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Utegate dominates
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Super catch-up
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Investment Markets Data - To 31st May 2009.
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Budget winds back the clock on super
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Investment Markets Data - To 31st March 2009.
Maximising the tax free portion of a super fund in times of market down turn.
This is an abridged extract of one of 11 superannuation strategies in the new book by Max Newnham "Self Managed Super Funds: A Survival Guide" published by Wright Books

There are not many silver linings to the current collapse in the investment markets. There is one thing the super fund members can do where their fund has tax free benefits, the fund is still in accumulation phase, and they can be paid a superannuation pension.

Because the value of tax free benefits remains the same, until a super fund starts paying a pension, with many investments having dropped dramatically in value the percentage that the tax free benefits are of the total value of the fund has increased. By starting a pension while this is the case the higher percentage relating to tax free benefits will be locked in.

An example of how this would work is Margaret Walker who is 55, still working, and has a SMSF with a sole director/shareholder company acting as trustee. She is the only member and over the years has built the fund up to be worth $400,000 at 30 June 2008. She has accumulated tax free benefits totaling $100,000. A large proportion of her investments are in good quality companies listed on the ASX. Unfortunately like many other investors she has seen the value of her super fund decrease as a result of the share market crash to the point where it is worth $250,000 at 30 June 2009.

Margaret decides to commence a TTR pension as at 1 July 2009. By doing this the percentage of her fund that is tax free is locked in at 40% as the following table shows.

 

2008

2009

 

$

$

Taxable benefits

300,000

150,000

Tax free Benefits

100,000

100,000

Total value of fund

400,000

250,000

Tax free Benefits percentage

25%

40%

When the value of the shares in the SMSF increases, the value of her tax free benefits will also increase. This will mean a greater percentage of her TTR pension will be tax free while she is still under 60, and a greater percentage of the fund can be inherited by her non-dependent beneficiaries' tax free upon her death.

 

 

 

 



24th-June-2009

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