This is part of series on the necessary changes to strategies and opportunities that have resulted from the pending 1 July 2017 changes which will see earnings on transition to retirement (TTR) pensions subject to 15% tax in the fund.
I know this has created concerns with many trustees and advisers around the question of should you access the relief and if so how to actually access the CGT relief provisions. People want to know what factors they must take in to consideration.
Some of the concerns have been clarified by the ATO. One concern was that trustees would need to commute their TTR pensions and roll back into accumulation before 1 July to access the CGT relief provisions. Those relief provisions would allow the cost base of all or selected eligible assets to be reset to the current market value on a date chosen by the trustees between now and 30 June. This CGT relief allows trustees to in effect, retain the tax-free status of unrealised capital gains accumulated prior to 30 June 2017.
The newly issued ATO issued Law Companion Guideline (LCG) 2016/8 has provided some excellent clarification. If your SMSF is operating as an unsegregated fund, the LCG states that member will not need to commute back to accumulation phase to be able to elect to reset the cost base of assets the wish to elect to apply the CGT relief.
It is intended that the same basis should be available for segregated funds, but the ATO has indicated is still reviewing options for how to make this work in practice. I will try to keep this blog updated with any guidance from the ATO on this matter but please make sure you adviser/administrator is on top of these matters. An SMSF that only has TTR or account-based pensions (and no accumulation phase) is automatically classified as a segregated fund. However if you put in a new contribution, as many are, this year then that money goes in to accumulation and the fund becomes automatically unsegregated. So look at your contribution intentions.
All is not lost as the fund would still have been segregated until that contribution was made and you may elect for that date to be the new CGT cost base valuation date.
Conversations need to start with YOUR advisers and administrators to check whether:
you should to continue a TTR pension after 1 July 2017 or to commute back to accumulation phase.
you may have already or can trigger a further condition of release such as leaving any one employment position after age 60. To move from Accumulation or TTR to Account Based Pension
Why are TTR pensions still relevant and for whom
The tax advantages of a TTR pension will reduce when the earnings in the fund start to be taxed on 1 July, but advantages may still arise for members who:
Are over age 60 and can draw tax-free income from the TTR
Wish to start accessing super to top-up income or increase income to pay off debts
Want to be able to nominate an automatic reversionary for estate planning purposes
Can use salary sacrifice or personal deductions to contribute a higher net amount into super than they need to withdraw.
If the TTR pension is no longer required, care should be taken with the commutation and timing of the commutation to ensure the CGT relief provisions can be accessed on any assets they wish to claim the relief for.
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.
Please consider passing on this article to family or friends. Pay it forward!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such
Small business is hard work. Ask any small business owner and he or she will tell you about the hard work, sacrifices and many hours of dedication it’s taken to get to where they are. Many see their business as their superannuation and have poured profits back in to it over the years. Which is why when they sell, they absolutely deserve to get the highest return they can.
While the 2016 federal budget was full of surprises and we have seen back-flips and changes to the proposals, there was some relief for small business owners. All the media attention has been on the changes proposed to be made to superannuation contributions and balances in pension phase. There was, however, some welcome news for small business owners with regard to continued access to the small business CGT tax concessions.
So what do you know about these very valuable concessions and how do you qualify for them if you are selling a business or business assets. Firstly, identify if you need to be considering them at all:
Are you selling a business asset and expecting a significant capital gain?
Are you looking to retire after the sale of your business?
Do you wish to use the sale proceeds to fund your retirement?
How does it work?
Subject to meeting the basic requirements, business owners can take advantage of the Government’s small business concessions to reduce or even extinguish any capital gains tax (CGT) realised from the sale of a business or business asset.
If the business asset was held for more than 15 years, and the owner is either over 55 and retiring or permanently incapacitated when the asset is sold:
• any capital gains could be disregarded; plus
• up to $1,415,000 of any sale proceeds could be contributed into super without counting towards the concessional or non-concessional contributions caps.
What does it mean for me?
This is potentially a significant opportunity for small business owners. Not only does it provide scope to reduce your CGT liability, it also allows you to turn the proceeds from the sale of your business into a tax-effective income stream in retirement
through your super.
If you’re considering this strategy, it’s important to seek professional financial, legal and tax advice specific to your circumstances. You should also note that lifetime limits apply to all contributions under these concessions, and the specific forms must be completed and given to the super fund before or at the time the super contribution is made to be effective.
How do I know if I qualify?
To be eligible for the small business CGT concession, you need to meet the following basic requirements:
• Your net asset value is less than $6 million or your business turnover is less than $2 million p.a. Your net asset value includes assets used in your business but are owned by
your affiliates or an entity connected with you.
• The asset you own is an ‘active’ asset – meaning it has been used or held ready for use in a business carried on by yourself (whether alone or in partnership), your affiliate, your
spouse, your child under 18 or an entity connected with you.
• The asset has been used in the business for at least half of the ownership period or for a minimum of 7.5 years if you’ve owned it for at least 15 years.
Strategy in action
Sarah and James are joint owners of a retail shop in a small town from which they’ve run their newsagency for the last 20 years. They acquired the property in 1992 for $300,000 and have
continuously owned it outright.
In 2015, in line with their pending retirement, Sarah and James sold the property for $1 million. Both aged 60, their net assets are less than $6 million and they are looking to use the sale proceeds to fund their retirement.
Because they’ve owned their shop for more than 15 years and are retiring, Sarah and James would be eligible for the small business CGT concessions. They can apply the sale of their business as follows:
• Proceeds of sale: $1 million
• Capital gain: $700,000 ($1 million – $300,000)
• Assessable capital gain: $0
As a result, Sarah and James can contribute $500,000 each into super under the CGT cap election without it affecting their concessional or non-concessional contributions caps for the financial year. This means they could potentially contribute more into superannuation or an SMSF in the same year under their other contribution caps.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
So the ironclad changes to superannuation turned out to be more flexible and government policy more akin to a revolving door, one second its in and next it’s out the door. I am angry that the government created all this angst over the last 6 months only to water-down the changes and have damaged yet again the confidence in the superannuation system. They should have consulted with industry, ATO and their own members before announcing such major changes. However change was needed so at least they did show flexibility.
Below is a summary of the measures that have been amended. The detail of each measure will only be known once draft legislation is published and the final outcome will only be known after Parliament considers the legislation.
Non-concessional contribution cap – Lifetime limit –gonnnnnee!
The original proposal was to replace the existing non-concessional contribution (NCC) cap with a lifetime limit of $500,000, including all NCCs made since 1 July 2007.
To ensure the passage of the Government’s broader superannuation package through the Parliament, Treasurer Scott Morrison confirmed this measure is to be replaced with an annual NCC cap of $100,000 (currently $180,000). Individuals under age 65 will also be able to continue using the bring-forward rule. This new NCC cap, which applies from 1 July 2017, will be based on four times the lower concessional contribution cap of $25,000.
However, people with a superannuation balance of more than $1.6 million will no longer be able to make NCCs from 1 July 2017. The individual’s account balance will be tested at 30 June of the previous financial year. Those with account balances close to $1.6 million would only be able to make use of the bring-forward rule to the extent that the sum of the fund balance, the current year contribution and each brought forward contribution is less than $1.6 million. The threshold amount will be linked to the transfer cap amount relating to amounts being transferred to pension phase.
Individuals who have triggered the bring-forward rule prior to 1 July 2017 and have not fully utilised that amount will have the remaining bring-forward amount reassessed on 1 July 2017 in line with the new caps.
As the existing rules remain until 1 July 2017, SMSF trustees and other superannuants who are able to utilise the existing thresholds should consider doing so once the legislation is finalised. This is particularly important for those who have total superannuation savings of close to or exceeding $1.6 million. This is likely to be the last year individuals with super savings of at least $1.6 million will be able to make an NCC.
So if an SMSF member is under age 65 and hasn’t triggered the bring-forward rules, they could do so this year and contribute up to $540,000 this financial year. This is a real opportunity for those who were concerned they wouldn’t be able to make any further contributions.
Recontribution Strategy back on the table
The recontribution strategy can now be reconsidered where appropriate but limited to the new $100,000 or 3 times that using the bring forward rule if under 65. This may help improve the taxable/ tax-free components of your account and aid with reducing tax on death benefits to non-dependant beneficiaries.
Important Note for Small Business Owners: There are no changes to the contributions made under the CGT cap amount of up to $1.415 million relating to the small business CGT concessions.
Work test over 65 to continue
The Government will retain the existing requirement that you must meet a work test to be able to contribute to super between ages 65 and 74 (they had originally proposed to remove this requirement). So to make a contribution after age 65 you need to work at least 40 hours in a 30 day period during the year and before you make the contribution. You are also limited to $100,000 non-concessional contributions with no 3 year bring forward available to you.
Catch up concessional contributions
The Government will continue with the proposal to reduce the concessional contribution (CC) cap to $25,000 from 1 July 2017. However, the commencement date for the catch up contributions will be delayed until 1 July 2018.
From 1 July 2018, individuals will be able to make CCs above the annual cap, where they have not fully utilised their CC cap in previous financial years. Amounts are carried forward on a five year rolling basis. Amounts not used after five years will expire.
