As 30 June 2016 approaches, here are my top 10 items for SMSF trustees to consider. Where relevant, I’ve also included the 2016 Federal Budget’s proposed superannuation changes to show what the future of superannuation could look like.
1. Valuation. The assets in your SMSF must be valued each financial year based on objective and supportive data. Refer to ATO publication ‘Valuation guidelines for SMSFs’. The proposal in the Budget to introduce a $1.6 million limit on tax-free pension accounts requires a valuation of SMSF assets prior to 1 July 2017.
2. Contributions. Ensure contributions are received by your SMSF on or before 30 June, especially if made by electronic funds transfer. A day late could cause problems.
Check non-concessional contributions (NCC) made during the previous three financial years to see if the two-year ‘bring forward’ provision has been triggered. If it has, it will affect the amount you can contribute in the current financial year. The Government proposes to lower the concessional contribution cap to $25,000 for all taxpayers from 1 July 2017, as well as introduce a $500,000 lifetime cap on NCCs effective from 3 May 2016 (7.30pm AEST). NCCs made since 1 July 2007 will count towards the lifetime cap. Therefore, SMSF members need to re-evaluate making NCCs if they will exceed the lifetime limit of $500,000.
3. Employer contributions. Check whether Superannuation Guarantee contributions for the June 2015 quarter were received by your SMSF in July 2015. If so, include this contribution in your concessional contribution cap for the 2015/2016 financial year.
4. Salary sacrifice contributions. Salary sacrifice contributions are concessional contributions. Check your records before contributing more to avoid exceeding your cap.
5. Tax deduction on your personal superannuation contributions. If you are eligible to claim a tax deduction, then you will need to lodge a ‘Notice of intention to claim a tax deduction’ with your SMSF trustee before you lodge your personal income tax return. SMSF trustees must provide you with an acknowledgement of your intention to claim the deduction. The Government proposes that from 1 July 2017, everyone under the age of 75 can claim a tax deduction for personal contributions.
6. Spouse contributions. Spouse contributions must be received by your SMSF on or before 30 June in order for you to claim a tax offset on your contributions. The maximum tax offset claimable is 18% of NCCs of up to $3,000. Your spouse’s income must be $10,800 or less in a financial year to receive the full tax offset. The tax offset decreases as your spouse’s income exceeds $10,800 and cuts off when their income is $13,800 or more. The Government proposes, from 1 July 2017, to increase the income threshold for spouses from $10,800 to $37,000. The cut off threshold will increase from $13,800 to $40,000. The Government will also allow contributions to be made for spouses up to the age of 74.
7. Contribution splitting. The maximum amount that can be split for a financial year is 85% of concessional contributions up to your concessional contributions cap. You must make the split in the financial year immediately after the one in which your contributions were made. This means you can split concessional contributions made into your SMSF during the 2014/2015 financial year in the 2015/2016 financial year. You can only split contributions you have made in the current financial year if your entire benefit is being withdrawn from your SMSF before 30 June 2016 as a rollover, transfer, lump sum benefit or a combination of these. The Government proposes, from 1 July 2017, to introduce a $1.6 million limit on individual superannuation balances that can be transferred from accumulation phase to retirement phase. SMSF members could consider contribution splitting to maintain their pension account balances under the $1.6 million threshold per member.
8. Superannuation co-contribution. To be eligible for the co-contribution, you must earn at least 10% of your income from business and/or employment, be a permanent resident of Australia and under 71 years of age at the end of the financial year. The government will contribute 50 cents for each $1 of your NCC to a maximum of $1,000 made to your SMSF by 30 June 2016. To receive the maximum co-contribution of $500, your total income must be less than $35,454. The co-contribution progressively reduces for income over $35,454 and cuts out altogether once your income is $50,454 or more.
9. Low Income Superannuation Contribution (LISC). If your income is under $37,000 and you and your employer have made concessional contributions, you will be entitled to a refund of the 15% contribution tax up to $500 paid by your SMSF on your concessional contributions. To be eligible, at least 10% of your income must be from business and/or employment and you must not hold a temporary residence visa. The Government proposes, from 1 July 2017, to introduce the Low Income Superannuation Tax Offset which will replace the LISC.
10. Minimum pension payments. Ensure that the minimum pension amount is paid from your SMSF by 30 June in order for your SMSF to receive the tax exemption. If you are accessing a pension under the ‘transition to retirement’ arrangements, ensure you do not exceed the maximum limit also. The Government proposes, from 1 July 2017, to remove the tax exempt status of assets supporting a transition to retirement pension.
Monica Rule is an SMSF expert and the author of the book ‘The Self Managed Super Handbook’. See www.monicarule.com.au.