With the recent draft ruling on pensions by the ATO it is important to understand some of the things that you can do to limit any potential tax liability if the pension tax exemption was lost.
Perhaps the most costly potential circumstance is when a member dies and the beneficiaries do not qualify as tax dependants. They may be Superannuation dependants and so perfectly able to receive the benefits, such as adult children, but it is the tax dependency that effectively introduces death taxes into the Australian superannuation system.
Two Common But Effective Strategies
A non dependant will pay 16.5% tax on the taxable component of a superannuation benefit. Tax free component will be received tax free regardless of the tax dependency status. So one of the primary strategies can be to maximise the tax free component in your member benefit. Once you have a high tax free component and the pension is commenced, this exemption is ‘locked in’ for the life of the pension and this will ensure low if any death taxes are payable.
If you have assets within your pension account that are liquid (shares for example) and have appreciated significantly in value since originally purchased, you should consider whether you should realise these assets. You can then take that opportunity to consider whether you should reallocate some of these funds, or perhaps repurchase the shares but with a higher cost base. The sale during pension phase will be CGT free. If the pension ceased unexpectedly the sale of the asset would yield little gain as the higher cost base would apply.