This measure is limited to individuals with a super balance of less than $500,000. There is no detail as to when the account balance is assessed to determine eligibility.
If who have the capacity to fully utilise the current CC cap for 2016/17 may wish to consider doing so before the CC cap reduces.
Others measures going ahead as proposed.
Reduce the CC cap to $25,000 from 1 July 2017
$1.6 million transfer cap for tax free earnings in the pension phase of superannuation and the need to reduce pension balances to this threshold by 1 July 2017
Tax on earnings for amounts held in a transition to retirement pension
Reduce the income threshold from $300,000 to $250,000 that the additional 15% tax is payable on CCs
Ability for all individuals to claim a tax deduction for superannuation contributions with the removal of the 10% test
Increase of the income thresholds for eligibility for the spouse superannuation contribution tax offset
Introduce the Low Income Superannuation Tax Offset (similar to the Low Income Superannuation Contribution which will be abolished from 1 July 2017)
Abolish anti-detriment payments
Apply the measures to defined benefit funds.
While I understand the need for budget secrecy to some extent, the government need to understand that their changes effect major systems like the ATO, Superannuation software and Accounting software as well as the reality that not all superannuation balance or contribution history information is available or up to date.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
OK so here we are with only a few weeks left to the end of the financial year to get our SMSF in order and ensure we are making the most of the strategies available to us. Here is a check-list of the most important issues that you should address with your advisers before the year-end. But before we start, one warning:
Be careful not to allow your accountant, administrator or financial planner to reset any pension that has been grandfathered under the new pension deeming rules that came in on Jan 1st 2015 without getting advice on the current and possible future consequences at the current and higher deeming rates.
1. It’s all about timing!
If you are making a contribution the funds must hit the Superfund’s bank account by the close of business on the 30th June. . Careful of making contributions through Clearing houses as they often hold on to funds before presenting them to the individual’s superannuation fund for 7-30 days and it’s when the fund receives the payment that the contribution is counted except if paid via the government’s SMall Business Clearing house. 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 and there must have been sufficient funds in the bank account to support the payment of the cheques on June 30th
2. Review Your Concessional Contributions – 30K under 49 and $35K if you were 49-64 this year and then work test applies for 65+.
Maximise contributions up to concessional contribution cap but do not exceed your Concession Limit. The sting has been taken out of Excess contributions tax but you don’t need additional paperwork to sort out the problem. So check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the limit.
3. Review your Non-Concessional Contributions
Have you considered making non-concessional contributions to move investments in to super and out of your personal, company or trust name. Maybe you have proceeds from and inheritance or sale of a property sitting in cash. As shares and cash have increased in value you may find that personal tax provisions are increasing and moving some assets to super may help control your tax bill. Are you nearing 65? then consider your contribution timing strategy to take advantage of the “bring forward” provisions before turning age 65 to contribute up to the $500,000 lifetime limit based on contributions since 1 July 2007.
4. Co-Contribution
Check your eligibility for the co-contribution and if you are eligible take advantage. Note that the rules have changed and it is not as attractive as previously but it is free money – grab it if you are eligible.
To calculate the super co-contribution you could be eligible to receive based on your income and personal super contributions, use the Super co-contribution calculator.
5. Spouse Contribution
If your spouse has assessable income plus reportable fringe benefits totaling less than $13,800 then consider making a spouse contribution. Check out the ATO guidance here
6. Over 65? Do you meet the work test? (The 40 hours in any 30 days rule)
You should review your ability to make contributions as if you if you have reached age 65 you must pass the work test of 40 hours in any 30 day period during the financial year, in order to continue to make contributions to super. Check out ATO superannuation contribution guidance
7. Check any payments you may have made on behalf of the fund.
It is important that you check for amounts that may form a superannuation contribution in accordance with TR 2010/1 (ask your advisor), such as expenses paid for on behalf of the fund, debt forgiveness or in-specie contributions, insurance premiums for cover via super paid from outside the fund.
8. Notice of intent to claim a deduction for contributions
If you are planning on claiming a tax deduction for personal concessional contributions you must have a valid ‘notice of intent to claim or vary a deduction’ (NAT 71121). If you intend to start a pension this notice must be made before you commence the pension. Many like to start pension in June and avoid having to take a minimum pension but make sure you have claimed your tax deduction first.
9. Contributions Splitting
Consider splitting contributions with your spouse, especially if:
• your family has one main income earner with a substantially higher balance or
• if there is a n age difference where you can get funds into pension phase earlier or
• If you can improve your eligibility for concession cards or pension by retaining funds in superannuation in younger spouse’s name.
This is a simple no-cost strategy I recommend everyone look at especially with the Government moving on limiting the tax free balance on accounts. See my blog about this strategy here.
10. Off Market Share Transfers (selling shares from your own name to your fund)
If you want to move any personal shareholdings into super you should act early. The contract is valid once the broker receives a fully valid transfer form not before.
11. Pension Payments
If you are in pension phase, ensure the minimum pension has been taken. For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.
The following table shows the minimum percentage factor (indicative only) for each age group.
Age Minimum % withdrawal (in all other cases)
Under 65 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95 or more 14%
Sacrificial Lamb
Think about having a sacrificial lamb, a second lower value pension that can sacrificed if minimum not taken. In this way if you pay only a small amount less than the minimum you only have to lose the smaller pensions concession rather than the concession on your full balance. When combined with the ATO relief discussed in the following article “What-happens-if-i-don’t-take-the-minimum-pension” you will have a buffer for mistakes.
Before reading the following:Be careful not to reset a pension that has been grandfathered under the new deeming of pension rules that came in on Jan 1st 2015 without getting advice.
12. Reversionary Pension is often the preferred option to pass funds to a spouse or dependent child.
You should review your pension documentation and check if you have nominated a reversionary pension. If not, consider your family situation and options to have a reversionary pension. 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 may become more important with the application of the proposed budget measure on $1.6m Transfer limit to pension phase. If funds already in pension and reverting to another person then not necessarily subject to the ca p for the reversionary pensioner but ATO will have to clarify this later.
13. Review Capital Gains Tax Position of each investment
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 government changes in legislation like those proposed this year. Remember if you plan to sell an asset for the next 2 years the Temporary Budget Repair Levy may mean 2% extra tax
14. Review and Update the Investment Strategy not forgetting to include Insurance of Members
Review your investment strategy and ensure all investments have been made in accordance with it, and the SMSF trust deed. Also, make sure your investment strategy has been updated to include consideration of insurances for members. See my article of this subject here. Don’t know what to do…..call us.
15. Collate and Document records of all asset movements and decisions
Ensure all the funds 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.
16. Double Dipping! June Contributions Deductible this year but can be allocated across 2 years.
For those who may have a large taxable income this year (large bonus or property sale) and are expecting a lower taxable next year you should consider a contribution allocation strategy to maximise deductions for the current financial year. This strategy is also known as a “Contributions Reserving” strategy but the ATO are not fans of Reserves so best to avoid that wording! Just call is an Allocated Contributions Holding Account.
17. Market Valuations – Now required annually
Regulations now require assets to be valued at market value each year, ensure that you have re-valued assets such as property and collectibles. Here is my article on valuations of SMSF investments in Private Trusts and Private Companies. For more information refer to ATO’s publication Valuation guidelines for SMSFs.
18. In-House Assets
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 misdemeanors ranging from $820 to $10,200 per breach.
21. Check the ownership details of all SMSF Investments
Make sure the assets of the fund are held in the name of the trustees on behalf of the fund and that means all of them. Check carefully any online accounts you may have set up without checking the exact ownership details. You have to ensure all SMSF assets are kept separate from your other assets.
22. Review Estate Planning and Loss of Mental Capacity Strategies.
Review any Binding Death Benefit Nominations (BDBN) to ensure they are valid (check the wording matches that required by the Trust Deed) and still in accordance with your wishes. Also ensure you have appropriate Enduring Power of Attorney’s (EPOA) in place allow someone to step in to your place as Trustee in the event of illness, mental incapacity or death. Do you know what your Deed says on the subject? Did you know you cannot leave money to Step-Children via a BDBN if their birth-parent has pre-deceased you?
23. Review any SMSF Loans
Have you provided special terms (low or no interest rates , capitalisation of interest etc.) on a related party loan? Then you need to review your loan agreement and get advice to see if you need to amend your loan. Have you made all the payments on your internal or third-party loans, have you looked at options on prepaying interest or fixing the rates while low. Have you made sure all payments in regards to Limited Recourse Borrowing Arrangements (LRBA) for the year were made through the SMSF Trustee? If you bought a property using borrowing, has the Holding Trust been stamped by your state’s Office of State Revenue. Please review my blog on the ATO’s Safe Harbour rules for Related Party Loans here
24. Valuations for EVERYTHING
Not just for property, any unlisted investment needs to have a market valuation for 30 June. If you need assistance on how to value unlisted or unusual assets, including what evidence you’re going to need to keep the SMSF auditors happy, then contact us.
