With another financial year coming to a close, it’s time for SMSF trustees to review their funds and finalise their annual tasks.
With the implementation of significant superannuation reforms on 1 July 2017, there are a couple of new items for consideration.
This checklist provides a basic list of items for review. You may have additional considerations depending on your fund circumstances, but it’s a useful tool to discuss with your SMSF adviser.
1. Maximise concessional contributions
For most, concessional contributions are the most tax effective method of building your superannuation. From 1 July 2017 the concessional contributions cap is now $25,000 for all age groups. Concessional contributions include:
- Your employer’s super contribution (the compulsory 9.5%);
- Any amount your employer contributes for you via salary sacrifice; and
- Any personal superannuation contribution that you are eligible for and do claim as a personal income tax deduction.
You need to ensure that all of these are taken into account so that you do not exceed the cap. Where you have salary sacrifice arrangements in place and are using all of your concessional contributions cap, you should confirm with your employer as to when the electronic payment of your contribution will be made to ascertain whether or not it will hit your SMSF bank account by the 30 June. Also be aware that payments intended to be made in the prior year may have slipped into the current year with the risk that the cap may be breached.
2. Personal tax-deductible superannuation contributions
Under the new Federal Government changes to super, effective 1 July 2017, the 10% maximum employment earnings test to be eligible to claim a tax deduction for personal superannuation contributions was removed. Previously an employed individual had to have earned less than 10% of their income from their employment related activities to be able to claim a tax-deduction for a personal contribution.
Now, individuals receiving employment income can generally make voluntary concessional contributions even if their employers do not offer salary sacrifice arrangements by making personal tax-deductible contributions. In addition, largely self-employed individuals receiving some employment income can make personal tax-deductible contributions regardless of the amount of salary or wages they earn.
This means if you are under 75 years old, you can now claim a tax deduction for personal contributions to your SMSF (including if you are aged 65 to 74 years and meet the work test).
It is important to note that in order to claim a tax deduction for personal contributions, you must submit a valid ‘notice of intent to claim or vary a deduction for personal super contributions’ form within strict timeframes, and have it acknowledged by your SMSF in writing.
3. Non-concessional contributions (NCC)
The general limit on non-concessional contributions (post-tax contributions) is now $100,000 a year and you can still (if eligible) “bring forward” 3 years’ worth of contributions to a single year allowing a maximum of $300,000 in one year. But an individual’s Total Superannuation Balance (TSB) across all funds just prior to a financial year will limit how many years of contribution can be brought forward and the eligibility to make further non-concessional contributions. In general, once your TSB (just prior to a financial year) reaches $1.6m (including in year two or three of a bring forward period) then no further non-concessional contributions are allowed.
|Total superannuation balance (TSB) just prior to financial year||Standard non-concessional cap for financial year||Bring forward cap available in financial year|
|Less than $1.4m||$100,000||$300,000 (3 years)|
|At least $1.4m but less than $1.5m||$100,000||$200,000 (2 years)|
|At least $1.5m but less than $1.6m||$100,000||$100,000 (no bring forward)|
|$1.6m or more||Nil||Nil|
4. Ensure members over 65 meet the work test
The work test still applies if you are 65 and above when you make a voluntary contribution to super (eg personal contributions, salary sacrifice contributions). This requires you to have already been ‘gainfully employed’ for at least 40 hours in 30 consecutive days in the financial year the personal contribution is made.
Voluntary contributions also generally cannot be made once you reach age 75 regardless of work status (this age limit is 70 where spouse contributions are being made on a person’s behalf).
Ensure that this test is satisfied before your contribution is made.
An exception applies for downsizer contributions where no work test or upper age limit applies, see below.
5. Downsizer contributions
For a more in-depth discussion you can refer to our downsizer article but in summary, from 1 July 2018 there is a new type of personal contribution which allows those who qualify to contribute up to $300,000 of sale proceeds to superannuation from the sale of your family home.
To be eligible
- You must be at least 65 years old at the time of contribution
- Your home has been owned for at least 10 years
- The contract for the sale of a qualifying home on or after 1 July 2018
- It’s on a once only basis
- The lesser of sale proceeds or $300,000 ($300,000 x 2 for couples)
- It must be made within 90 days of settlement
- The concessional or non-concessional caps do not apply
- Age limits or the work test do not apply
6. Don’t exceed the Transfer Balance Cap
There is now a $1.6m transfer balance cap on the amount that can be transferred to the tax free retirement phase. Amounts above this cap must either be held in an “accumulation phase”, where earnings are taxed at up to 15% or removed from super and assessable earnings taxed at the taxpayer’s marginal tax rate.
