Advisable-Australian-Masterclass-Meg-Heffron

This document is for general use. Modification of content is prohibited unless you have Netwealth’s express prior written consent.

Before we get started This information has been prepared by Netwealth. Whilst reasonable care has been taken in the preparation of this presentation using sources believed to be reliable and accurate, to the maximum extent permitted by law, Netwealth and its related parties, employees and directors and not responsible for, and will not accept liability in connection with any loss or damage suffered by any person arising from reliance on this information.

Netwealth Investments Limited (Netwealth) (ABN 85 090 569 109, AFS Licence No. 230975) is a provider of superannuation and investment products and services, and information contained within this presentation about Netwealth’s services is of a general nature which does not take into account your individual objectives, financial situation or needs. Any person considering a financial product or service from Netwealth should obtain the relevant disclosure document at www.netwealth.com.au and consider consulting a financial adviser before making a decision before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product.

Housekeeping

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Affluent 30

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Emerging Mass Market Population 5.3m Wealth1.1t Age 30

Age

Mass Market

Meetthe Advisable Australianby age and wealth

Established Affluent Population 2.8m Wealth 4.1t Age 60

Emerging Affluent Population 1.9m Wealth1.8t Age 30

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Established Mass Market Population 8.0m Wealth 2.3t Age 61

#action help establish (or wind down) the correct structures and entities for their investments to maximise tax, personal and family outcomes

Today’s speaker • Meg Heffron • Managing Director of Heffron • Meg provides practical solutions for accountants and advisers to help their clients and grow their business

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| netwealth

Super Strategies for the High Net Worth Netwealth – February 2022

Where we’ll focus • Established (say age 60-ish) • Already significant wealth, including super • Optimizing for retirement Often have three aims: • Maximise amount in super while they can • Optimise pensions for retirement • A legacy for their children 9

Optimising money into super Tips, traps and opportunities

Don’t underestimate new caps Total Super Balance 30/6/2021 $1.7m or more $1.59m – less than $1.7m $1.48m – less than $1.59m Less than $1.48m

Bring forward rules $0 NCC Cap $110k NCC cap, 1 year to use it $220k NCC cap, 2 years to use it $330k NCC cap, 3 years to use it

Don’t forget these same limits apply even if: • personal transfer balance cap is less than $1.7m • previously ruled out of more NCCs (TSB exceeded $1.6m at 30 June 2020) • fully utilised transfer balance cap 11

New opportunity Contributions ruled out before but not any more Tim : Retired (64)

Now 66

• $1.6m ABP

• $1.65m ABP

• $100k accumulation

• $nil accumulation

Pension value grew, accumulation account drawn down 30 June 2019

30 June 2020

30 June 2021

$110k NCC for 2021/22 Doesn’t matter that fully used TBC, no indexation Just can’t be converted to a pension 12

Work test rules to go in 2022/23 Little impact on current (2021/22) planning What about the longer term?

• Recontribution common 65-74 where possible • Less emphasis on bring forward? Just recontribute $110k pa?

• More time to even up balances Remember : work test not removed for personal contributions where a tax deduction is claimed 13

Downsizers – a unique opportunity • For those with very large balances – the one time they can add more to super • Or even do a last recontribution? (no need to add permanently to super) • Remember : age limit reduces to 60 from 1 July 2022

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Downsizer + re-contribution Strategy: Dave: Retired (78) • $1.8m ABP (70% tax free)

• Withdraw $300k from accumulation

• $1.0m accum (0% tax free) • Contribute $300k downsizer

Withdrawal first? Better for tax components

House sold, downsizer conditions met 30 June 2021

31 December 2021

30 June 2022

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Catch up concessional contributions • Using concessional caps that weren’t used in the past • Maybe not directly relevant for HNW – only available if:  Super < $500k  Haven’t already used concessional caps

• But what about the next generation?

• Child turning 18 “now” has 4 years’ caps ($102,500) • Remember : now “everyone” (over 18) can claim a personal tax deduction for super contributions 16

Next generation Distribution from family trust

Paid to adult (but low earning) child

Super contribution

Personal deduction to manage tax

Access some later under FHSSS?

Can’t necessarily access it all (maximum $15k gross of tax for a given year). That said, not a bad legacy?

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Already have pensions?

Tips, traps and opportunities

Important role of commutations 1. Free up transfer balance cap space Always important • Even if no longer making contributions • Even if comfortably within TBC Because what about: • Downsizers • Inheritance from a spouse 19

Dave – inheriting June’s super Both have a $1.8m reversionary ABP Both fully utilised their $1.6m TBC in 2018 June died, what now?

Dave’s transfer balance account: Dave’s 2018 pension Roll back his pension now Start / continue June’s pension Balance

Transfer Balance Account $1.6m ($1.8m) $1.8m $1.6m 20

Dave – inheriting June’s super But what if $100k of the payments taken from Dave’s pension had been classified as commutations?