25. Collectibles
Play by the new rules that come into place on the 1st of July 2016 or get them out of your SMSF. More on these rules and what you must do in a good blog from SuperFund Partners here.
26. SuperStream obligations must be met
For super funds that receive employer contributions it’s important to take note that since 2014 the ATO has been gradually introducing SuperStream, a system whereby super contributions are received and made electronically.
If SuperStream compliancy does not already apply to you and you’re not aware of the SuperStream compliancy guidelines, you have until June 30 to familiarise yourself with the obligations. The ATO has given employers with 19 or fewer employees until October 28th, 2016, to become SuperStream compliant.
All funds must be able to receive contributions electronically and will need to obtain an Electronic Service Address (ESA) to receive contribution information. If you are not sure if your fund has an ESA, contact your fund’s administrator, accountant or your bank for assistance.
Many employers are in the process of registering for SuperStream and may ask SMSF members for their ESA, ABN and bank account details. Some employers may also ask for your Unique Superfund Identifier (USI) – for SMSFs this is the ABN of the fund.
Don’t leave it until June, review your Self Managed Super Fund now and seek advice if in doubt about any matter.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Happy EOFYS!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I am breaking the Budget down in to bite size chunks with strategies to consider going forward for SMSF Trustees. The first part which dealt with pension strategies is available here . This second part deals with changes to contribution options, methods and caps.
Before I go into detail here is a summary of the changes that are relevant to SMSF members (No coverage of Defined Benefit Schemes in this article):
Concessional (Pre-Tax Contributions like employer superannuation guarantee (SGC), salary sacrifice and those contributions where you claim a tax deduction).
Reduction in the concessional contribution cap to $25,000 regardless of age
Carried forward concessional cap for account balances below $500,000 from 1 July 2018
All individuals under 65 will be eligible to claim a tax deduction for personal contributions (bye bye 10% rule). work test applies ot over those 65
Reduction in income threshold to $250,000 where additional super contribution tax applies
Reduction in contribution tax for people earning less than $37,000
Extension of low-income spouse contribution tax offset
Non-Concessional (Post Tax Contribution like personal after tax contributions and Government co-contributions).
Reduction in Non-concessional contribution cap limit to $100 per annum
Reduction of existing annual non-concessional bring forward provisions
Now the detail:
Reduction in the concessional contribution cap to $25,000 regardless of age
The concessional contribution cap will be reduced from the current level of $30,000 to $25,000from 1 July 2017, irrespective of the age of the individual. The higher cap of $35,000 that currently applies to individuals over age 50 will be abolished. The reduced cap will continue to be indexed in future years in line with wages growth.
Carried Forward or Catch-up concessional contributions
From 1 July 2018 individuals will be able to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. Access to these unused cap amounts will be limited to those individuals with a superannuation balance less than $500,000. Unused amounts accrued from 1 July 2018 will be able to be carried forward on a rolling basis for a period of five consecutive years.
This measure allows some additional flexibility in the timing of your contributions like making $125,000 for a tax deduction on the sale of a property or share portfolio if you did not make contributions in the previous 4 years. Your ability to save may vary throughout your career and this measure will assist to some extent, but falls well short of my preferred option for a lifetime cap on concessional contributions. The restriction based on size of account balance will add complication to the administration of this measure when multiple funds are involved.
All individuals under 65 will be eligible to claim a tax deduction for personal contributions
From 1 July 2017, all superannuation fund members up to age 65 will be able to claim an income tax deduction for personal superannuation contributions up to the concessional contribution cap ($25,000), regardless of their employment circumstances. This is good news for people who are partially self-employed and partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements, as they will benefit from this proposal. Personal contributions for which a tax deduction is claimed will count towards the concessional, rather than the non-concessional cap.
While I accept the government’s intention is to increase flexibility for more people to access the concessional contribution cap if they are able to do so, the mechanism requiring individuals to notify their fund of their intention to claim a tax deduction for their personal contributions will add considerable complexity to fund administration. the “she’ll be right” and “I’ll do it later factor” will lead to many missing opportunities.
Over 65’s will still need to meet the work test.
Reduction in income threshold to $250,000 where additional super contribution tax applies
From 1 July 2017, individuals with “relevant income” greater than $250,000 will pay an additional 15 per cent tax on their concessional contributions, down from $300,000. The additional tax, referred to as “Division 293 tax” after the section of the tax legislation which governs the tax, will be payable where the individual’s taxable income (including reportable fringe benefits and certain other amounts) plus concessional contributions (excluding those that exceed the concessional contributions cap) is greater than the $250,000 threshold.
Superannuation still remains attractive despite this change, the 30% tax applied to concessional contributions is still less than the marginal tax rate on earnings so contributing to super remains attractive. But with the lower $25,000 concessional contribution there will be limited scope for you to make optional concessional contributions. For example, if you earn $250,000 and your employer pays the 9.5% SG on your full salary this is an annual employer contribution of $23,750 which has almost fully utilised the new lower cap. If you are on a higher income with disposable income you may look for alternatives outside superannuation or top up your partner/spouse’s superannuation (and potentially receive a tax offset if they earn less than $37,000).
After earlier reports that the threshold would be reduced to $180,000, the proposed threshold of $250,000 means the tax will apply to only around 1 per cent of superannuation fund members. Retention of the existing mechanism which minimises the administrative costs to superannuation funds associated with this tax is welcome.
Reduction in tax for people earning less than $37,000
From 1 July 2017, the Government will introduce a Low Income Superannuation Tax Offset (LISTO) to reduce the tax on superannuation contributions for low-income earners. The measure will apply to individuals with taxable income less than $37,000, and will effectively refund the tax on concessional contributions up to an annual cap of $500. This measure will replace the Low Income Superannuation Contribution (LISC) which was scheduled to be abolished from 1 July 2017, however, the mechanism will be slightly different. Rather than the government making a direct
contribution to the individual’s superannuation account, the offset will apply to the contribution tax deducted by the superannuation fund. The Australian Taxation Office will determine an individual’s eligibility for the LISTO and advise their superannuation fund annually. The fund will then contribute the LISTO to the individual’s account. The government will consult on the implementation of this scheme.
Extension of low-income spouse contribution tax offset
The government will increase access to the low-income spouse superannuation tax offset by raising the income threshold for the low-income spouse from $10,800 to $37,000 and phasing out up to $40,000. This arrangement provides a tax offset of 18 per cent of contributions made by the contributing spouse, up to a maximum offset of $540 per annum.
Non-concessional contribution cap limit of $100,000 or phasing down towards $300,000 using the bring forward provisions
For 2016-17 the single year capped contribution amount is $180,000 and then from 1 July 2017 it reduces to $100,000. So this year you can still use the bring forward rule to contribute the full $540,000 before June 30th 2017 and that has been confirmed by treasury. However if you do not have enough to meet that full contribution limit you can still trigger your cap by contributing at least $180,001 before the end of the year. Note that you may also have already triggered that rule in one of the 2 previous financials years and be wondering how much of the cap you have remaining. Well this table will clarify that for you.
In summary the Limit to Bring Forward Contributions based on year triggered are:
The cap now also limits the ability to use the cash-out and recontribution strategy for members who have triggered a condition of release. We normally used this between age 60 -65 to reduce the taxable component of your account balance. Before considering this strategy you should check the available lifetime cap with your administrator / advisor including all retail / industry funds you have been a member of at any time. Many SMSF members took annual pensions and simply recontributed the payments as NCC every year. DO NOT DO THIS! check your cap first PLEASE!
Phew! that was a lot!
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I am breaking the Budget down in to bite size chunks with strategies to consider going forward for SMSF Trustees. Let’s start with Pensions.
The government is removing the tax exemption for earnings on assets supporting ‘transition to retirement’ pension / income streams but has allowed the pension payments and withdrawals from superannuation by people over age 60 to remain tax-free. No special rules for Self Managed Superannuation funds so these rules apply to all.
Taxing Transition to Retirement Pension earnings
From 1 July 2017 in the TTR pension phase of superannuation the tax-exemption on earnings will no longer apply to transition to retirement (TTR) pensions from.
Most TTRs were started as a tax planning strategy using salary sacrifice and the exempt status of pension income. From 1 July 2017 tax will be applied to the earnings derived in a TTR pension.
In addition, you cannot elect for payments to be taxed as lump sums rather than as pension payments to gain a better tax outcome. We used this for people aged 55-60 and fully retired up until now
Strategy implications for current TTR clients:
SMSFs with existing TTRs for members may wish to maintain them until the changes take effect (and legislation is passed). At that point they should consider one of the following options:
Do a commutation of the pension and roll back to the accumulation phase of superannuation
Convert to a full account-based pension if a condition of release has been met
Continue the Transition to Retirement pension if it suits your circumstances.
Seek advice before making any rash decisions.
From 1 July 2017, 15% tax will be applied to the earnings derived in a TTR pension and combined with the lower concessional contribution caps these strategies are likely to be less effective and less popular but still offer some opportunities for clients so we will review the appropriateness on an individual basis before 1 July 2017
Pension transfer cap of $1.6 million
From 1 July 2017, the maximum amount of superannuation that a person can transfer into pension phase is limited to $1.6 million.
