Financial Planning Report: SMSF, Taxation, and Investment

This report analyzes the financial planning strategies of Lillian and Boris, focusing on their self-managed superannuation fund (SMSF). It examines contribution splitting rules, including the maximum amount they can split. The report assesses the implications of investing in a rental property through their SMSF, considering costs, volatility, and tax offsets. It also outlines the conditions for accessing superannuation funds, along with the tax implications of lump sum payments and income streams. Furthermore, it discusses cash flow strategies and the importance of liquidity for SMSFs, ensuring the couple can meet their financial goals, maximize growth, and manage risks effectively. The report references several academic sources to support its findings and recommendations.

Running head: FINANCIAL PLANNING
Financial Planning
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question A:................................................................................................................2
Contributions that can be split:..................................................................................................2
What contributions can be split?................................................................................................3
Answer to question B:................................................................................................................3
Answer to question C:................................................................................................................5
Tax implication of Lump sum....................................................................................................5
Tax implications of Income Stream...........................................................................................6
Reference List:...........................................................................................................................8

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Answer to question A:
According to the taxation ruling of TR 2010/1 Contribution spilling can be defined as the
means of splitting contributions once in a year at the end of the fiscal year and transferring
some of the amount to the account of the spouse (Barkoczy 2016). The is generally regarded
as one of the useful methods of transferring amount it represents that an individual can be
able to create balance amid each partner and can make the use of all the available tax
incentives. Contribution splitting allows the members with the facilities of accumulation
account in order to split the employer contributions along with some of the personal
contributions with their spouse. There are few elements that needs to be considered in
splitting the superannuation fund with the spouse that are as follows;
a. Under the preservation age, irrespective of whether they are working or not;
b. Amid the preservation age of 65 or not permanently retired.
An individual can split the contributions with the husband, wife or a defacto who is living
with them (Woellner et al. 2016). However it is worth mentioning that contributions cannot
be split with a spouse who has attained the age of 65 or above. There are certain amount of
rules under the contribution splitting schemes which are as follows
Contributions that can be split:
An individual can transfer the following contributions from their respective account in the
account of their spouse which are as follows;
a. 85 per cent of the employee (prior-to tax) contributions
b. 85 per cent of the salary sacrifice (prior-to tax) contributions
c. 85 per cent of the personal contributions for which an individual can claim deductions

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An important rule to be considered in this case is that contribution splitting can be only
implemented for the contributions paid in the superannuation during the present or previous
financial year.
What contributions can be split?
Contributions that an individual cannot transfer comprises of the following;
a. Government co-contributions
b. Any form of investment earnings on the contributions
c. Lump sum amount of transfers from the overseas super funds
d. Any amount of money where an individual can roll over from another super fund
e. Amounts that are subjected to conditions of family law
As evident from the present case study it can be stated that Lillian and Boris have a
combined sum of $600,000 within their self-managed superannuation fund named LaB
SMSF. The maximum amount of before tax contributions Lilian and Boris can split is 85 per
cent of the before tax employer and salary sacrifice contributions. The amount of 85 per cent
is subjected to concessional contributions made for the financial year. Furthermore, Lillian
and Boris will have to leave a minimum amount of $5,000 to be left in their respective
account after the split unless they are closing the account entirely (Robin 2017). The
minimum amount the couple can split is $5000 and the maximum amount the couple can split
is the $510,000.
Answer to question B:
Acquiring a property to rent out is considered as one of the popular forms of
investment in Australia (Bird et al. 2016). Houses and units are much easier to understand
than several types of investments as where and what Lillian and Boris acquire it will

