Commencing a Pension after 60 - The Perfect Investment Vehicle
Commencing a Pension after the age of 60 can result in significant taxation savings. This is because you pay no tax on your SMSF income and realized capital gains once you commence the Pension. So whether your SMSF earns $1 or $1,000,000 in income and realized capital gains, the SMSF will pay no tax if they are derived after commencing the Pension. Similarly there is no tax payable on the Pension Withdrawals accessed from the SMSF after 60. A Tax Free SMSF is truly the "Perfect Investment Vehicle!"
Case Study Example
Let's consider a Case Study demonstrating how much tax you can save by commencing a Pension after the age of 60 when you are NOT "Retired".
Example:
Barney is 61 and is still working. That is he in NOT "Retired". Barney has a Super Benefit of $1,000,000. His Super Benefit is broken down into a "Taxable Component" of $800,000 (built up from Employer Contributions) and a Tax Free Component of $200,000 (built up from Personal Non Concessional Contributions). This means that 80% ($800,000 / $1,000,000) of Barney's Super Benefit is Taxable and $20% ($200,000 / $1,000,000) is Tax Free.
Barney commences a Transition to Retirement Pension (TRAP) on 1 July, 2011. This is the appropriate Pension to commence given that Barney is NOT "Retired". Barney must access 4% of his Super Benefit as a Pension, that is $40,000. The Tax Free portion of the Pension Income is 20% (ie $8,000) and the Taxable portion of the Pension Income is 80% (ie $32,000).
Barney has no income other his salary income from working of $100,000. The SMSF has generated a Taxable Income of $60,000 made up of taxable interest and dividend income and realised capital gains from the realized sale of shares during the financial year. Franking Credits on the dividend income Barney total $10,000.
Case Study Result
| Tax Result in SMSF | With Pension | No Pension |
| SMSF Income | $60,000 | $60,000 |
| Dividend Gross Up | $10,000 | $10,000 |
| Total Income | $70,000 | $70,000 |
| Tax on SMSF Income | $0 | ($10,500) |
| Franking Rebate | $10,000 | $10,000 |
| SMSF Tax Refund / (Payable) | $10,000 | ($500) |
| Tax Position in Personal Name | With Pension | No Pension |
| Salary Income | $100,000 | $100,000 |
| Taxable Pension Income | $0 | $0 |
| Total Taxable Income | $100,000 | $100,000 |
| Tax Payable | $26,450 | $26,450 |
| Low Income Tax Rebate | $0 | $0 |
| Pension Rebate | $0 | $0 |
| Personal Tax Refund / (Payable) | ($26,450) | ($26,450) |
| Overall Tax Result | With Pension | No Pension |
| SMSF Tax Refund / (Payable) | $10,000 | ($500) |
| Personal Tax Refund / (Payable) | ($26,450) | ($26,450) |
| TOTAL Tax Refund / (Payable) | ($16,450) | ($26,950) |
Case Study Result
As the above example demonstrates commencing a TRAP after the age of 60 has saved Barney $10,500 in tax. This is an annual tax savings and demonstrates the amazing taxation savings available by commencing a TRAP after age 60!
Interactive Pension Analysis
To demonstrate how the above analysis may change with changes in the variable inputs we have devised an Interactive Calculator for our clients. The Interactive Calculator allows you to quantify the taxation savings available to you by commencing a TRAP after age 60, using your own personal circumstances. To view our Interactive Calculator, please visit our Interactive Pension Analysis here to and see how much tax you can save!
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