part way through a year.

The Australian Financial Review