Article:

Super News - Five topics SMSF trustees should consider in the new financial year

27 July 2020

Yvette Cree, Manager, Team Super |
Paul Rafton , National Leader, Superannuation |

Who would have thought we would be bringing in the new financial year in what is still such an uncertain time? Now more than ever, we are encouraging Self-Managed Super Fund (SMSF) trustees to reach out for anything they might need and to keep us in the loop on any changes happening in their lives while we move through the second half of this unique calendar year.

We have collated a list of hot topics for trustees to consider when it comes to superannuation benefits, specifically around recent legislative changes and concessions, and the Australian Taxation Office (ATO) and auditor focus points.

COVID-19 measures

Early access to superannuation

The Government is extending the application period for early access of up to $10,000 from superannuation to 31 December 2020. 

However, applicants should be aware that the ATO confirmed it will be taking a close look at individuals who apply for early release of their superannuation, stating it would take action against individuals who apply but are not eligible for the measure at the time of submitting an application.  

"If you are unable to demonstrate your eligibility when we ask for evidence, we may revoke the determination issued for your application. This means the amount paid to you under COVID-19 early release of super will:

  • Become assessable income, and 
  • Need to be included in your tax return and you will pay tax on the released amount." – ATO, 1 July 2020

According to the ATO, in this situation, the individual may not qualify for further payment from July through to 24 September 2020. Working hours must have been reduced by at least 20 per cent from the period before COVID-19. 

Income streams

The temporarily reduced minimum drawdown rate set out below applies to the year ending 30 June 2021, as well as last financial year up to 30 June 2020. 

Trustees must ensure the reduced minimum pension factor is applied to 30 June 2020 pension account balances and paid to members before 30 June 2021. The 50% reduction in pension payments also applies to Market Linked Income Streams.

Age bracket

Minimum annual drawdown

Minimum percentage factor

years ending 30 June

2020 and 2021

Standard maximum pension

percentage factors

Under 65

2.0%

4.0%

65 – 74

2.5%

5.0%

75 – 79

3.0%

6.0%

80 – 84

3.5%

7.0%

85 – 89

4.5%

9.0%

90 – 94

5.5%

11.0%

95 and over

7.0%

14.0%


ATO alerts

Earlier this year, the ATO introduced an alert service to further help safeguard SMSF retirement savings and reduce the risk of fraud. Whenever changes are made to your SMSF details, a text and/or email alert will be issued to the Trustee. This includes changes to your SMSF's:

  • Financial institution account details
  • Electronic service address
  • Authorised contact
  • Members.

On the ATO's radar

JobKeeper

The ATO's compliance efforts for JobKeeper are focused on ensuring:

  • Entities meet the eligibility requirements in relation to business income
  • Entities are claiming for eligible employees
  • Eligible business participants are correctly making claims
  • Entities are not manipulating their turnover to satisfy the decline in turnover test.

Early release of superannuation

Behaviours that attract the ATO's attention in relation to the early release of superannuation measure include:

  • Applying when there is no change to your regular salary, wage, or employment information 
  • Artificially arranging your affairs to meet the eligibility criteria
  • Making false statements or fraudulent attempts to meet the eligibility criteria
  • Withdrawing and re-contributing super for a tax advantage – this could not only trigger anti-avoidance rules but also result in additional taxes and impact your eligibility for a super co-contribution.

What auditors will require for the year ended 30 June 2020

Investment strategy

  • Was the investment strategy in place at 30 June 2020?
  • Has COVID-19 impacted on the fund's investments and, if so, should the strategy be reviewed post-COVID-19?
  • Does the strategy address all of the Superannuation Industry (Supervision) (SIS) Act and regulatory requirements? Does it consider:
    • Investment return and diversification 
    • Risks due to lack of diversity 
    • The retirement timeframe of each member
    • Insurance needs of the individual members?

Market value of assets

Has COVID-19 impacted on the 'fund's underlying investment values and, if so, should new valuation or rental income appraisal be obtained from appropriately qualified industry experts (e.g. a licenced valuer or real estate agent)?

Documentation for ATO release amounts

For any release of payments from superannuation monies, the Fund auditor will require the relevant documentation and ATO release authority. The documentation requirements will depend on the Fund’s trust deed. Release payments include:

  • COVID-19 Early Release of Super
  • Division 293 tax payments
  • Excess Concessional Contributions release.

Documentation for rental reduction amounts

SMSFs holding commercial property may have already been approached by their tenants for some form of rent relief during this time, as their businesses may be under financial stress. The key to providing this is to ensure the SMSF trustees can show appropriate negotiations and documentation of any amendments made to lease agreements.

This is particularly important where the tenant is a related party, for example, the business premises of the member's own business. The SMSF auditor will be looking for appropriate documentation to support any changes to the terms of the lease when they conduct their audit for the year ended 30 June 2020.

Contributions

Concessional

The concessional contribution cap for the year ended 30 June 2020 and the year ending 30 June 2021 remains at $25,000 per individual.

If you do not utilise the full amount of your concessional contribution cap in a year, the unused amount can be carried forward and accumulated over a rolling five-year period. This provides opportunities to make lump sum contributions of all unused amounts to reduce your taxable income in a future income year.

Importantly, this rule applied from 1 July 2018 onwards and is only applicable where your superannuation account balance (across all super accounts you hold) is less than $500,000 at the end of the financial year previous to the one in which you seek to utilise your unused concessional contribution cap.

Non-concessional

The non-concessional contribution cap for the year ended 30 June 2020 and the year ending 30 June 2021 remains at $100,000 per individual, depending on some criteria.
To be eligible to make non-concessional contributions, individuals must not have had a total superannuation balance as at the prior 30 June in excess of $1.6 million.
In addition, individuals may be entitled to a two or three-year bring-forward period for their own non-concessional cap, based on their total superannuation balance (i.e. up to $300,000).

Notice on intent to claim a deduction (Div.290-170 notices)

When claiming a Personal Superannuation Contribution deduction in your individual income tax return, it is important to include:

  • The SMSFs full name
  • The SMSFs Australian Business Number (ABN) or Tax File Number (TFN)
  • Your account number.

You must give a notice of intent to claim a deduction to your fund on or before whichever of the following occurs earliest:

  • The day you lodge your personal income tax return for the year in which the contributions were made 
  • The last day of the income year after the income year in which you made the contributions. 

You can apply to vary a previous valid notice of intent if:

  • You have not yet lodged your income tax return, and it is on or before 30 June in the financial year following the year you made the contribution
  • The ATO disallowed your claim for a deduction and you are applying to reduce the amount claimed as a deduction by the amount the ATO has disallowed.

Do you need help?

Superannuation is a complex area and implementing the right actions and strategies is vital to ensure your superannuation savings are maximised. If you require any assistance, BDO's Superannuation team is here to help. Do not hesitate to contact your local adviser to seek assistance and ensure your savings are working for you.