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ultimately affect their return on investment. There are certain considerations and implications
for making investment in the property. As evident from the present scenario purchasing and
managing the property from the Self-managed Superannuation Fund as investment property
for Lillian and Boris can be costly and will create an impact on the overall return. For Lillian
and Boris some of the costs involved in the property investment comprises of the cost
involved in stamp duty, conveyance fees and the legal cost involved in the ownership. Given
the fund of $600,000 from their Self-managed Superannuation Fund whey Lillian and Boris
own or acquire the property they will be accountable for the ongoing cost such as insurance,
body corporate fees, land tax, property management fees, repairs and maintenance costs.
Certain considerations and implications in acquiring the property consist of less
volatility of the property than investing in shares or other forms of investment for Lillian and
Boris. In addition to this, there are certain considerations such as a large of the property
expenditure can be offset against the income for the purpose of tax (Bird et al. 2016). Certain
implications on acquiring the property is expenses such as stamp duty, legal fees and fees
involved for the real estate agent in making and purchasing the property that will make it very
expensive for Lillian and Boris. Implications such as loss resulting from the fall in value of
property are generally known as negative equity.
If Lillian and Boris continue to lease the commercial premises they must include the
full amount of rent they earn in their income tax return. However, an individual can claim
deductions for their related expenditure for the period the property is leased or available for
lease. Generally Lillian and Boris can claim an immediate deductions for the expenditure
related to the management and maintenance of the property. However, Cost incurred for
acquisition and disposal of property are generally included in the cost base of the property
acquired for the purpose of capital gains tax.

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Answer to question C:
Lillian and Boris can gain the access of the superannuation in their SMSF account if they;
a. Reach the age of preservation at least 55 depending on the date of their birth and retire
on permanent basis from the workforce
b. Permanently retired if Lillian and Boris have the present intention of never again
becoming gainfully employed for a period of 10 hours or more than that each week
c. If Lillian and Boris reach their age of preservation and gain access of their super as
the non-commutable pension
d. If they reach the age of 60 and cease employment
e. If they cease employment with the provisional employer and have preserved the
benefit which is not more than $200
However, Lillian and Boris are required to meet one of the following early release conditions
a. They are required to pay a release authority from the ATO
b. Turn the age of 55
The maximum amount they can receive from the SMSF funds is $510,000
Tax implication of Lump sum
Taxation of Super Lump sums
Age Taxable component of taxed element
Max rate of
Tax
60 years and above Non-assessable non exempt income
Preservation age to 59 First $195,000 (low rate of cap) 0%
Balance beyond $195,000 (low rate cap) 15%
Below the age of preservation Entire Component 20%

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Tax implications of Income Stream
Taxation of Income Stream Benefit
Age of deceased
during death
Type of
death
Benefit
Age of
benefit Max rate of Tax Untaxed Element
Age 60 years
and above
Income
Stream Any Age 0% NANE
Marginal tax rate
Less 10% tax offset
Below the age of
60 years
Income
Stream
Age 60 and
above 0% NANE
Marginal tax rate
Less 10% tax offset
Below the age of
60 years
Income
Stream
Below the
age of 60
Marginal tax rate
15% tax offset MTR (no tax offset)
Cash flow is regarded as critical due to the fact that the pension payment can only be
made in cash. Lump sum payment can be made either in the form of cash or in specie.
Irrespective of the type of benefit withdrawals reduces the asset base (Bui, Delpachitra and
Kristabela 2016). The laws necessitate the trustee to take into the considerations the liquidity
of funds having regard to the anticipated requirement of cash flow. The minimum standards
of pension offer the reference point for the necessary amount of cash flow in the SMSF. It is
worth mentioning that where the cash flows are secured trustees might be exposed to the
short term volatility of the market at the time of cashing benefits so that the trustee can make
the necessary yearly pension payments.
The couple Lillian and Boris will have sufficient income to service their income as the
SMSF cash flows strategy will enable Lillian and Boris to address the key goals which will
help them in;
a. Ensuring that the necessary cash flow requirements are met
b. They can invest in the growth assets to increase their balance available at the time of
retirement

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c. Both Lillian and Boris will be able to exploit the opportunities for growth by
controlling the downside risk.

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Reference List:
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Bird, R., Foster, D., Gray, J., Raftery, A.M., Thorp, S. and Yeung, D., 2016. Experiences of
Current and Former Members of Self-Managed Superannuation Funds.
Bird, R., Foster, D., Gray, J., Raftery, A.M., Thorp, S. and Yeung, D., 2016. Who Starts a
Self-Managed Superannuation Fund and Why?.
Bui, Y., Delpachitra, S. and Kristabela, S., 2016. Expectations and experiences of self-
managed superannuation fund trustees. The Journal of Developing Areas, 50(4), pp.459-467.
ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian
Taxation Law Select: Legislation and Commentary 2016. Oxford University Press.