Clients who are already in pension phase before 1 July 2017 will be required to transfer any balance above $1.6 million back into accumulation phase. Clients who are starting pensions from 1 July 2017 cannot roll more than $1.6 million into the pension phase (in total), but the balance rolled over can grow over $1.6 million due to earnings without penalty. some CGT relief will be available on investments moving back to accumulation phase but I will deal with that in a later blog.
The capital value of any Defined Benefit Income Streams will be counted towards the $1.6m limit using a multiple of 16 times the annual income stream.
The ATO has promised a portal or access to a central place where people can check their balances across SMSF, retail, DB and industry funds will be available soon.
Amounts transferred in excess of $1.6 million to retirement will be taxed in a similar way to excess non-concessional contributions. That means both the excess amount and earnings on that excess amount in retirement phase will be taxed. So please do not ignore this limit which applies from 01 July 2017.
Strategy implications for current SMSF pension clients:
This measure limits the tax-free benefits generated from pension phase but do not limit the amount that can be saved in accumulation phase which is only taxed at a maximum of 15%. However the overall amount you can get in to Superannuation is limited by changes to contribution caps.
Those clients who have pension balances in excess of $1.6 million can choose to:
leave savings in the accumulation phase of superannuation where tax on earnings is applied at 15% or
withdraw to invest outside superannuation or
withdraw and recontribute to a spouse / partner with a lower superannuation balance who has not used up their caps.
The $1.6 million cap will be indexed in $100,000 increments in line with the consumer price index. Where a member has previously used up a proportion of their retirement balance limit, they will be able to us the remaining proportion of the indexed cap.
Investment Strategies
We will look at each available strategies to consider the tax implications and comparisons of investment options inside or outside superannuation.
For many the option to withdraw some funds when fully retired and seek other tax effective arrangements including using the Low Income Tax Offset and Seniors and Pensioners Tax Offset to minimise tax on earnings outside of super
For the funds kept in Superannuation we will look at ways to maximise returns from investments within the caps by looking at segregating assets supporting the pension and focusing those on high yield, high return assets that can grow the tax exempt pension balance through earnings above the minimum withdrawal rates. That means we will focus on cash, fixed interest and term deposits in the still concessionally taxed accumulation balance, taxed at a maximum 15%.
Other issues
We have been strong advocates of evening up balances in superannuation between partners and this strategy implemented over the last 10 years will benefit many clients.
The Government has also confirmed that they will remove tax barriers to the development of new retirement income products by extending the tax exemption on earnings in the retirement phase to products such as deferred start lifetime annuities and group self-annuitisation products (Yeah , I am not sure what they are either).
These products can provide more flexibility and choice for Australian retirees, and help them to better manage consumption and risk in retirement.
This change was recommended by the Retirement Income Streams Review. The Government has released the Review and agreed all its recommendations. The announcement also states that they will consult on how the new retirement income products will be treated under the Age Pension means test.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
This guide has been requested by a number of our younger clients under 50 who are now taking an interest in retirement savings and tax planning but applies to all working SMSF members especially those who can combine Salary Sacrifice with a Transition to Retirement Pension. Please view this short ATO video on super contributions first and then we will go in to detail:
So what is salary sacrifice?
Salary sacrifice is an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value.
Contributions made through a Salary Sacrifice Arrangement (SSA) into super are made with pre-tax dollars, meaning they are not taxed at the member’s marginal tax rate.
They are treated as Concessional Contributions (CCs) and tax of up to 15% will usually be payable, so long as the member does not exceed their CC cap. Higher income earners may have CCs within the cap taxed at 30% (refer to our article Will you be paying the new top up tax on your SMSF contributions? )
The difference between your marginal tax rate and the tax rate on contributions is what makes up the benefit of salary sacrifice for the member of your fund. This has nothing to do with investments, it is just income planning and using the tax system legally to your advantage.
Unlike Superannuation Guarantee (SG) or other employer contributions required under an award or workplace agreement, there is no legislative time-frame specifying when salary sacrifice contributions must be made to superannuation. It’s recommended that a time-frame be specified in the SSA. This could be, for example:
at the same time as SG is paid, or
within three business days of being withheld from salary.
An SSA is only valid until the person turns age 75. Salary sacrifice contributions generally cannot be accepted by a super fund after 28 days from the end of the month in which the member turns 75. Only mandated employer contributions can be made for an employee age 75 or older (SIS Reg 7.04).
What makes a Salary Sacrifice Arrangement (SSA) valid?
There is no legal obligation for employers to offer salary sacrifice to employees. To be effective, only prospective earnings can be sacrificed. This means an SSA will only be valid if there is a prospective agreement in place before the employee has earned the entitlement to receive the relevant amount as salary and wages.
Remember, there is no requirement for an SSA to be in writing, nor is there a standard SSA. It is strongly recommended that a written agreement be in place which states the terms and conditions of that agreement. The ATO provides a detailed explanation in tax ruling TR 2001/10.
What forms of income can be salary sacrificed?
Salary or wages are the most common types of payments that are sacrificed into super. As only future entitlements can be sacrificed, an effective arrangement can’t be made for salary or wages that have already been earned.
This means payments to which an employee is already entitled to (such as earned salary and wages, accrued leave and bonuses or commissions already earned), cannot be salary sacrificed into super unless an effective arrangement was in place prior to the employee becoming entitled to that remuneration. For example, annual and long service leave paid on termination of employment can’t be sacrificed.
If an employee has entered into an SSA and takes leave during employment, the SSA is still effective and salary sacrifice amounts can still be directed to superannuation.
What are the tax implications?
Amounts salary sacrificed into super under an effective SSA are not ‘salary and wages’ in the hands of the employee. Accordingly, employers have no PAYG withholding liabilities in relation to the payment.
Although the super contributions are a benefit derived due to employment, it is specifically exempt from Fringe Benefits Tax (FBT). However, this doesn’t extend to salary sacrifice amounts into another person’s super account (eg a spouse).
Super contributions made under an effective SSA are considered employer contributions for the purposes of the Income Tax Assessment Act 1997 and are deductible to the employer.
Usually, an SSA favours taxpayers subject to the higher marginal tax rates, as they pay just 15% contributions tax on the amount sacrificed into super (or 30% for high income earners). See this ATO video below for a short explanation of the Division 293 Tax
However, for taxpayers with incomes under the 19%( + 2% Medicare) tax rate threshold (currently $37,000), the marginal rate is not markedly different to the 15% tax payable on contributions by the receiving super fund for the sacrificed contribution.
A minor saving can still be made of almost 6% as Medicare Levy (of up to 2%) is not payable on the amount sacrificed to super.
An alternative strategy for lower-income earners is to make personal after-tax contributions to obtain a Government co-contribution of up to $500. Note: Salary sacrificed employer contributions do not qualify for the Government’s co-contribution.
What are the Centrelink implications?
An amount of salary voluntarily sacrificed into super is still counted as income for Centrelink / social security purposes. Contributions are assessed as income where a person voluntarily sacrifices income into super and has the capacity to influence the size of the amount contributed or the way in which the contribution is made reduces their assessable income.
Super contributions that an employer is required to make under the SG Act, an award, a collective workplace agreement or the super fund’s rules are not assessed as income for the member.
What issues should be considered?
Employer or other limitations
It is not compulsory for an employer to allow salary sacrificing, including amounts to superannuation. The first step is for the member to know is if their employer permits salary sacrificing.
Also, even where allowed, the arrangement under which the person is employed may impose limitations. This could be terms in a workplace agreement or award.
For example, some awards specify that a certain level of an employee’s package must be paid as salary. This would effectively place a limit on the amount that could be sacrificed to superannuation
Super Guarantee payments
Salary sacrifice amounts are treated as employer contributions. An employer may decrease an employee’s SG contributions when taxable income is reduced through salary sacrifice.
This is because the minimum amount of SG an employer is required to pay is based on the employee’s Ordinary Time Earnings (OTE). As entering into an SSA reduces an employee’s OTE, it will reduce the amount of SG that an employer is required to pay.
It is also the case that a salary sacrificed amount, being an employer contribution, could meet some or all of employers SG obligations. SMSF members should negotiate with their employer that SG payments are maintained at pre-salary sacrifice levels and include this in the SSA.
Example
Malcolm’s salary and OTE is $105,000 pa. He enters into an effective SSA to forego $20,000 of his salary for additional employer super contributions. Malcolm’s salary/OTE reduces to $85,000 for SG purposes and his employer is only legally required to pay 9.5% on this amount.
Malcolm should have negotiated with his employer to maintain the SG based on his original salary and the salary sacrifice amounts are made in addition.
Entitlements upon ceasing employment
As outlined above, an SSA reduces the salary component of a person’s package. This may also reduce other entitlements when ceasing employment (through resignation or redundancy) such as:
leave loading
calculation of leave entitlements, and
calculation of redundancy payments.
Members of your SMSF should ensure that they understand the impact of entering into an SSA. Where possible, the agreement should ensure no reduction in benefits. However confirmation from the employer is necessary.
