With the end of the year fast approaching, now is a good time to ensure that you have all of your SMSF obligations under control. The following is a quick checklist of items that you should consider as part of your year end SMSF checkup.
It is important to ensure that you do not exceed your contributions caps, as it could potentially result in additional tax payable. The current contributions caps for the year ending 30 June 2017 are as follows:
Concessional contributions (these are contributions that will be taxable in the super fund):
||CAP FOR THOSE AGED 50 YEARS OR OVER AT 30 JUNE
Remember that the concessional contribution cap reduces to $25,000 for everyone from 1 July 2017.
Any excess concessional contributions may be refunded to a member and will be taxed at their marginal tax rates. Any refunded amounts will not count towards the non-concessional cap.
Non-concessional contributions (these are contributions that are not taxable in the super fund):
|MEMBER AGE AT 30 JUNE
||AMOUNT OF ANNUAL CAP
||AMOUNT OF 3 YEAR BRING FORWARD CAP
|Under 65 years
|65 years or over
The bring-forward cap still applies for those under 65 and remains at three times the non-concessional contributions cap of the first year in which the cap is triggered.
From 1 July 2017, this cap will fall to $100,000 per annum with a $300,000 three year bring-forward. This also means if you triggered the bring-forward rule before 2016/17, but the full $540,000 is not contributed, you will be limited to a transitional bring-forward cap. Please talk to your BDO adviser before making non-concessional contributions.
Those with a total superannuation balance of $1.6 million or more will not be able to make after tax contributions past 1 July 2017.
Excess non-concessional contributions can now also be refunded to a member, along with a notional earnings amount on the excess (as calculated by the ATO). The notional earnings are then taxed at the members marginal tax rates.
It is important to note that you cannot simply repay excess non-concessional contributions from the fund, you need to have received a Notice of Determination from the ATO before refunding any excess non-concessional contributions.
Important things to remember when making contributions
Timing of contribution payments
A contribution counts towards the caps for the year that the money is received by the Fund. Therefore, it is important to ensure that any contributions made to your Fund, are made with sufficient time for any banks, or clearing houses, to process the payment prior to 30 June 2017.
Have you made contributions that you are not aware of?
Contributions also consist of more than just cash deposits to a Fund’s bank account. The following items could also count towards your contributions caps:
- Expense payments for your SMSF that you pay personally or that are paid for by a third party on your behalf
- Life insurance premiums paid by your employer to another Fund
- In-specie transfers of assets to your Fund.
If you are unsure whether your Fund has had any expenses paid on its behalf, ensure you contact your Fund’s administrator.
Work test requirements for those over 65
Remember that if you are 65 or over, you must meet the ‘work test’ before making any contributions to your Fund. This means that you must work at least 40 hours in a 30 consecutive day period before you can make any contributions.
Other strategies for making contributions
You can split up to 85% of your taxable contributions to your spouse as a means of boosting their superannuation. This may be a strategy where your spouse does not have much superannuation in their account, or where they are closer to their preservation age. There are restrictions on splitting super as follows:
- You can only split 85% of your taxable contributions from a prior year
- You can only split concessional (taxable) contributions
- Your spouse must be under their preservation age, or under 65 and not retired.
If you earnt less than $50,021 for the 2016-17 year, you may be eligible for the government co-contribution. This entitles the recipient to an additional payment of up to a maximum of $500 from the government.
The requirements for this payment are as follows:
- You earn less than $51,021 for the 2016-17 year
- You are aged 71 or under at the end of the financial year
- You make non-concessional contributions to your fund
- You meet the 10% work test – where at least 10% of your income is employment income.
The government will match your non-concessional contributions amount at the rate of $0.50 for every $1 that is contributed. This tapers off at a rate of $0.0333 for every $1 where your income is over $36,021 until you reach $51,021 where it cuts out. This is a great way of adding a little extra to your account – as every little bit helps.
From 1 July 2017, you will not be eligible for government co-contributions if your total superannuation balance exceeds $1.6 million at the previous 30 June.
If your spouse earns less than $13,800, you may be able to claim a tax deduction for contributions that you make on their behalf. The deduction is calculated at 18% of the contributions amount, up to a maximum contribution of $3,000. This could be a great way of increasing your spouse’s super.
From 1 July 2017, the income threshold for spouse income increases to $37,000, making accessibility to this rebate more broadly available.
Unallocated contributions or contributions holding account
If you are expecting to have a significantly higher taxable income in the 2017 year, it is possible to bring forward a deduction for personal concessional superannuation contributions, effectively claiming the deduction twice in one year.