Consideration needs to be taken around what is the optimum strategy for amounts in excess of the cap.
7. Have you taken enough pension payments?
If you begin an account-based pension you must take at least the minimum pension amount. There can be significant taxation penalties if you don’t. Potentially, the earnings on all the assets supporting that pension may be taxed at the full fund tax rate of 15%, rather than being completely exempt.
The minimum payment is a percentage of the account balance as at 1 July and is fixed for the year. If you start a pension during the year, it is a percentage of the account balance at the commencement, and pro rata based on the number of days remaining in the financial year. If the pension commenced on or after 1 June then the minimum is set at zero.
|Age of Client||Minimum Pension based on account balance 1/7/17|
|Less than 65||4%|
|65 to 74||5%|
|75 to 79||6%|
|80 to 84||7%|
|85 to 89||9%|
|90 to 94||11%|
If you are paying a transition to retirement pension, you must also ensure the minimum payment is made (these are the same as for account based pensions). In addition, unless you have met a full condition of release or have enough unrestricted non-preserved benefits in your pension, you must ensure that your pension payment for this financial year does not exceed 10% of your balance at 1 July 2017 (or the start date if commenced this financial year).
The same message that applies to contributions applies here - make sure you allow sufficient time for electronic payments to arrive within the correct financial year.
It’s important to note that pension payments must be a cash payment, except for partial commutation of a pension.
It’s also important to ensure that you meet any extra conditions listed in your trust deed or pension terms that apply to your pension.
8. Do you need to obtain a market valuation of assets?
For assets that have a quoted market price, such as listed stocks and managed funds, it’s a simple process to value assets. But if your SMSF has assets that are unlisted assets, such as real estate and collectables, it’s a good idea to line up the relevant assessments early. While external valuations may not be required every year, superannuation law requires the SMSF trustee to determine the market value for each year’s set of financial statements and be able to justify that valuation.
9. Can you claim the Spouse Contribution Offset?
From 1 July 2017 the tax offset for making a spouse contribution for your spouse is available where your spouse earns less than $40,000 for the 2017-2018 and later years. The maximum offset is available where you make at least a $3,000 spouse contribution and your spouse’s income does not exceed $37,000, and is tapered in the range $37,000 to $40,000.
The maximum spouse tax offset is $540 and is calculated as 18% of the lesser of:
- the amount of spouse contributions you make during the financial year
- $3,000, reduced (but not below nil) by the amount of the receiving spouse’s total income exceeding $37,000
10. Review your current investment strategy
With the start of the new financial year and the new legislation now in effect, it could be a good time to review your investment strategy. SMSF trustees are required by law to review their investment strategy regularly and to do so every 6 and 12 months is a good discipline to adhere to.
Reviewing fund performance to plan and revisiting the purpose and circumstances of the fund and its members will help determine if the initial goals and potential outcomes remain relevant and achievable.
Review with your adviser
Superannuation can be complex and the investment landscape is in a constant state of change. Reviewing your SMSF’s strategies with a trusted and accredited adviser can act as a sounding board and provide additional insights and opportunities, particularly in the transition from accumulation to retirement phases and estate planning.
Your SMSF End of Financial Year Checklist
- Calculate the contributions already made for the 2017-2018 year to determine how much contributions caps you have remaining
- Maximise concessional contributions using salary sacrifice or personal tax-deductible contributions
- Determine if you can bring forward non-concessional contributions by 3 years
- Remember non-concessional contributions are limited by the value of your total superannuation balance just prior to the start of the financial year
- Have you taken into account any opportunity to use a downsizer contribution from 1 July 2018?
- Confirm the work test been met for relevant members
- Calculate your remaining transfer balance cap if commencing a retirement phase income stream (eg account based pension)
- Determine your plan for amounts in excess of the $1.6m cap
- Review your current pension arrangements, including taking the required minimum pension amounts
- Review member’s income needs for the next 12 months
- Review current investment strategy and adjust as necessary
- Review current estate planning strategies and adjust if necessary
- Update market values for unlisted investments as at 30 June 2018
Be sure to obtain the advice of an SMSF Specialist Adviser if you are unsure about any of the items on the checklist. Our SMSF Specialist Team can help you find an adviser near you.
You can call the Commonwealth Bank SMSF Specialist Team on 1800 138 363.