Timing of employer contributions
There are clear rules governing an employers’ legal obligation to pay its contributions to a complying super fund either monthly or quarterly.
There are no such rules governing an employer to make a pre-tax voluntary contribution/salary sacrifice contribution into an employee’s super fund when the employee requests it. This means an employer can pay this contribution whenever they want.
SMSF members should include in the SSA the frequency of salary sacrifice contributions to super (eg the same frequency as salary payments).
Reportable employer contributions
Reportable employer super contributions (RESC) including salary sacrifice, are counted as ‘income’ for many Government benefits and concessions, such as:
Government co-contributions
Senior Australians tax offset
Spouse contribution tax offset
10% rule for making personal deductible super contributions
Medicare Levy Surcharge
Family assistance benefits, and
Centrelink and DVA income tests.
RESCs are not added back when calculating the low-income tax offset and Medicare levy.
Termination payments
Long service leave and annual leave paid on termination cannot be salary sacrificed, unless an effective SSA was put in place prior to the leave being accrued.
If termination payments are based on a definition of salary that excludes employer superannuation contributions, the employer can effectively exclude the salary sacrifice amount from the total salary on which these entitlements would be calculated.
As a result, the employee’s termination package would be reduced. SMSF members should ensure that the SSA does not impact on other benefits and entitlements.
Contribution caps
An employer is eligible for a tax deduction for super contributions made on behalf of employees, regardless of the amount.
There is also no limit on the amount that an employee can sacrifice into super. However, salary sacrifice amounts are counted towards the employee’s CC cap. Excess CCs are taxed at the person’s marginal tax rate plus a charge. See the ATO video below for more details
This effectively limits the tax-effectiveness of salary sacrifice to superannuation to the employee’s annual CC cap.
At the beginning of the financial year, it’s critical to review your SMSF member’s existing SSA to ensure they won’t exceed their CC cap.
For example, if a member has received a pay rise, they may now be getting higher SG contributions from their employer. They may therefore need to reduce their salary sacrifice contributions to ensure they don’t breach their CC cap.
Ongoing reviews may also be necessary as the member may receive a pay rise during the financial year or elect to salary sacrifice a bonus which impacts on the total CCs. As well as if the concessional contribution cap increases in future years or the client becomes eligible to use the transitional higher CC cap. We recommend a April or May review of contributions to make sure your SMSF members are under their caps and will stay so up to June 30th.
Checklist
While salary sacrifice can be a tax-effective way for people to save for retirement, there are a number of steps that should be taken to ensure it is properly implemented. The following checklist could be used to help ensure all the key issues are addressed.
1.
Check that the employer permits salary sacrifice
2.
Check on limitations placed on an agreement by employment conditions (eg award, workplace agreement, etc)
3.
Ensure agreement is for future earnings and valid
4.
Ensure other employment entitlements are not impacted by agreement (eg SG,
5.
Check available concessional contribution cap and ensure client will not exceed the cap
6.
Establish the agreement in writing (including timing of contributions)
7.
Review agreement and level of contributions at least on an annual basis (around
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click on the Schedule now link to see some options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Information sourced and valid as of February 2015 from ATO, BT, MLC, Challenger, SIS Act.
What if you are not sure a proposed investment ticks all the boxes?
While you should make your best effort to ensure that the SMSF investments in your fund are compliant with the legislation, it can often be difficult to tell whether a particular investment strategy would be compliant or not.
For example, an SMSF trustee would be able to acquire a property from a member if that property was deemed to be business real property (BRP) but while for most BRP it is obvious that it satisfies the definition like a stand alone warehouse, for other properties it is far from clear such as a retail shop with 2 residential units above it.
In this case, as trustee, you could either decide not to proceed with the acquisition or else they could seek further guidance. you should initially seek guidance from your fund Auditor and other adviser but you may often get a grey answer. While trustees always have the option of seeking legal advice, they also have the ability to go straight to the ATO to seek their opinion before entering the transaction.
The ATO can provide SMSF specific advice about the following topics:
investment rules including
an investment by an SMSF in a company or unit trust
acquisition of assets from related parties
borrowing and charges
in-house assets
business real property
in specie contributions/payments
payment of benefits under a condition of release.
You should use this service if you want specific advice about how the super law applies to a particular transaction or arrangement for a self-managed superannuation fund, but you cannot use this service for tax related questions so that is when you need to look for a Private Ruling.
Private Ruling for Tax Related Scenarios
As an SMSF Trustee, if you have a concern that your circumstances or those of the fund may put you in an unusual tax position, or that a particular financial arrangement doesn’t fit any known approach for tax purposes, or you simply wants to minimise the risk of an unanticipated tax outcome, you can apply for a ‘private ruling’ from the Tax Office.
A private ruling may deal with anything involved in the application of a relevant provision of the law, including issues relating to liability, administration and ultimate conclusions of fact (such as residency status).When you apply for a private ruling about an arrangement, you can also ask the ATO to consider whether Part IVA (general anti-avoidance rule) applies to the arrangement.
In fact a lot of the proposed SMSF projects or strategies we are asked to advise on do not have a clear definable answer. Specific advice is often required on unusual scenarios for contributions involving residency or the work test or benefit payments for those under age 65. Asking for a private ruling can be a good way to ‘test-drive’ a tax arrangement you may be considering, especially where the already existing information from the Tax Office doesn’t seem to adequately cover all the bases and you are concerned about the level of tax or penalties if you get it wrong.
You can apply for a private ruling on behalf of your SMSF yourself but I would recommend using your tax agent or tax law specialist (click here for access to the private ruling instructions, plus additional ATO guidance).
Each ruling is specific to the entity that applied for it, and only to the specific facts and situation considered by the ruling, and can’t be picked up as a standard by any other taxpayer. These are one-off decisions, made only about a certain set of circumstances, and they set out how the Tax Office views that situation.
Binding If you get a private ruling, and base your SMSF tax affairs on that advice, the Tax Office is bound to administer the tax law as set out in that ruling. But, if later, the ATO issues a public ruling and the tax outcome conflicts with the one in your private ruling, you generally have the choice of which one to apply.
A ruling made in respect of a particular tax law will be changed if that law is altered by legislation or by the result of a court decision. But it’s worthwhile remembering that if you follow a ruling’s advice, and that ruling is later found to have not applied the law correctly, that you’re protected from having to repay any tax that would have otherwise been owed, as well as interest and penalties.
If a private ruling affects one of your earlier tax assessments, the Tax Office will not automatically amend it unless you make a point of submitting a written request for an amendment.
But just because you apply for a private ruling doesn’t mean you are going to get one. The Tax Office can refuse if it thinks a ruling would prejudice or restrict the law, if you are being audited over the same issue, or if it deems your application to be ‘frivolous’ or ‘vexatious’.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
I am always on the look out for interesting tips for clients and while this may not necessarily SMSF related, many of my readers are also involved in family or discretionary trusts. I came across a blog from Dr.Brett Davies at Legal Consolidated over the weekend and found it useful for my own circumstances so, with his permission, I am “paying it forward”.
In his blog Son lost the farm to his sisters – Family Trust guilty he explained how the best intentions of a person in setting out their wishes and division of their assets on death can be overturned by not understanding how control of assets is managed and passed on properly to the intended beneficiaries when dealing with companies and trusts. I’ll leave you to read the blog yourself but I will point out the key 11 issues Brett and his team identified from reviewing thousands of trust deeds over the last few years. Take the opportunity to review your trust deed and look for the ability:
For the Commonwealth Bank and other lenders:
· indemnify out of trust assets
· allowing conflict of interest under both statute and common law
· increasing the class of investments including exotics, warrants, derivatives and options
Allowing greater powers and methods of amending the trust deed
Improve Asset Preservation, strengthen bankruptcy protection and ensure no Partnership relationships
Changing trustee with minimum stamp duty, especially for land rich trusts
Managing Division 7A issues and avoiding automatic breaches
Change the vesting date pursuant to the new taxation cases
Change jurisdictions to allow forum shopping and ease of litigation
Change beneficiaries and classes of beneficiaries (but subject to CGT rules)
Allowing changes to the trust to be verbal and via minute or any other mechanism
to adapt the general ‘Streaming provisions’ based on ATO’s latest rulings:
· franking credits
· streaming different classes of income and capital for minors for deceased estates, life insurance and super funds
· attribution relating to distributing capital gain to beneficiaries
· Bamford Decision including defining ‘income’
· Loss Recoupment
to decide if the majority of Appointors should be able to take all the proceeds of the trust over the minority or not.
Maybe take this list to your advice team (solicitor, accountant and financial planner) and ask them to review your trust deed and estate planning to ensure you have a trust that can confidently meet your needs and manage your affairs for you while alive and for your ultimate beneficiaries. If you are not sure your legal advisers are up to it then ask us to put you in touch with Brett and his team at Legal Consolidated or to liaise with your current solicitor.
Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.
Please consider passing on this article to family or friends. Pay it forward!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
There has been a huge increase in Self Managed Super Funds being set up by people in their 30’s and 40’s according to ATO statistics, with 42.7% of new trustees under the age of 45. So I am going to address an issue that until now has rarely been mentioned with SMSFs strategies, as previously they were seen as the territory of crusty old men.
