With the year-end already upon us now is a good time to go through our Year end Superannuation Checklist to ensure that you have your super under control. The following is a quick checklist of items that you should consider as part of your year-end SMSF Review
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 2019 are as follows:
From 1 July 2013, 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.
AMOUNT OF ANNUAL CAP2018-19$100,000
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. The cap is therefore $300,000 for the 2019 year.
The ATO has confirmed that any excess non-concessional contributions can now also be refunded to a member, with any associated earnings on the excess (as calculated by the ATO) 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 monies.
IMPORTANT THINGS TO REMEMBER WHEN MAKING CONTRIBUTIONS
Timing of contributions payments
A contribution counts towards the caps for the year that the money is actually 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 2019.
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, discuss the matter with one of the May Klye & Associates staff as a matter of urgency.
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 earn less than $53,564 for the 2019-2020 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 $53,564 for the 2019-2020 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.
Be in full or part-time employment and/or run your own business
Include all the details of your after-tax contributions on your Tax Return
Have a super balance of less than $1.6 million on 30 June of the previous financial year
Not have exceeded the before-tax contributions cap in the current financial year
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 3.33 cents per every dollar where your income is over $38,564 until you reach $53,564 where it cuts out. This is a great way of adding a little extra to your account – as every little bit helps.
If your spouse earns less than $40,000, you may be able to claim a tax offset for non-deductible 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, as well as decreasing your taxable income should you both be eligible.
Contributions holding account
If you are expecting to have significantly higher taxable income in the 2020 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 years’ contribution cap and will therefore be limited in the 2020 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 MKTax adviser should you wish to discuss this strategy in further detail.
Low Income Superannuation Tax Offset
If you earn $37,000 or less you may also get a ‘low income superannuation tax offset’ from the government. The amount, up to $500 annually, will be 15% of the concessional contributions you or your employer made to your super account during the financial year.
You will get this payment whether or not you add extra money to your super. The ATO will automatically make these payments if you meet the criteria. Make sure your super fund has your tax file number so you don’t miss out.
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 2019-2020 year are as follows:
AGE AT 1 JULY *
MINIMUM % WITHDRAWAL FOR 2019-2020 YEARUnder 654%65-745%75-796%80-847%85-898%90-9411%95 or more14%
* 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.
Failure to adhere to these limits could result in your SMSF potentially losing the ECPI exemption and even beaching the payment standards.
OTHER PENSION CONSIDERATIONS
Balances over $1.6 million
If the total of all of your superannuation balances that are in retirement phase (pension mode) exceeds $1.6 million, there were some changes that you should have addressed by 30 June 2017. Balances in excess of that amount should have been either paid out to you or commuted back into your Accumulation account. Income earned on the amount commuted will now be taxed at 15% rather than being tax-free as they were in pension mode.
Capital gains made on appreciating assets that are used to support your pension are free from tax. With the requirement to commute your excess pension balance back into your Accumulation account, any subsequent capital gain attributable to that account will now attract tax at 10%. Taxpayers were offered relief from this capital gains tax by allowing them the ability to re-set the cost base of the assets to market value at 30 June 2017, effectively making any increase in value up to that date tax-free. Capital growth after that date will bear tax on the portion attributed to the Accumulation account and will be tax-free to the portion related to your pension balance.
For those with larger super balances, the changes are significant. Please give us a call if any explanations are needed.
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 $205,000 can be taken tax free in 2019. This limit is indexed each year. $210,000 is the limit for the 2020 financial year.
Taking a lump sum also provides the ability of 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 MKTax adviser about the ability to withdraw a lump sum from your Fund.
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 continually change. 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 us to ensure that these changes do not impact on your current arrangements.
Related party loans
Another area that the ATO is paying close attention to is related party loans. The ATO has recently indicated that income earned from an arrangement involving a loan from a related party which is not maintained at arms length, is at risk of being subject to the non-arms length income rules. This would result in such income being taxed at 47%.
There are a number of other factors that the ATO will also look at in relation to related party loans. If you are concerned about whether your arrangement could be subject to these rules, please contact your MKTax adviser.
It is a requirement that all Funds report their investments at market value. Where a market value is not readily available for a particular asset, trustees must be able to provide a valuation that accurately reflects the current market price for the asset, based on objective and supportable data. Assets that will require valuations include residential and commercial property, artworks and collectables.
It is also important to note that the new rules for artworks and collectables come into effect from 1 July 2016. From this date, any artworks or collectables transferred out of a fund will need to be valued by an independent qualified valuer, regardless of the purchase date.
Naming of assets
The ATO has confirmed that they will apply a strict interpretation of the laws surrounding the requirements to keep assets of the Fund separate from assets of the individual members. This means that all assets of the fund must be held in the correct name of the Fund – including bank accounts, insurance policies and properties.
The correct naming conventions are as follows:
J & B Smith SMSF Pty Ltd as trustee for the Smith Family Superannuation Fund
John Smith & Betty Smith as trustees for the Smith Family Superannuation Fund
Ensure you review the naming of your Fund’s investments to ensure that they are correct and up to date.
Employers are required to meet their superannuation obligations under the SuperStream requirements. This requires all contributions data (not monies) to be sent electronically.
If you are unsure of what details must be provided to your employer for your Fund, or whether your Fund meets the SuperStream requirements, please contact your MKTax adviser.
For these and other year-end tax planning tips make sure you contact your MKTax adviser before 30 June on (03) 9585 7555 or email us firstname.lastname@example.org