The end of another financial year is fast approaching which means for members of public super funds and SMSFs alike there are many issues to address and rules to check. It is also a great time to check to see if you are making the most of the many strategies available to you.
If you are making a contribution, the funds must hit your superfund’s bank account by the close of business on the 30th June (a Tuesday in 2020). Some clearing houses hold on to money before presenting them to the super fund.
In addition, pension payments must leave the account by the close of business unless paid by cheque in which case the cheques must be presented within a few days of the EOFY. There must have been sufficient funds in the bank account to support the payment of the cheques on 30th June.
We would recommend you get your payments in by this Friday 26th June or earlier.
The big news is the government has changed the contribution rules from 1 July 2020 to extend the ability to make contributions from age 65 up to age 67. Maximise tax deductible contributions up to the CC cap of $25,000 for FY20 but do not exceed your limit.
The sting has been taken out of excess contributions tax, but you don’t need additional paperwork to sort out the problem. Check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the CC limit.
The recently introduced carry forward rule allows individuals to make additional CC in a financial year by utilising unused CC cap amounts from up to five previous financial years.
Eligibility requires a total superannuation balance just before the start of that financial year of less than $500,000 (across all your super accounts).
This measure applies from 2018-19 so effectively, this means an individual can make up to $50,000 of CC in a single financial year by utilising unapplied unused CC caps since 1 July 2018.
From 1 July 2020, the new age limit of 67 will apply to NCCs (that is, from after-tax money) without meeting the work test. You have the option of making $100,000 NCCs per year up to age 67.
Hopefully, this month (tabled for 18 June 2020 sitting), Parliament will also pass legislation allowing use of the ‘three-year bring forward rule’ up to age 67.
Current Option if turned age 65 in FY20: NCC of $100,000 or $300,000 NCC bring forward.
Proposed Option if turned age 65 in FY20 (subject to draft legislation being passed):
NCCs are a great opportunity to move investments into a generally lower taxed super structure and out of a personal, company or trust name.
As many shares have been hit by COVID-19, you may find it a good opportunity, for personal tax reasons, to move some assets into super.
From 1 July 2018, if you are planning on downsizing your family home of ten years or more and are aged 65 or over, you may be able to contribute up to $300,000 from the sale proceeds to superannuation as a downsizer contribution. If you have a spouse, they could also contribute up to $300,000 to their superannuation from these proceeds. Downsizer contributions do not count towards your before or after-tax contribution caps or caps on contributions for total superannuation balance.
Check your eligibility for the co-contribution, it’s a good way to boost your super. The limits have changed based on your income and personal super contributions.
If your spouse has assessable income plus reportable fringe benefits totalling less than $37,000 or up to $40,000, then consider making a spouse contribution to get a tax rebate of up to $540
If you are planning to claim a tax deduction for personal concessional contributions, you must complete and submit a valid ‘notice of intent to claim or vary a deduction for personal super contributions’ (refer ATO website for more details).
If you intend to start a pension this notice must be made before you commence the pension. Many people like to start pension in June and avoid having to take a minimum pension in that financial year but make sure you have claimed your tax deduction first. The same notice requirement applies if you plan to take a lump sum withdrawal from your fund.
Consider splitting contributions with your spouse, especially if:
If you want to move any personal shareholdings into super (as a valid contribution) you should act early. The contract is only valid once the broker receives a fully valid transfer form so timing in June is critical. There are likely to be brokerage costs involved.
The government has brought in the Temporary Reduction in Minimum Pensions as part of the COVID-19 response. Ensure you take the new minimum pension of at least 50% of your age-based rate below. If a pension member has already taken pensions payments of equal to or greater than the 50% reduced minimum amount, they are not required to take any further pension payments before 30 June 2020. For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.
Minimum annual payments for pensions for 2019/20 and 2020/21 financial years.
If a pension member has already taken a minimum pension for the year, they cannot reverse the payment, but they can get organised for 2020/21. So, no, you can’t sneak a payment back into your superfund or SMSF bank account!
If you still need pension payments for living expenses but have already taken the 50% minimum, then it may be a good strategy for amounts above the 50% reduced minimum to be treated as either:
A reversionary pension to your spouse will provide them with up to 12 months to get their financial affairs organised before making a final decision on how to manage your death benefit.
You should review your pension documentation and check if you have nominated a reversionary pension in the context of your family situation. This is especially important with blended families and children from previous marriages that may contest your current spouse’s rights to your assets. Also consider reversionary pensions for dependent disabled children.
The reversionary pension has become more important with the application of the $1.6 million Transfer Balance Cap (TBC) limit to pension phase.
Review any capital gains made during the year and over the term you have held the asset and consider disposing of investments with unrealised losses to offset the gains made. If in pension phase, then consider triggering some capital gains regularly to avoid building up an unrealised gain that may be at risk to legislation changes.
For SMSFs ensure all the fund’s activities have been appropriately documented with minutes, and that all copies of all statements and schedules are on file for your accountant, administrator, and auditor.
In particular, review your Investment Strategy and ensure all investments have been made in accordance with it and your SMSF Trust Deed, including insurances for members. These are legislative requirements.
Regulations now require assets to be valued at market value each year, including property and collectibles.
On collectibles, play by the new rules that came into place on 1 July 2016 or remove collectibles from your SMSF.
If your fund has any investments in in-house assets you must make sure that at all times the market value of these investments is less than 5% of the value of the fund.
Do not take this rule lightly as the new SMSF penalty powers will make it easier for the ATO to apply administrative penalties (fines) for smaller misdemeanours ranging from $820 to $10,200 per breach per trustee.
Due to COVID, the ATO will not take action against SMSFs where:
Make sure the assets of the fund are held in the name of the trustees (including a corporate trustee) on behalf of the fund. Check carefully any online accounts and ensure all SMSF assets are separate from your other assets.
We recommend a corporate trustee to all clients for many reasons.
Review any Binding Death Benefit Nominations (BDBN) to ensure they are valid and check the wording matches that required by the Trust Deed. Ensure it still accords with your wishes.
Also ensure you have appropriate Enduring Power of Attorney’s (EPOA) in place to allow someone to step into your place as trustee in the event of illness or mental incapacity.
Check that your Trust Deed is up to date for all legislative changes and check the details of the rules. For example, did you know you cannot leave money to stepchildren via a BDBN if their birth parent has pre-deceased you?
The end of financial year always seems to come up quickly and there’s not much time left to check to see if you are making the most of the many strategies available to you. Of course, everyone’s personal and financial circumstances are different, so feel free to contact us if you want to understand which strategies are available specifically to you to help make your super work harder.
To find out more about how any of these measures may be of assistance in your individual circumstances, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.
This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax/or legal advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Opinions constitute our judgment at the time of issue and are subject to change. Neither, the Licensee or any of the Oreana Group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Gordon Thoms and David Conte of Calibre Private Wealth Advisers are Authorised Representatives of Oreana Financial Services Limited ABN 91 607 515 122, an Australian Financial Services Licensee, Registered office at Level 7, 484 St Kilda Road, Melbourne, VIC 3004. This site is designed for Australian residents only. Nothing on this website is an offer or a solicitation of an offer to acquire any products or services, by any person or entity outside of Australia.