Maintaining momentum with your super during times out of the workforce
There finally seems to be a push on at the moment to improve the superannuation of all women in Australia. They have been lagging behind when it comes to their superannuation due to breaks in their careers as mothers or carers or because they have chosen professions that are crucial to the economy but underpaid. Statistics repeatedly show, women will retire with a super balance that’s almost half that of men. The problem of this lower level of retirement savings is compounded when you understand that women live longer and therefore need more not less super that their male cohorts.
Taking time to raise a family as a stay-at-home-mum or having part-time employment to allow for caring for a sick family member leads to loss of contributions in those critical early and later years of superannuation savings. Money that could have been invested in their 20’s or 30’s that would have compounded year on year up to retirement has been foregone. The women who also take on the burden of carer for their parents or ill spouse in later years can miss the boost in savings capacity when the mortgage has been paid off.
But what can you do for your super while we wait for politicians, business and unions to come up with a long-term solution. If you are in the position of having to take a break in your career here are five strategies for continuing to build your super during those years where employer contributions are not available.
Personal contribution to access the Government Co-Contribution
Pregnancy and illness rarely fall in line with financial years so as long as you have worked any period during a tax year you can contribute up to $1,000 of your own savings to super and also be eligible to receive a government superannuation co-contribution of up to $0.50 for every $1 of non-concessional (after-tax) contributions you make to your super account.
You will be eligible for the super co-contribution if you can answer yes to all of the following:
you made one or more eligible personal super contributions to your super account during the financial year
you pass the two income tests
your total income for the financial year is less than the higher income threshold($53,564 for 2019-20)
10% or more of your total income comes from eligible employment-related activities or carrying on a business, or a combination of both
you were less than 71 years old at the end of the financial year
you did not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
you lodged your tax return for the relevant financial year.
have a total superannuation balance less than the transfer balance cap ($1.6 million for the 2019–20 financial year) at the end of 30 June of the previous financial year
A spouse contribution is an after-tax super contribution made by your partner directly into your superannuation account. This is a good for both parties as you get a boost to your super and your partner gets a tax offset to lower their taxable income.
Your partner may be able to claim an 18% tax offset (maximum $540) on spouse contributions of up to $3,000 if:
the sum of your spouse’s assessable income, total reportable fringe benefits amounts and reportable employer super contributions was less than $37,000 from 1 July 2019
the contributions were not deductible to you
the contributions were made to a super fund that was a complying super fund for the income year in which you made the contribution
both you and your spouse were Australian residents when the contributions were made
when making the contributions you and your spouse were not living separately and apart on a permanent basis.
As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000.
For SMSF Trustees, make sure you clearly nominate in the reference or accompanying minute that this is a spouse contribution so the administrators can allocate it correctly.
Superannuation contributions splitting
This is a great way for partner to show commitment to maintaining your financial equality and showing taking care of family is a team effort. Contribution splitting which is fully explained in the linked article involves your partner directing a portion of their concessional superannuation contributions into your super account. The split occurs as a lump sum rollover and must be made in the financial year immediately after the one in which the contributions were made.
In any financial year, it is possible to split the lesser of:
Contribution splitting can be a highly effective way to build your super while you take a career break and can work even if you had done some work before the pregnancy in the tax year or if you worked part-time afterwards.
Within an SMSF you should just minute the request to split the contributions and confirm the receiving member’s eligibility and then pass that minute to the administrators or accountant. They may have template minutes available to make this easier.
Choose the right long-term investment strategy
If you are in your 20’s to early 40’s then you should not just accept the standard “core” or “balanced” asset allocation in your Superannuation fund. You have the right to choose your profile and especially as an SMSF trustee. With the preservation age of 60 and likely to rise towards 65 or 70, you should be choosing an investment asset allocation that is growth or high growth orientated to make the most of compounding returns on growth assets like shares and property during those earlier years.
Of course if you personally cannot take on that much risk without worrying then you may need to be more conservative but with some guidance and education on long-term returns and investing I believe you can step up to the higher allocations to shares and property confidently.
Personal Non-concessional contributions
Now this one may be a stretch as when you have had a baby or are caring for a sick family member, you may not be flush with savings or may be focusing on paying off the mortgage. However ,if you do have a surplus, then boosting your retirement savings with personal contributions is a good move.
Non-concessional super contributions are made by you out of your take-home (after-tax) pay, savings or for example an inheritance. You can add as little as you wish and whenever you wish subject to a maximum of $100,000 in any one year from 1 July 2017 or $300,000 if you are so lucky! using the 3 year bring forward rule.
The first $1,000 may be assessed for the government co-contributions as mentioned above, further boosting your savings.
So if you are one of the new breed of younger SMSF trustees who has to take time out for family or health reasons, you are not alone. You can maintain momentum with your super and use some or all of the above strategies to ensure your Superannuation powers ahead during time out of the workforce.
Budget 2016 had some positives for those with broken careers and one will be that you will be able to use unused contributions over a rolling 5 year period to play catch up on concessional (SG and salary sacrifice) contributions from 1 July 2018.
Are you looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
With all the talk of the government bringing out rules to tax superannuation or limit balances, I have been having some very interesting conversations with colleagues and clients, especially those whose retirement savings are expected to be in the $600,000 $900,000 level.
Many are conservative investors and would hold 30-40% of these funds in Cash and Term Deposits normally, which at current levels would earn them 2.0-3.1% at best.
They are concerned that they may not qualify for the Age Pension when the Asset Test limits apply in 2017 or lose a substantial portion of what they currently receive. Further they don’t trust that the rules for the Commonwealth Seniors Health Care card won’t tighten further so that offers no solace. Now with the added worry that the government may tax or tighten superannuation pension rules and affect them, they are looking for some alternatives that offer more security.
So I did the figures on one option I had discussed with my colleague Richard Livingston at Eviser.com.au (our online General Advice service). I looked at a couple who are currently retired and have $850,000 in assets that for example purposes are all deemed and of which $400,000 is in Term Deposits.
They currently receive $6,104 each of Age Pension per year which has helped them as the rates on their Term Deposits have dropped significantly in the preceding 5 years. The problem is that with the new asset test in 2017 they will lose that Age Pension completely or $12,208 as a couple per year.
The table below summarises these changes and the likely impacts for a home owning couple:
Table 1: Age Pension Asset test changes and impact on our clients
Asset test threshold
Couples -Home Owners
Impact on combined pensioners increase (decrease)
Announced lower threshold
(current threshold)
$375,000
($286,500)
$49 pf or $1275 p.a. extra
Announced Cut-off threshold
(current cut-off threshold)
$823,000
($1,151,500)
($510) pf or ($13,260) pa
Calculations are based on pension rates as at 20 September 2015.
Strategy to both secure some Age Pension and provide a better return that Term Deposits.
Note: this is not a recommendation to implement this strategy and you should seek personal advice before doing anything like this with your savings.
So what if instead of keeping $400,000 of their funds in Term Deposits as they currently do, they put that $200,000 in to a value adding extension to their current home (say a kitchen or extra bathroom and bedroom extension). To be clear, THEY DO NOT NEED THE EXTRA ROOM!.
Well even at the best current Term Deposit Rates, say 3%, they would lose $6,000 per year in investment income. However as their assets for Centrelink Age Pension purposes have now dropped from $850,000 to $650,000 their Age Pension would increase to $10,004 each per year until January 2017 and they would receive $6,747 each or $13,554 as a couple from 2017 onward based on current rates.
Can you see the perverse nature of using this strategy. They reduce their assessable assets by $200,000 and probably add significant value to their home if a smart extension is done while at the same time getting over $13,554 from the Age Pension as opposed to only foregoing $6,000 of investment income.
So instead of the 3% return on that Term Deposit they are getting a 6.78% per year return plus potential for increased value in their property going forward.
Is this really what we want to see? Clients refusing to downsize or actually pumping more of their savings in to their family home which is exactly what the country does not need in terms of housing affordability issues.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
The Prime Minister, Malcolm Turnbull has indicated that superannuation is back on the table in terms of tax reform and that the government will look at Labor’s proposals and consider them. I have had a few calls from people reacting to this announcement in panic and considering their use of the superannuation system.
No one , especially me as an SMSF advisor , likes to see governments tinkering with the Superannuation rules and I normally see it as akin to “dipping in to a honey pot” by desperate treasurers. However the switch to completely tax-free pensions for over 60’s in the 2006 Budget was a step to far by Peter Costello.
At the time Peter Costello trumpeted them as “the most significant change to Australia’s superannuation system in decades” but what Costello and his treasury advisers did not mention or properly cost out was their long-term cost to the budget with an ageing population and economy that goes through mining and property booms and busts. I and indeed many of my clients in conversation realised that this was overly generous and we have always expected that the largesse would be rained in at some time in the future. Yes, I am prepared to resist any changes but more so to ensure the government of the day does not over step the mark and hurt the confidence in the system but I and others realise that the 2o06/7 move to tax exempt pensions for those over 60 was a too far a leap for our economy.
