Stay informed,seek advice and adjust strategies accordingly!
From September 20, 2025, several changes will impact the Australian Age Pension. The four key changes are:
an increase in deeming rates,
a boost to the maximum Age Pension amount,
a rise in the cut-off limits for part pensions, and
an increase in the income limit for the Commonwealth Seniors Health Card.
1. Deeming Rate Changes 📈
The most significant change is the 50 basis point increase to the deeming rates used in the income means test. Deeming rates are a notional or “assumed” income rate applied to your financial assets. They’re a simple way for the government to calculate your income without needing to track your actual investment returns.
Why are they changing? Deeming rates have been frozen for the past five years as part of the COVID-19 response. This increase is an adjustment to reflect current market conditions more accurately, even though interest rates may be declining.
What are the new rates? From September 20, 2025, the low deeming rate will increase from 0.25% to 0.75%. The standard (or higher) deeming rate will increase from 2.25% to 2.75%.
How do the rates apply? The low rate applies to the first $64,200 of financial assets for a single pensioner and the first $106,300 for a pensioner couple. The higher rate applies to any amount over those thresholds.
What’s the effect? An increase in the deeming rate means more income is deemed to have been earned from your financial assets, which will generally lead to a reduction in your Age Pension entitlement. For every $1,000 of financial assets, your fortnightly pension could decrease by $2.50.
2. Age Pension Increase 💰
The maximum rate of the Age Pension will increase, providing a boost to all pensioners.
The maximum fortnightly pension for a single pensioner will increase by $29.70, bringing the new maximum to $1,178.70.
The maximum fortnightly pension for a couple will increase by $44.80, bringing the new combined couples maximum to $1,777.00 ($888.50 each)
These increases are automatic and apply from September 20, 2025.
3. Part Pension Cut-off Limits Rise ⬆️
The maximum amount of income you can earn before your part pension is cut off will also increase. This is a direct result of the rise in the maximum Age Pension amount.
The new fortnightly cut-off limit for a single pensioner will be $2,575.40, an increase of $59.40.
The new fortnightly cut-off limit for a couple will be $3,934.00, an increase of $89.60.
TIP: If you were previously ineligible for an Age Pension due to the income means test but were close to the old cut-off limit, you should reconsider applying.
4. Commonwealth Seniors Health Card (CSHC) Income Limit Increase ✅
The income limits for the Commonwealth Seniors Health Card (CSHC) will also rise. The CSHC is a valuable card for self-funded retirees who are not on a Centrelink income support payment, providing access to cheaper medicines and other concessions.
The annual income limit for a single person will increase by $2,080 to $101,105.
The annual income limit for a couple (combined) will increase by $3,328 to $161,768.
TIP: If your income was previously just above the old limit, you should consider applying for the CSHC. This card doesn’t have an assets test, making it a good option for those disqualified from the Age Pension by their assets.
Warning before you jump into implementation of any strategy without checking your personal circumstances.
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.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking into account 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.
When Andrew Findlay passed away, he left behind more than just an estate—he left a ticking time bomb of legal uncertainty. An updated will, detailing his clear wishes, was sitting on his computer. There was just one problem: he had never signed it.
This oversight sparked a fierce court battle between his former partner and his cousin on behalf of his children, a battle that recently culminated in a significant ruling from the NSW Court of Appeal. The case of Kemp v Findlay serves as a powerful cautionary tale for anyone advising clients on estate planning. It highlights the very real dangers of informal documents and the costly, emotional litigation that can follow. While this case deals with a will, there are countless cases that involve incomplete Binding Death Benefit Nominations in an SMSF and the Succession Act 2006 (or equivalent in your state) may not help as SMSFs rely on the SIS Act and Trust Deed . Also a nomination from an SMSF to a member’s Legal Personal Representative may then lead to a estate challenge.
So, what are the key takeaways? Let’s break it down.
A Quick Case Summary
The 2015 Will: Mr. Findlay had a formal will leaving his estate to his then-partner, Elizabeth Kemp.
The 2019 Document: After separating from Ms. Kemp in 2019, he drafted a new will on his computer. This document left his estate to his three children and appointed his cousin, David Findlay, as executor. Crucially, it was never printed, signed, or witnessed.
The Dispute: Upon Mr. Findlay’s death in 2023, both Ms. Kemp (relying on the 2015 Will) and David Findlay (relying on the 2019 document) applied for probate.
The Outcome: The Court applied Section 8 of the Succession Act 2006 (NSW), which allows informal documents to be treated as a will if the Court is satisfied the deceased intended it to be their final will. The Court found the 2019 document did reflect Mr. Findlay’s clear intentions and admitted it to probate. Ms. Kemp was also ordered to pay 75% of the children’s legal costs.
🔑 5 Key Lessons for Advisers and SMSF Trustees from Kemp v Findlay
1. Never Rely on Section 8 as a Planning Tool
The big takeaway is not that “unsigned wills are fine.” The takeaway is that Section 8 is a remedial, last-resort solution, not a substitute for proper execution. While the court can validate informal documents, the process is uncertain, expensive, and hinges on convincing a judge of the deceased’s intention. Advise clients that proper signing and witnessing is the only way to guarantee certainty and avoid a fight.
SMSFs – While Section 8 does not apply to BDBNs directly, a BDBN can be subject to a family provision claim under the Succession Act 2006, where the court can, in certain circumstances, declare a death benefit as part of a notional estate to meet court-ordered provisions. The distribution of a superannuation death benefit is primarily determined by the rules of the superannuation fund and the Superannuation Industry (Supervision) Act 1993 (SIS Act). Section 59(1A) of the SISA, in conjunction with Regulation 6.17A of the SIS Regulations, sets out the strict technical requirements for a BDBN to be valid.
