Andrew Lowe
Many of the changes that took place with the Simpler Super reforms this year have not been fully considered by clients and their advisers, according to a superannuation specialist.
ING Australia national technical services manager Andrew Lowe said one topic in particular that has been overlooked in estate planning has been anti-detriment payments and the effects of re-contribution strategies.
“We have anti-detriment payments because Paul Keating promised there would be no new taxes and yet proceeded to introduce contributions tax. So to uphold that original promise of no new taxes he put into place a mechanism to refund that tax in the event you died,” he said.
According to Lowe, it’s an important topic because many clients incorrectly believe they would be better off by implementing a re-contribution strategy in order to avoid death benefits tax.
“Clients usually undertake a re-contribution strategy to protect their beneficiaries from the hefty 16.5 per cent tax; however, here is the issue that I feel is often overlooked, they are not factoring into account the anti-detriment payment.
“Many people [ask], in order to avoid the 16.5 per cent tax on death benefits, should I rip all my money out after I turn 60 and put it back in as a non-concessional contribution? In other words, change it from a taxable benefit to a non taxable benefit.”
Lowe said that in this scenario, although the client would not be taxed, they would then miss the opportunity to claim the anti-detriment payment, which is often more money.
“For example, if the client has the maximum amount they could put back in of $450,000 and they died, if they had undertaken the re-contribution strategy they would have a $450,000 tax-free benefit that would go to the spouse. However, they would not be entitled to an anti-detriment payment.”
According to Lowe, “had they not undertaken the re-contribution strategy they would have been much better off, with an $80,000 anti-detriment payment”.