So what are Labor’s recommendations?
Now let’s look at the Labor proposals which are not overly draconian and will affect few people, mostly the “one percenters”. Lets look at them carefully.
Labour promised in April that if it won the election, it would impose a 15 per cent tax on the super income of retirees on all earnings of more than $75,000. Well this is per person so a pensioner couple could earn $150,000 in their SMSF or Superannuation before they have to pay any tax on earnings above this amount. The “above” is important as lets say a SMSF had $200,000 had net earnings to apportion to members for a year; well the tax would be only on the last $50,000 (assuming even balances) and would amount to $7,500 less some of the funds expenses which would become tax-deductible. Assuming a return of 6% per annum net for a super fund, the fund would have to be valued at over $2,500,000 before attracting any tax on earnings above the $75,000 per member.
Labor have also proposed a 30 per cent tax rate on contributions would apply to those on incomes from $250,000 and more, down from the current threshold of $300,000. Again this means that salary sacrifice by some earning more than $250,000 would still save them 19% per dollar as opposed to taking the money after tax at their marginal tax rates of 49% (including Medicare and Levies). so the benefit of making contribution still outweighs not saving the funds.
The old argument that these people would stop saving for retirement, spend the money and rely on government support in retirement via the age pension is just rubbish. The people affected (earning personal income over $250,000 per annum or super balances over $2,500,000) are smart enough to realise they need to take care of their own retirement and that access to the full couples pension of $33,717 is just not going to meet their needs. they will continue to use the tax, property and superannuation systems to maximise their returns using the most tax efficient options available to them.
The real danger in any change to the rules would be if a government were to change the superannuation rules to affect middle-income earners or if the media drummed up enough fear that confidence in the superannuation system was severely reduced. That is why even Labor has been careful to only target the fringes of the population or the 1% high income earners and we can also expect some degree of “Grandfathering” of any changes where anyone already committed to pension may not be affected by the changes.
The other danger is that once your start taxing pensions and increasing tax on contributions at certain limits, the temptation is always there to move the goal posts further and reduce those limits like the suggested move from additional 15% tax on contributions for earners over $300,000 to applying that additional tax to those on over $250,000 as Labor proposes. Once they start the precedence is set and future governments will find reasons to dip in deeper to our savings.
Strategies:
If you are near the edge of the limits mentioned what can you do:
Review any salary packaging options
If self-employed look to restructure your business to allow division of income across entities and family members
Make sure to even up balances using targeted withdrawals from the larger balance holder and re contributions to a lower balance spouse or partner’s account
Use Super Splitting from your 40’s onwards to ensure contributions are moved to a lower earning spouses account consistently over time to even up balances. Click hereto read more on how super splitting works.
If entitled to start a Transition to Retirement pension (TTR) do so now rather than waiting and losing the benefits of any grandfathering of changes to legislation. Click the link to read more on TTRs
In summary, I believe any changes will be targeted and that the coalition under Malcolm Turnbull will be more conservative in their changes than Labor proposes. You should however do all you can to protect your own position and use strategies available to you. It also does not harm to argue the changes and force the government to justify clearly any changes to be made to ensure they understand our displeasure at tinkering with our retirement nest eggs.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
I get enquiries from so many people now with holdings from an employee share scheme or listings such as IAG (the old NRMA) , CBA, Telstra and now Medibank Private who wish to simplify the shares held in their own personal names as they approach 67 so they don’t have to do a tax return for themselves in retirement. One option often considered is making an in specie transfer to your SMSF.
In specie is the process of transferring shares, business real property or managed funds without selling the underlying investment.
An in-specie contribution occurs when a member transfers ownership of an asset they own to the SMSF. In this case, the capital value of the fund has increased and the increase in value is considered a contribution for the member whose member balance has grown.
While most superannuation funds can accept in-specie contributions, it occurs far more commonly with SMSFs than with industry or retail superannuation funds.
An in-specie contribution is considered an acquisition from a related party and such acquisitions are generally prohibited. Listed shares, managed funds and business real property are exceptions to the general prohibition for in-specie contributions.
The transfer of the asset will be deemed to be a disposal for the member and any gain realised by the member may be subject to CGT, though there may be some concessions, particularly where the property was used in their own business or that of an associate. If self-employed or able to claim a tax deduction for contributions then some of the transfer can be considered as a Concessional Contribution. you should run the strategy past your adviser before implementing it to work out the CGT and the best way to minimise it.
In addition, it is not necessary that the entire value of an asset transferred to an SMSF be considered a contribution and this is particularly beneficial where the value of the asset is greater than the contribution caps available to the contributors.
For example, if a commercial property, lets say a shop, valued at $1,200,000 was to be transferred to an SMSF by a husband and wife and its entire value was considered a contribution, it could result in an excess non-concessional contribution of $540,000. To avoid this outcome, we could treat 2 x $330,000 of the transfer as Non-Concessional contributions for the husband and wife using the full NCC cap of the 3-year Bring Forward Rule and the remainder as a sale. The SMSF would have to transfer $540,000 of cash or other assets to effect the purchase on that portion of the property or arrange borrowing and use an LRBA structure.
For shares most SMSF investors have a CHESS sponsored account so you should ask your broker for their Standard Transfer Form for Off Market Transactions.
In addition, assets can also be transferred out of the fund as in-specie payments though importantly, only lump sum payments can be made in-specie. Pension payments have to be made in cash. The rules on acquisitions from related parties do not apply to these transactions as the SMSF is disposing of the asset, not acquiring it.
Some clients buy a coastal house or city apartment in their SMSF as an investment while they are working but with a possible option to move in to it when they retire. To do so they must take it out of the fund on retirement. Often they will use the funds from the sale of their home on retirement to buy the property from the fund but the option is there to take the property out as a lump sum in specie transfer if timing makes a purchase strategy unsuitable.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 9899 3693, Mobile: 0413 936 299
PO Box 6002 NORWEST NSW 2153
Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
Suite 4, 1 Dight St., Windsor NSW 2756
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net
When the Australian Taxation Office (ATO) released interpretative decision ATO ID 2012/16 (withdrawn but relevant) and Tax Determination 2013/22, we received a number of inquiries from people with one-off large capital gains or income from irregular contracts looking to implement a contributions holding account (or suspense account) strategy affectionately known as “the Double Dip” strategy. I deliberately do not use the commonly used name “reserving strategy” as the ATO seems to frown on “Reserves”.
The details of the strategy are outlined in the ATO’s interpretative decision and in effect allow for a taxpayer to ‘double-dip’ on claiming a tax deduction for superannuation contributions, with the crediting of any June contributions being applied no later than 28 July in the following financial year (refer SIS Reg. 7.08(2)).
You use a contributions holding (or suspense) account and place a contribution during June (and claim that contribution as a tax deduction in that year if it is a concessional contribution) but the amount is then credited to your member account anytime from 1 July to 28 July, which is when the amount will be counted as a contribution and counted against the new financial year’s contribution caps.
Now right at the start let me advise you that the ATO’s systems are not able to cope with this strategy so there is a “work-around” needed and it is just part of the process of implementing this strategy and nothing to be worried about.
Here are the steps involved:
Read your Deed to ensure there are no clauses preventing the operation of a contributions holding account (I would be surprised if there are, but read the deed anyway, it’s a good habit).
Read the above Tax Determination 2013/22 to understand clearly the details of how to effectively implement this in a contribution holding account strategy, from start to finish across personal and SMSF tax entities..
Report the full contributions within your SMSF Annual Return – ensure that the accountant/administrator paid the necessary contributions tax on the entire contribution.
Where you are self-employed (or substantially self-employed), ensure that the Notice of intent to claim or vary a deduction for personal super contributions (NAT 71121) is correct for the current year and submit the form. Follow the exact rules that apply to ensure a valid notice exists, as per s290-170 of the ITAA 1997. Most advisers call the form a “NOITC”.
Remember the contribution tax was paid in the first year so you need to gross-up the amount to be allocated in the following financial year.
Complete a Request to adjust concessional contributions (NAT 74851) before or at the same time you complete your SMSF and Personal tax return. The instructions for this form also provide instructions on how you, as a trustee or your administrator, complete the SMSF annual return to correctly account for the contributions reported on this form.
Minute the operation and movement of money in this strategy to ensure there are complete and accurate records.
Worked Example – Using the Contributions Holding Account
Tony is a 59 year old self-employed mechanic, who sold a Sydney property this year that he had held for 15 years. He has a very large capital gain (lucky bugger) and wants to minimise his tax. His SMSF Specialist Advisor (Me Me Me!) and Tax agent agree that he should use the “Double Dip” contribution strategy to make $60,000 worth of concessional contributions to his SMSF and claim them as a tax deduction this financial year. they have confirmed that he will have a lower-income next year and hence the deduction will be more valuable to him by claiming it this financial year.
He has already made $30,00000 worth of contributions so far so he makes a contribution of $30,000 to his SMSF this financial year in June, and claims the deduction for this year. The total amount of $60,000 will count as an assessable concessional contribution this year and will count as taxable income of the super fund this year. Best practice would be to make the $30,000 contribution separate to previous $27,500 contribution and it must be done in June not any earlier.
