This document discusses several strategies for borrowing in superannuation and managing pension payments to reduce tax liabilities. It provides a case study on borrowing $500k from an SMSF to purchase an investment property. It estimates an annual tax saving of $8,463 and a capital gains tax saving of $162,750 over 15 years compared to purchasing the property traditionally. It also discusses withdrawing and recontributing super benefits to increase the tax-free component, and separating pension interests to preserve that tax-free amount.

1. Hewison Private Wealth
Client Strategies

2. BORROWING IN SUPER

3. Case Study
• Jim (45) owns his home with no mortgage
• SMSF - $800,000
• Property for sale - $1,000,000

4. Key Differences
• Limited Recourse Loan
• Single Acquirable Asset
• Can only improve asset under limited
circumstances
• Cannot make use of the asset

5. Pay $1m Loan $500k
Jim
Bank
Property
Rent Interest

6. Bank
Loan $500k
Interest
SMSF
Jim
Transfer $1m
Bare Trust Property
Pay $1m

7. Loan $500k
Jim Bank
Interest
Loan $500k
Interest
SMSF
Transfer $1m
Bare Trust Property
Pay $1m

8. Traditional Borrow in SMSF
Jim
Salary $100,000 $100,000
Rental Income $70,000 $0
Loan Interest -$37,500 $0
Taxable Income $132,500 $100,000
Tax Payable $40,288 $26,950
Jim’s SMSF
Rental Income $70,000
Loan Interest -$37,500
Taxable Income $32,500
Tax Payable $4,875
Total Tax $40,288 $31,825
Estimated tax saving from Borrow in SMSF strategy $8,463 per annum

9. Traditional Borrow in SMSF
In 15 years time:
Property Value $1,700,000 $1,700,000
Purchase Price $1,000,000 $1,000,000
Capital Gains $700,000 $700,000
Capitals Gains Tax $162,750 $0
Capital Gains Tax Saving from Borrow in SMSF strategy $162,750

10. Case Study
• Jan is 70 and retired
• SMSF of $2,000,000 & Cash of $1,000,000
• Option 1
o Invest $1m in Jan’s personal name
• Option 2
o Lend $1m to SF and invest within SMSF

11. Pension Strategies

12. Withdrawal & Re-Contribution
Strategy
• Objective – Increase tax free component
SMSF
Withdraw Re-contribute
Taxable Tax Free
Component Component

13. Withdrawal & Re-Contribution
Strategy – Case Study
BILL
o 64 years of age
o Retired
o Has a SMSF with benefits of $1 million
o 100% of Bill’s super benefits are made up of
the taxable component

14. Withdrawal & Re-Contribution
Strategy – Case Study
BILL
SMSF
Withdraw Re-contribute
$450,000 $450,000
BILL

15. Withdrawal & Re-Contribution
Strategy – Case Study
If Bill were to pass away prior to
undertaking this strategy?
Before Strategy
Taxable Component $1,000,000 100%
Tax Free Component $0 0%
Death Benefits Tax $165,000 16.5%

16. Withdrawal & Re-Contribution
Strategy – Case Study
After Strategy
Taxable Component $550,000 55%
Tax Free Component $450,000 45%
Death Benefits Tax $90,750 16.5%
Tax Saving $74,250

17. Withdrawal & Re-Contribution
Strategy – Case Study
BILL
o What if 50% of Bill’s super benefits are made
up of the taxable component and 50% are tax
free?

18. Withdrawal & Re-Contribution
Strategy – Case Study
After Strategy
Taxable Component $275,000 27.5%
Tax Free Component $725,000 72.5%
Death Benefits Tax $45,375 16.5%
Tax Saving $37,125

19. Withdrawal & Re-contribution
Strategy Considerations
• Super Contribution Limits
o Maximum non-concessional contributions of
$450K
• Withdrawals are proportionate to
components
• Possible abolition of in-specie contributions
from 1 July 2012

20. Separating Pension Interests
• What is it?
o Create multiple pensions
o Isolate tax free components in a separate pension
• Why?
o Preserve tax free component

21. Separating Pension Interests
Case Study
SMSF
New Pension Existing Pension
$450,000 $550,000
100% Tax free 100% Taxable
Pension Payment Pension Payment
Draw $22,500 Draw remainder
(min pension of 5%) $47,500

22. Separating Pension Interests
Case Study
• Taxable Component in 10 years’ time
o Before Strategy $482,070
o After Strategy $327,943
• Benefit = $25,430

23. Pension Payment Breakdown
What is it?
• Management of a couple of pension payments
Benefit?
• Reduce tax liability

24. Pension Payment Breakdown
Case Study
Bob & Betty
o Bob (62)
o Betty (57)
o SMSF value = $1 million ($500K each)
o All benefits are taxable component
o Income requirement, $150K per annum

25. Pension Payment Breakdown
Case Study
Before After
Bob Betty Bob Betty
Account Based Pension $75,000 $75,000 $130,000 $20,000
Taxable income $0 $75,000 $0 $20,000
Income Tax $0 $17,550 $0 $2,400
Less: Pension Rebate (15%) $0 $11,250 $0 $3,000
Tax Payable $0 $6,300 $0 $0
Tax Payable
Before $6,300
After $0
Tax Saving $6,300