With the Federal Government planning to tax superannuation balances greater than $3 million, many account holders are considering withdrawing funds from superannuation.
In the second of a three-part series, McCullough Robertson Partner Hayley Mitchell looks at the ramifications of such a move.
Ms Mitchell, partner in Wills, Estates and Trusts at McCullough Robertson, said despite the proposed div 296 tax yet to be legislated, there was little doubt it would be enacted in some form.
In the first article she discussed that uncertainty and said many clients were actively seeking advice and taking steps in response to the proposed tax.
She said any decision to withdraw funds from superannuation needed to be considered in the context that div 296 was not law and did not actually exist currently (as of June 11).
Should I withdraw funds from my superannuation?
To withdraw or not to withdraw, that is the question. This is ultimately going to be a personal and commercial decision that should only be made after considering your personal circumstances.
First to withdraw, you need to have a met a condition of release. If you have not met a condition of release, you are not able to withdraw funds from your superannuation.
The more common conditions of release are:
- Teaching 60 years of age and retiring or beginning a transition-to-retirement income stream.
- 65 years of age (even if not retired).
The not so common conditions of release include total or temporary incapacity, a terminal medical condition and financial hardship.
Second, your decision to withdraw (or not withdraw) should be based on accounting and taxation advice — including modelling of the likely tax implications if you leave funds in superannuation, compared to the scenario if the funds are withdrawn.
If you have a balance close to or over $3 million, it does not mean that it will always be better to withdraw funds from your superannuation. Ultimately the decision will come down to a multitude of factors unique to the individual.
I have decided to withdraw funds from my superannuation, what next?
If you have decided to withdraw, you need to check you have considered and sought advice on the following:
- How will the withdrawal of your superannuation be achieved?
- Do you need to sell assets in the fund?
- Will you be transferring assets out of the fund (for example property) and does your trust deed allow for this?
- What are the tax and duty costs of selling or transferring assets?
- Once the withdrawal has been made, where will those assets be held (in your personal name or another entity)?
- What are the future tax considerations for the funds/asset now that they are outside the superannuation system?
- Are you gifting/loaning these funds to children or family members?
- Do you need to consider the potential for disputes over your Will or estate (increasing your personal wealth may not be advisable)?
How will this affect my estate planning and SMSF succession plans?
Withdrawing funds from your superannuation is likely to impact on your estate planning arrangements. It is effectively a re-structuring of your assets which should always prompt a review of your existing estate planning arrangements.
For example, will the withdrawal of your superannuation lead to:
- An increase to the value of your personal assets?
- Different gifts or loans between your children?
- An increase in value of private companies or trusts associated with your wealth?
- New private companies or trusts associated with your wealth?
If so, there may be changes to be made to your Will, superannuation binding death benefit nominations, succession arrangements for private companies and trusts and documentation to property record gifts and loans to children or your entities.
A review of your estate plan will be particularly important if you had made specific provisions for your superannuation to go to certain beneficiaries.
With ongoing regulatory shifts on the horizon – expert advice and careful planning are more important than ever.