Tony completes the Notice of intent to claim or vary a deduction for personal super contributions (NAT 71121) and provides it to the fund trustee(s) to pass to the Accountant / Administrator. The full $60,000 is treated as fund income for that year and the contributions is accounted for in the tax payable for that year.
The first $30,000 is allocated to the member’s account before 30 June.
The fund does not allocate the other $30,000 of this money to his member account in FY 2025, but rather allocates this money to a ‘contribution holding account’ or a ‘suspense account’ in the SMSF. The $30,000 is therefore delayed being allocated to his member account until the next month which is July 2025 and hence in the new financial year. The grossed up contribution will then be counted against his concessional contributions cap for the second year.
4. In the following month of July (but prior to the 28th of the month), the money is then allocated to Tony’s account and it counts as a concessional contribution in that new financial year using his full $$30,000 concessional cap.
After the form is lodged, the ATO may then request additional evidence and documents to support the taxpayer’s election. This may include:
A copy of the fund’s trust deed, which shows the ability for the fund to hold unallocated contributions
Trustee minutes outlining the resolutions to allocate to and from the contribution holding account
Minutes of the decision to allocate funds to the contribution holding account
Contribution holding account investment strategy
Bank statements from your SMSF that confirms the contributions being paid for the period your application relates to
Evidence of the reallocation within 28 days of the end of the month.
Note that having used the cap he has no ability to use further contributions to reduce his income in the new financial year unless he continues to use a reserve each June.
Oh and true SMSF DIYer’s, please don’t try this at home on your own. Get advice and do it right!
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus FSSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98993693, Mobile: 0413 936 299
PO Box 6002 Norwest, Baulkham Hills NSW 2153
40/8 Victoria Ave. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 41 34 605 438 042, AFSL 476223
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
OK so here we are with only a few weeks left to the end of the financial year to get our SMSF in order and ensure we are making the most of the strategies available to us. Here is a check-list of the most important issues that you should address with your advisers before the year-end. But before we start, one warning:
Be careful not to allow your accountant, administrator or financial planner to reset any pension that has been grandfathered under the new pension deeming rules that came in on Jan 1st 2015 without getting advice on the current and possible future consequences at the current and higher deeming rates.
1. It’s all about timing!
First thing to note is that June 30th falls on a Thirsday this year so be careful about doing anything for your fund after the 27th as funds transferred risk not reaching the destination account before the deadline. Remember it is when the funds are received by the Superannuation fund that counts.
2. Review Your Concessional Contributions – 30K under 49 and $35K if you were 49-64 this year and then work test applies for 65+.
Maximise contributions up to concessional contribution cap but do not exceed your Concession Limit. The sting has been taken out of Excess contributions tax but you don’t need additional paperwork to sort out the problem. So check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the limit.
3. Review your Non-Concessional Contributions (consider before May 3rd – budget night)
Have you considered making non-concessional contributions to move investments in to super and out of your personal, company or trust name. Maybe you have proceeds from and inheritance or sale of a property sitting in cash. As shares and cash have increased in value you may find that personal tax provisions are increasing and moving some assets to super may help control your tax bill. Are you nearing 65? then consider your contribution timing strategy to take advantage of the “bring forward” provisions before turning age 65 to contribute up to $540,000 this year or $180K this year and up to $540,000 next year before you turn 65.
4. Co-Contribution
Check your eligibility for the co-contribution and if you are eligible take advantage. Note that the rules have changed and it is not as attractive as previously but it is free money – grab it if you are eligible.
To calculate the super co-contribution you could be eligible to receive based on your income and personal super contributions, use the Super co-contribution calculator.
5. Spouse Contribution
If your spouse has assessable income plus reportable fringe benefits totaling less than $13,800 then consider making a spouse contribution. Check out the ATO guidance here
6. Over 65? Do you meet the work test? (The 40 hours in any 30 days rule)
You should review your ability to make contributions as if you if you have reached age 65 you must pass the work test of 40 hours in any 30 day period during the financial year, in order to continue to make contributions to super. Check out ATO superannuation contribution guidance
7. Check any payments you may have made on behalf of the fund.
It is important that you check for amounts that may form a superannuation contribution in accordance with TR 2010/1 (ask your advisor), such as expenses paid for on behalf of the fund, debt forgiveness or in-specie contributions, insurance premiums for cover via super paid from outside the fund. See here for more discussion on this topic
8. Notice of intent to claim a deduction for contributions
If you are planning on claiming a tax deduction for personal concessional contributions you must have a valid ‘notice of intent to claim or vary a deduction’ (NAT 71121). If you intend to start a pension this notice must be made before you commence the pension. Many like to start pension in June and avoid having to take a minimum pension but make sure you have claimed your tax deduction first.
9. Contributions Splitting
Consider splitting contributions with your spouse, especially if:
• your family has one main income earner with a substantially higher balance or
• if there is an age difference where you can get funds into pension phase earlier or
• If you can improve your eligibility for concession cards or pension by retaining funds in superannuation in younger spouse’s name.
This is a simple no/low-cost strategy I recommend everyone look at especially with the Government moving on taxing higher balance accounts. See my blog about this strategy here.
10. Off Market Share Transfers (selling shares from your own name to your fund)
If you want to move any personal shareholdings into super you should act early. Here are the links to the Standard Forms for Computershare and here is the Link Market Services Form
11. Pension Payments
If you are in pension phase, ensure the minimum pension has been taken. For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.
The minimum payment amounts have been by 25% for the 2012-13 years. The following table shows the minimum percentage factor (indicative only) for each age group.
Age Minimum % withdrawal (in all other cases)
Under 65 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95 or more 14%
Sacrificial Lamb
Think about having a sacrificial lamb, a second lower value pension that can sacrificed if minimum not taken. In this way if you pay only a small amount less than the minimum you only have to lose the smaller pensions concession rather than the concession on your full balance. When combined with the ATO relief discussed in the following article “What-happens-if-i-don’t-take-the-minimum-pension” you will have a buffer for mistakes.
Before reading the following:Be careful not to reset a pension that has been grandfathered under the new deeming of pension rules that came in on Jan 1st 2015 without getting advice.
12. Reversionary Pension is often the preferred option to pass funds to a spouse or dependent child.
You should review your pension documentation and check if you have nominated a reversionary pension. If not, consider your family situation and options to have a reversionary pension. 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
13. Review Capital Gains Tax Position of each investment
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 government changes in legislation like those proposed this year. Remember if you plan to sell an asset for the next 2 years the Temporary Budget Repair Levy may mean 2% extra tax
14. Review and Update the Investment Strategy not forgetting to include Insurance of Members
Review your investment strategy and ensure all investments have been made in accordance with it, and the SMSF trust deed. Also, make sure your investment strategy has been updated to include consideration of insurances for members. See my article of this subject here. Don’t know what to do…..call us.
15. Collate and Document records of all asset movements and decisions
Ensure all the funds 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.
16. Double Dipping! June Contributions Deductible this year but can be allocated across 2 years.
For those who may have a large taxable income this year (large bonus or property sale) and are expecting a lower taxable next year you should consider a contribution allocation strategy to maximise deductions for the current financial year. This strategy is also known as a “Contributions Reserving” strategy but the ATO are not fans of Reserves so best to avoid that wording!
17. Market Valuations – Now required annually
Regulations now require assets to be valued at market value each year, ensure that you have re-valued assets such as property and collectibles. Here is my article on valuations of SMSF investments in Private Trusts and Private Companies. For more information refer to ATO’s publication Valuation guidelines for SMSFs.
18. In-House Assets
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 misdemeanors ranging from $820 to $10,200 per breach.
21. Check the ownership details of all SMSF Investments
Make sure the assets of the fund are held in the name of the trustees on behalf of the fund and that means all of them. Check carefully any online accounts you may have set up without checking the exact ownership details. You have to ensure all SMSF assets are kept separate from your other assets.
22. Review Estate Planning and Loss of Mental Capacity Strategies.
Review any Binding Death Benefit Nominations (BDBN) to ensure they are valid (check the wording matches that required by the Trust Deed) and still in accordance with your wishes. Also ensure you have appropriate Enduring Power of Attorney’s (EPOA) in place allow someone to step in to your place as Trustee in the event of illness, mental incapacity or death. Do you know what your Deed says on the subject? Did you know you cannot leave money to Step-Children via a BDBN if their birth-parent has pre-deceased you?
23. Review any SMSF Loans
Have you provided special terms (low or no interest rates , capitalisation of interest etc.) on a related party loan? Then you need to review your loan agreement and get advice to see if you need to amend your loan. Have you made all the payments on your internal or third-party loans, have you looked at options on prepaying interest or fixing the rates while low. Have you made sure all payments in regards to Limited Recourse Borrowing Arrangements (LRBA) for the year were made through the SMSF Trustee? If you bought a property using borrowing, has the Holding Trust been stamped by your state’s Office of State Revenue.
Don’t leave it until June, review your Self Managed Super Fund now and seek advice if in doubt about any matter.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Happy EOFYS!
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
The SMSF Coach 