How can we transition our SMSF back to a traditional super account?

We have all our super in a self-managed super fund and are regretting the decision to go down this path. It is all so complicated and our fees with the company that manages it are about to increase substantially. We would like to transition back to more simple super accounts but need help. We appreciate that this transition may take years as we attempt to pick the best times to sell the assets in the super fund, and therefore there could be tax implications and capital gains and extra fees while the transition is happening. Can you help us simplify our position? My husband is 67 and in the pension phase. I am 60 and in the accumulation phase. We are both retired and have other non-super investments.

No, the process doesn’t have to take years. Your SMSF simply sells shares at the current market price, transfers cash to your chosen public offer super fund and purchases fund units. It should take a matter of days, a fortnight at the most. If the fund owns property, then sell sooner rather than later.

Defining the objective of superannuation in law would be a strong step for stability.Credit:Photo: Jessica Shapiro

Yes, asset prices have fallen, but interest rates haven’t reached their peak yet, so asset prices, arguably, have further to fall. You might even benefit by keeping your transferred benefits in cash for a month or two. October is not known as the friendliest month for share prices.

Since you are retired, you can convert your accumulation account to a pension account with some simple letters to the trustee(s) and a written confirmation in return. This allows you to sell the assets supporting your pensions without CGT.

I am 83 and, with my husband, 84, receive an income stream of $35,000 from our SMSF, plus a part Centrelink pension. I also own 1000 Westpac shares, bought years ago and the only assets not in the SMSF. I noted a past comment in your excellent column that any sale of shares attracts capital gains tax, determined at my marginal tax rate. As we have no other income, how would CGT be calculated on the sale of say, 100 or 200 shares?

Your super would be untaxed and so the only assessable income you get would be the Westpac dividends you receive. Your 1000 shares would be worth around $20,000 now and, with a 5.8 per cent dividend yield, would be paying around $1160 annually in dividends.

Since they are fully franked, they would form a taxable income of $1657 after grossing up your dividends. The extra $497, or franking credit, would represent Westpac’s 30 per cent corporate tax before paying out the remaining 70 per cent as dividends.

As an example, if you bought the shares around 30 years ago, you might have paid $5 each or $5,000 together. So if you sell all the shares at once, you would receive a $15,000 capital gain and since you have owned them for over 12 months, only half or $7500 is subject to tax. Therefore you would have a taxable income of $9157.

The threshold of taxable income is $18,200, rising to around $20,000 after tax offsets. So, under this example, if you sold 100, 200, or 1000 shares, there would be no tax and no need to submit a tax return. The ATO probably automatically refunds your $497 unused franking credits without you having to apply.

Of course, if you bought the shares before September 20, 1985, then they are pre-CGT assets and can be sold free of CGT.

My wife and I are both 80, both in very good health, and we have two children who will inherit equally. Our son is in Melbourne while our daughter is married to a fine Englishman and, together with their three children, live in the UK. She and her husband wish to buy our home in three years’ time, allowing us to move into a retirement home. Your recent article talks in part about death benefits going to an overseas beneficiary. Can you clarify the treatment of our assets comprising our home, a share portfolio of $220,000 and an SMSF of $650,000, should we die within the next three years, and/or should we live longer? We particularly want our daughter and son-in-law to buy our home as they both love our house and would love to live in Australia.

Very wise of them as to live in the land of Oz is to win the lottery in life.

Superannuation death benefits are taxed the same, whether the beneficiaries live here or overseas. The taxable component is taxed 15 per cent plus 2 per cent Medicare if it goes directly to the children, or 15 per cent if it passes to the estate. However, as I have mentioned before, the last survivor of a couple should aim to have withdrawn all super by the time they pop their clogs.

If you both pass away within three years, the house can be sold tax-free, presumably to your daughter, but if you bequeath it to her, it will be subject to CGT.

Later, the refundable accommodation deposit from an aged care facility is paid untaxed, on the death of the last survivor, to the estate where it falls under your will.

If your will requires your shares, presumably all post-1985, to be paid in specie to the children, your Melburnian son will receive his shares with your cost base, subject to CGT only when he sells. Your overseas daughter’s shares will be subject to CGT based on the market value of the asset at the date of death, with the tax being reported in the deceased’s date of death tax return.

Plan to live for at least another three years.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. All letters answered. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00.

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