Last month our resident SMSF expert, Tony Negline held a webinar about running an SMSF in 2019. There were a few questions we didn’t get to, so we thought we’d publish a note answering them, as well as a few of the most common questions from a long list
Question – In regards to non arm’s length income, is there a problem if an SMSF lends money at market rates to one of its members?
Answer –Yes, it would be seen to be giving financial assistance to a member of the fund and it is not allowed.
Question - I am in the process of selling my mother in law’s house where she has lived for over 50 years.
She is 90 & has gone to a nursing home. Does the $300,000 into super for downsizing apply to moving to a nursing home?
Answer - Yes, downsizing rules apply to moving into a nursing home.
Question – In regards to the proposed franking credit legislation, if you hold hybrids, could you do an in-specie transfer from your SMSF to yourself?
Answer – You are actually making a lump sum payment to yourself, effectively a benefit payment. If you are in pension mode you have to stop the pension to take the money out. If you are over 60, your money is tax free. The fund is selling an asset and you’d need to do the financial and tax accounting but you can make the transfer as long as it’s at market value.
The policy is not fully designed yet and there may be more concessions. Relatively speaking we are dealing in complex tax structures. But you need to plan and consider the adjustments you might make.
Question – What advice would you have for a couple with an SMSF where one person does the investing and the other is passive, where the investor is no longer able to manage the SMSF?
Answer – That’s a very common issue. Maybe there’s mental or physical incapacity, but we won’t go into that.
As a first step, do you need to get the court to agree the person can no longer act for themselves?
For whatever reason maybe it’s knowledge/ scope/ time the other person can’t look after the fund, in which case they should consider closing or winding up the fund. But this isn’t a simple decision, there are lots of moving parts to an SMSF. It takes time to sell assets, get it audited, maybe stop a pension. I’d suggest you talk to your adviser and accountants. The best course of action is probably to close the fund or you could have a guardian appointed by the court or maybe there’s someone else to help.
Question - I have a question regarding binding nomination after hearing the Hemmes Estate case -
My spouse & I are trustees of our SMSF. I am Power of Attorney for him as he has dementia.
Can I sign the binding nomination form on his behalf (as his Power of Attorney) to say his portion in the fund will go to me on his passing?
Is there a conflict of interest?
Currently there is no binding nomination in place for both of us. If either one dies, will the reversionary pension automatically kicks in for the surviving trustee?
I understand that SMSF requires 2 trustees, will add my daughter when the time comes.
Answer - This is a very complex legal matter.
There has recently been a Queensland Supreme Court case about this - http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QSC/2018/185.html.
The client may need to seek instructions from the Supreme Court in her jurisdiction to get clear guidance. This might be the appropriate course of action if she is concerned about other parties seeking to challenge her decisions as enduring attorney.
Question - I have a question regarding binding nomination after hearing the Hemmes Estate case -
Would a binding death benefit nomination have prevented the claim on the SMSF?
Answer – That’s a very good question. It was not discussed in the court case nor the documents, so I don’t know. Looking at how they used the proceeds, rather than other money, I just don’t know. With a binding death nomination money goes straight out as long as the trustee deems the nomination accurate and effective, so it may have worked.
Question – I have about $1m in an SMSF and would like to give away assets so I can get a health card and pension.
Answer – You need to be careful here as there are anti-avoidance rules that start before you retire. Certainly if you are an aged pensioner over 65 years, the rules will apply to you. You need to check with Centrelink. Here’s the link for those that are interested.
Summary
Tony concludes the presentation with three key suggestions for SMSFs. If you missed the presentation and would like to listen/ view the webinar, please register here.
Feel free to pass on the link to any of your family or friends that might be interested.