Dave’s 2018 pension Partial commutations Roll back his pension now Start / continue June’s pension Balance

Transfer Balance Account $1.6m ($0.1m) ($1.7m) $1.8m $1.6m

Roll back less of his own pension – more of the fund remains in pension phase 21

Opportunities for commutations Where there’s no accumulation balance: • large / out of the ordinary amounts • regular “pension payments” that go over minimum • payment of release authorities (excess contributions)

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Important role of commutations 2. Tactical handling of tax components Chris’s super: • $1.8m ABP (fully utilised TBC) – nil% tax free component • $1.0m accumulation – 50% tax free component Rather than drawing extra payments from accumulation account:

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Chris – handling tax components Step 1 • Partial commutation from ABP • Draws down on taxable component • Leaves more tax free (accumulation) in super

Step 2 • Every few years, commence a new pension from accumulation account • Allows Chris to “top up” his total pensions to use his full TBC 24

Craig and Stacey • • • • •

Both have $1.8m reversionary ABPs – nil% tax free Both have $1.0m accumulation – 50% tax free Both have fully utilised their TBC Stacey dies, Craig inherits her pension Should he leave it that way and just pay her accumulation account out of super?

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Perhaps a better alternative Craig has:

Just before the anniversary:

• His $1.8m ABP

• Fully commute Craig’s original pension (back to accumulation)

• Stacey’s $1.8m ABP • His accumulation Trustee needs to deal with Stacey’s accum ($1.0m)

Stacey’s death

• Partially commute (and cash out) $1.0m from the reversionary pension • Commence a new pension with Stacey’s accumulation

Exact amount depends on growth in Stacey’s accum. account

12 months later

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Why? Changes the make up of what’s left in super for the kids If Craig died today, that’s a $75k saving + medicare

There were originally 4 pots of super: Craig

Pension All taxable

Stacey

Accum. $500k tax free

Pension All taxable

Super that has been withdrawn came from here

Accum. $500k tax free

Instead of here 27

Superannuation legacies Tips, traps and opportunities

Don’t mess up a BDBN BDBN says estate but pension documents say reversionary

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BDBN says specific beneficiary (spouse) but Will assumes it will be paid to the estate

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Intended the BDBN to create a reversionary pension but it doesn’t specifically say the old pension continues

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Deed says it must be witnessed but it’s not

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Watch for undesirable outcomes On my death, my superannuation should be divided equally between my two children Fred and Mary.

Adult children generally pay tax (not dependants for tax purposes) – is there a spouse?

Individual beneficiaries also pay Medicare (on taxable component) – estates don’t. Would it have been better to pay via estate?

What happens if Fred dies before the parent? Does Mary get it all?

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Watch for undesirable outcomes On my death, my superannuation should be paid to my estate.

Can’t be paid as a pension to the spouse – which is often a better tax outcome.

On my death, my superannuation should be divided equally between my brother, Sam and my son Tim.

Part of this BDBN is invalid, does that invalidate the whole document? (check the deed and the BDBN)

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Watch for undesirable outcomes On my death, Pension 1 should automatically continue to my spouse Jane and the balance held in Pension 2 should be paid to my daughter Mary.

Made sense at the time – Pension 2 was 100% tax free component and Pension 1 was mostly taxable.

But over the years, large commutations from Pension 1 (good advice!). Now Jane will receive less than intended.

And a recent downsizer contribution means there’s also an accumulation account. Not subject to the BDBN. 32

© Copyright 2020 Heffron Consulting Pty Ltd.

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Disclaimer © Heffron Consulting Pty Ltd 2022 This presentation is based on our understanding of the law as at 6 February 2022 and is for general information only. This presentation does not constitute financial product advice and has been prepared without taking into account any individual’s personal objectives, situation or needs.

Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described.

Furthermore, it is not intended that it be relied on by recipients for the purpose of making decisions and is not a replacement of the requirement for individual research or professional tax advice. This slide handout was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author.

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Any last questions?

Your Advisable Australian Resources Your Advisable Australian Resources www.netwealth.com.au/web/insights/the-advisable-australian Read the full report The Established Affluent 2022 Report

The 6 Dimensions of the Advisable Australian Discover the dimensions

Read the full report The Emerging Affluent report

Advisable Australian Masterclass Series – Coming up Thu 17th Feb at 1pm Setting up your advice practice for HNW clients Tue 22nd Feb at 1pm Building strategic relationships for a pipeline of new, affluent clients Thu 24th Feb at 1pm – Super, SMSFs and technical strategies for HNW clients

Disclaimer This document is for general use.

This information has been prepared by Netwealth. Whilst reasonable care has been taken in the preparation of this presentation using sources believed to be reliable and accurate, to the maximum extent permitted by law, Netwealth and its related parties, employees and directors and not responsible for, and will not accept liability in connection with any loss or damage suffered by any person arising from reliance on this information.

Netwealth Investments Limited (Netwealth) (ABN 85 090 569 109, AFS Licence No. 230975) and Netwealth Superannuation Services Pty Ltd (ABN 80 636 951 310), AFS Licence No. 528032, RSE Licence No. L0003483 as the trustee of the Netwealth Superannuation Master Fund, is a provider of superannuation and investment products and services, and information contained within this presentation about Netwealth’s products or services is of a general nature which does not take into account your individual objectives, financial situation or needs. Any person considering a financial product or service from Netwealth should obtain the relevant disclosure document at www.netwealth.com.au and consider consulting a financial adviser before making a decision before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product.