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Beyond the Super Pension Limit

Now superannuation pensions are limited to $1.6million, the appeal of a family trust has increased.

Perhaps the government need not have also limited super contributions and instead allowed people find their own path towards the overall pension limit… (but grumbling doesn’t help).

Family trusts don’t yet have the network of legislative restrictions that apply to superannuation. They’ve always been important in business, tax and estate planning for their flexibility, asset protection, tax efficiency and succession.  Effectively, our law in this area dates back to traditional English law from our colonial origins.

For those affected by the super pension limit, blending superannuation (possibly self-managed) with a family trust now has some appeal. Rolling any excess super back into an ‘accumulation’ account incurs 15% tax on the account income earned and 10% on realised gains after 1 year – about 12-13% overall. Will the tax and other benefits by using a family trust be more attractive? Evaluating all these issues can be a worthwhile strategic exercise.

However, take note that a future Labor government have said they may tax family trusts at a minimum of 30% to discourage tax minimisation by ‘income splitting’ to other lower income family members. Several complexities must be overcome in this, as small businesses often utilise a trust structure for succession planning and to protect their assets from creditors. Another issue would be how to deal with the flow of franked dividend tax offsets. Even so, a family trust may still have merit in many circumstances.

Advice about better strategic outcomes and enhanced investment returns is a large part of our value-add for clients. So do ring us if you’d like to discuss this.

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Disclaimer: All information in this article is intended to be general in nature for discussion purposes only. So you should not rely on it and seek personalised professional advice before making any decision.