Note that in doing this you are using ‘next year's’ contribution cap and will therefore be limited in the 2018 financial year with regard to contributions you can make to your super fund.
This is a complex strategy and it is recommended that you contact your BDO adviser should you wish to discuss this strategy in further detail.
Have you met your minimum pension requirements?
The ATO continues to closely monitor Funds claiming the exempt current pension income (ECPI) exemption. For a SMSF to be able to claim the ECPI, the minimum pension payment standards must be met. The minimum standards for the 2016-17 year are as follows:
|AGE AT 1 JULY*
||MINIMUM % WITHDRAWAL FOR 2016-17 YEAR
|95 or more
* Or age at commencement of pension if commenced part way through the financial year.
The minimum percentage refers to the percentage of your pension account balance that must be withdrawn. The maximum withdrawal amount for Transition to Retirement Income Streams remains at 10%.
Failure to adhere to these limits could result in your SMSF potentially losing the ECPI exemption and even breaching the payment standards.
Preparing for the $1.6 million transfer balance cap and capital gains tax (cgt) relief
Be aware of the new $1.6 million transfer balance cap that will limit the amount you can keep in the pension phase of superannuation from 1 July 2017. This new cap will limit the assets you can have supporting superannuation pensions to $1.6 million.
You should make sure that as of 1 July 2017 you only have $1.6 million in pension phase. This may require you to roll some assets currently supporting a pension back to accumulation phase where their earnings are taxed at 15%. You may be eligible for CGT relief on assets affected by the new rules.
It is essential that your plan to comply with the transfer balance cap and all relevant documentation is formulated by 30 June 2017. Minutes should be created detailing the fund members’ intent to transfer assets out of retirement phase to avoid breaching the new transfer balance cap. Minutes documenting how CGT relief is intended to be undertaken should also be produced.
If you have not already done so, please contact your BDO adviser to discuss how the Transfer Balance Cap regime will impact you and your superannuation fund.
Transition to retirement income streams losing their tax-exempt earnings status
From 1 July 2017, superannuation fund members will lose the tax-exempt treatment of earnings on assets that support a transition to retirement pension (TTR). Members will still be able to start new or maintain existing
TTRs, but they should be reviewed before 30 June in accordance with their SMSF’s objective.
Other pension considerations
Lump sum payments
The ATO has confirmed that lump sum payments may be counted towards your minimum pension requirements. This may present tax planning opportunities where you are drawing down a pension and have not yet turned 60. Lump sum payments are subject to a low rate tax exemption, where the first $195,0001 can be taken tax free.
It is important to note that this option is unlikely to be available for those who have a transition to retirement income stream, as they do not provide for lump sum payments.
Taking a lump sum also provides the ability for a Fund to transfer assets to a member should this be required. Remember that there are strict rules around transferring assets to members, as it must be done at market value and on commercial terms.
If you are in pension phase and are yet to turn 60, talk to your BDO adviser about the ability to withdraw a lump sum from your Fund.
From 1 July 2017, it will no longer be possible to have lump sum benefits count towards your minimum pension obligations.
Government Age Pension recipients
It is important that you let your adviser know if you receive the Age Pension. Rules around the Age Pension income test changed from 1 January 2015. Any changes made to a pension from your Fund could affect how your Government Age Pension is calculated. Please ensure that you discuss this with your adviser to ensure that these changes do not impact on your current arrangements.
Other year-end opportunities
Rebalancing accounts between spouses
The end of financial year is also the perfect opportunity to rebalance pension accounts between spouses before the new superannuation rules take effect on 1 July 2017. As long as you have available contribution space, and are eligible to withdraw, rebalancing will ensure that super balances are as even as possible and the $1.6 million transfer balance cap is maximised per member.
Claiming a tax deduction for personal superannuation contributions
If you are self-employed, an investor, or in receipt of a pension and receive less than 10% of your income, fringe benefits and other related payments as an employee you may be eligible for a tax deduction for personal contributions to superannuation. If you intend to claim a tax deduction make sure you are eligible to claim a deduction and seek advice if you are unsure. You need to notify the fund of the amount you wish to claim as a deduction before the end of the next financial year or the end of the day on which the individual tax return was lodged, whichever occurs first. Make sure you keep all relevant paperwork to save stress when the time comes to see your SMSF adviser.
From 1 July 2017, everyone who is eligible to make a contribution will be able to claim a tax deduction for personal superannuation contributions without needing to satisfy the 10% rule.
For these and other year-end tax planning tips make sure you contact your BDO adviser before 30 June. We look forward to hearing from you.
1This limit is indexed each year. $195,000 is the limit for the 2017 financial year.