CON­TRI­BU­TION QUANDARY

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

You would have to know that you will die be­fore Jan­uary 1 next year if you wanted to ramp up your con­tri­bu­tions to a re­tire­ment an­nu­ity (RA) fund to re­duce your es­tate duty li­a­bil­ity.

In re­sponse to the pro­posed changes to the tax-de­ductibil­ity of con­tri­bu­tions to RA funds, Per­sonal Fi­nance reader Keith Payne asked whether tax­pay­ers can “load” their con­tri­bu­tions above the taxd­e­ductible lim­its for the rest of this tax year to take ad­van­tage of the ex­emp­tion. Payne wanted to know whether he can pay large amounts into a RA this year, to put as much as pos­si­ble into the fund be­fore the es­tate duty loop­hole is closed.

Jenny Gor­don, the head of re­tail le­gal sup­port at Alexan­der Forbes, says the Tax­a­tion Laws Amend­ment Bill of 2015 makes it clear that if you die af­ter Jan­uary 1, 2016, any con­tri­bu­tion to a re­tire­ment fund made from March 1 this year that ex­ceeds the de­ductible lim­its will be sub­ject to es­tate duty if it has still not been de­ducted or ex­empted by the time the con­trib­u­tor dies.

“So, al­though the draft bill is not yet law, as soon as it is en­acted, all af­ter-tax con­tri­bu­tions made af­ter March 1, 2015 that are not writ­ten off by the time the per­son dies will be in­cluded in the es­tate duty cal­cu­la­tion if death oc­curs af­ter Jan­uary 1, 2016.

“The only win­dow pe­riod will be in the un­for­tu­nate event of death prior to Jan­uary 1, 2016. Be­cause peo­ple gen­er­ally can­not pre­dict their date of death, there is no win­dow of op­por­tu­nity to over-con­trib­ute,” Gor­don says.

The es­tate duty amend­ment in the Tax­a­tion Laws Amend­ment Bill ap­plies to any con­tri­bu­tion made af­ter March 1, 2015 that was not de­ducted or ex­empted by the date of death where the per­son dies af­ter Jan­uary 1, 2016.

“It does not mat­ter whether the ben­e­fi­ciary elects to take the death ben­e­fit as a cash lump sum or pur­chases an an­nu­ity. The de­ter­min­ing fac­tor is that the de­ceased re­tire­ment fund mem­ber paid an amount into the fund that did not qual­ify for a de­duc­tion or an ex­emp­tion. That amount will be in­cluded in the es­tate of the de­ceased mem­ber for es­tate duty pur­poses,” Gor­don says.

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