Our last article discussed the uncertainty that still foreshadows when and what form the div 296 tax will take. Despite the uncertainty and speculation, many clients are actively seeking advice and taking steps in response to the proposed tax.
We have outlined some of the broader considerations relating to the decision to withdraw funds from superannuation.
Importantly this needs to be considered in the context that div 296 is not law and does not actually exist as at the date of this article.
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:
- reaching 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of the likely tax implications if you leave funds in superannuation, compared to the scenario if the funds are withdrawn.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 (see our article about the relevant considerations)?
- 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.
If you want to review how legislative changes may affect your existing fund, reaching out to a specialist early-on can make all the difference. Our tax and estates team, regularly assists clients in aligning their SMSF structures with broader estate planning goals including everything from trust deed reviews to nomination of beneficiaries, ensuring your superannuation not only complies with current law but also supports your long-term legacy planning.
