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Do you know how you can maximise your retirement fund value? You can manage your SMSF fund successfully and responsibly to benefit from it. Here are some ways you can do it.
If you can meet a condition of release to access your super benefits and you are eligible to recontribute to your super, you can withdraw and recontribute your superannuation benefits (which are either taxable or tax-free based on how your original contributions were made). You can withdraw a lump sum from your superannuation, pay any tax on the withdrawal and recontribute it back into your superannuation account as a non-concessional contribution. By doing this, your balance may entirely be tax-free.
You can also use your superannuation to buy commercial property and get it rented back to your business. It is legal if you pay commercial rates. If you are a small business owner and you use your SMSF to buy commercial property for your business, your SMSF covers at least 30 to 40% deposit and stamp duty and you can borrow the rest. The SMSF will own the property and claim the rent as a business expense.
If you borrow within your SMSF, the loan interest will offset the income and your SMSF will receive minimal tax. If you don’t borrow money, the SMSF will receive 15% tax on the rental income if you are younger than 65 or no tax if you are older than 65 and your SMSF is in pension fund mode. Your SMSF will receive minimal tax and you will receive tax deductions on your rent. If you sell the property even before your pension phase, your capital gains tax rate within a super fund will only be 10%.
Meanwhile, if you are over 65 years old, you can make tax-free contributions of up to $300,000 to your super when you sell your main residence regardless of other restrictions or caps that typically apply. If you have owned your home for more than 10 years and it has been your main residence at one point, you can sell it and use up to $300,000 as a tax-free contribution to your superannuation.
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You are not required to buy a new home after the sale but the contribution must be made within 90 days of receiving the proceeds from the sale and a downsizer contribution form must be lodged to the super fund to make sure it is registered. If you are a couple, both spouses can benefit from the downsizer contribution so you can contribute a maximum of $600,000 towards your superannuation. You can downsize your home if you’re reaching retirement age and feel like you haven’t saved enough money.
If your super balance is below the $500,000 threshold at the end of a financial year, you can start accumulating the unused portions of your concessional contribution caps from up to five years prior. You can make concessional contributions of $25,000 into your super account. However, any additional amounts rolled over that haven’t been used after five years will expire.
Another strategy is spousal contribution splitting, which is the act of splitting one’s concessional super contributions into your spouse’s super account. Those who are under 65 and not yet retired can make up to 85% of the full concessional amount into each other’s super. You can deposit up to $21,250 into each other’s accounts as employer super, salary sacrifice or personal deductions rolled over from the previous year.
You just have to lodge a notice of intent to claim a deduction to your superannuation provider. It is best for a spouse to top-up their super investment, without earning money. It’s beneficial if one spouse has taken time off from employment or if one spouse has a superannuation balance that may exceed $1.6 million. Couples are able to hold a maximum of $3.2 million combined before they are taxed on their retirement funds. It can be used to transfer or split your funds for a more tax-effective retirement for spouses.
Note that when an individual dies, his or her super does not transfer to his or her estate automatically. You can make sure that your super balance is passed on according to your wishes through a valid, written binding death benefit nomination addressed to the trustee of your super fund. This is a legally-binding notice that states who will receive your super benefit when you die.
The proportion of the benefit for each nominated individual and the type of benefit they will receive must be clearly outlined, signed by two adult witnesses and sent to the trustee. Only legal dependents such as spouses, children, legal representatives and dependents for support can be nominated.
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The nomination will be valid for three years (unless you opt for it to be non-lapsing) and remain in effect regardless of any changes in your situation (ex. Divorce). This is good for family businesses so you can finalise legalities ahead of time and beneficiaries won’t need to wait for the trustee to determine its distribution.
You can also use your retirement exemption to avoid up to $500,000 of capital gains earned from selling your business. You simply need to submit a CGT cap election form to your super provider before contribution. The exemption has a lifetime limit of $500,000, which can be claimed in full or used across the sale of several businesses. If you’re below 55 years of age, you can contribute the capital gain from selling your small business into your super account to take advantage of the exemption. Those over 55 can receive the capital gain tax-free.
If you are looking into making the most out of your SMSF, you should consider how long you have until you retire, if you have enough money in your account to make it worthwhile and if you trust your trustee. You should think of the complexity level you are willing to shoulder and how willing you are to adapt to the change. Determine if you and your spouse are ready to take on the responsibilities of these strategies and if you have a contingency plan in case something goes wrong. You need a trusted adviser to help you through the process.
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