As many SMSF members direct their Superannuation to be dealt with via their Wills, this means there is more room for error as the Binding Death Nomination and/or the Will could be challenged.
2. Document Everything & Communicate Clearly
Mr. Findlay’s failure to clearly communicate his final intentions to his solicitor and family directly fuelled the dispute. Advise your clients to:
Formally instruct their solicitor immediately after a major life event (e.g., separation, marriage, birth of a child).
Clearly communicate their wishes to their intended executor and key beneficiaries to prevent surprise and doubt.
With a Binding Death Benefit Nomination (BDBN) the member should:
Firstly, decide if a BDBN is the preferred option or do you deliberately wish to leave the decision and flexibility to the remaining trustees of the fund?
For pension accounts you may opt to use Reversionary Pensions for more certainty.
Complete the Binding Death Benefit Nomination (Preferably a Non-Lapsing BDBN) and sign and have it witnessed.
Then submit the signed form to the trustees of the SMSF and have the trustees minute the receipt and acceptance of the BDBN.
Also ensure that the SMSF Accountant/Administrator is provided a copy and updates the SMSF software they use to display that nomination in the annual financials (in the Member Statements) so that it can trigger a reminder to review them.
3. Include Regular Estate Plan Reviews
This case is a textbook example of why wills and BDBNs must be updated. A separation is one of the most critical times to review an estate plan. Proactively schedule reviews in your annual planning review with clients, especially after major life events to ensure their documents reflect their current circumstances and relationships.
For SMSFs: Review the current nominations and see if strategies like withdrawal and recontributions now mean that funds can be directly left to adult children or others because the taxable component has been reduced. You might leave a Mixed-Tax Components pension to the spouse but allocate Tax-Free Component pensions to others directly or via your estate.
4. Warn Clients Against “DIY” Drafts (Read the Deed for SMSFs)
The existence of an unsigned, unofficial document was the catalyst for years of litigation. Counsel your clients strongly against:
Creating draft wills or notes without immediate formalisation.
Storing important documents haphazardly. An unsigned draft can be misinterpreted as a final will, creating confusion and conflict.
For BDBN’s be careful with templates and if you are using one provided by your Trust Deed provider make sure it meets your needs or have your lawyer draft a more personalised one up for you.
5. Highlight the Staggering Cost of Litigation
The court’s costs order against Ms. Kemp underscores a harsh reality: estate litigation can quickly erode the value of the estate for everyone involved. Use this case to show clients the tangible financial risk of unclear planning. Comprehensive, professionally-executed estate planning and SMSF documents are an investment in protecting their legacy and their family’s future.
The Bottom Line
Kemp v Findlay is a stark reminder that the rules of formal execution exist for a reason: to provide clarity and prevent disputes. While the court’s flexible approach ensured Mr. Findlay’s intentions were ultimately honoured, it came at a significant financial and emotional cost to his family.
For SMSFs: The Trust Deed is often the crucial source outlining how formal execution of a BDBN is to be made. Take the time to read it carefully and don’t assume it complies with the SIS Act either.
As advisers, our role is to steer clients away from this precarious path. By emphasising proper execution, clear communication, and regular reviews, we can help them ensure their wishes are carried out smoothly, preserving their assets and their family’s harmony.
Have you reviewed your wills and BDBNs recently? This case is the perfect conversation starter for SMSF Trustees to encourage proactive estate planning with your partner or other SMSF member’s. Also a key issue for professionals to raise with their clients and possibly refer to an estate planning specialist.
Stay informed,seek advice and adjust strategies accordingly!
Warning before you jump into implementation of any strategy without checking your personal circumstances.
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.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking into account 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.
Failure to pay minimum pensions just got a lot more costly
You may need to ensure your accountant, financial planner and your fellow trustees is up to date with the latest rule changes affecting the start and ending of an SMSF pension which mostly affect those that fail to take the minimum pension amounts in a financial year.
SMSF trustees, accountants and financial advisers should take note of significant changes to pension commencement rules that came into effect on 1 July 2025. These changes impact how pensions are treated for tax purposes if a minimum pension is missed and could have serious implications for retirement planning strategies.
What’s Changed?
The Australian Taxation Office (ATO) has revised Tax Ruling 2013/5 (TR 2013/5), which governs when a pension starts and ceases.
Previously, the rules provided some flexibility with minimal adverse consequences. However, the ATO has now taken a stricter stance, which may have major implications not only for the current and the previous year’s, tax position but also on strategies designed to quarantine pensions with high tax free components from ones with mixed components.
Key Implications of the Changes
1. Pension Failures Confirmed to Take Effect at the Start of the Financial Year
Under the new rules, if a pension fails to pay the minimum pension, it is treated as ceasing at the beginning of the financial year rather than the end. This means:
The pension account converts to an accumulation account immediately at 1 July of the relevant tax year.
If an existing accumulation balance exists, the two amounts will merge for tax purposes, potentially disrupting carefully planned tax strategies. These strategies often revolve around blended families.
2. Transfer Balance Cap Complications
If a pension fails at the start of the year, the transfer balance cap debit must be applied at the 30 June in the year the pension ceased. Ref: ITAA97 Section 294-80(1) item 6. NOTE: In the earlier version of this article we wrongly advised it was a credit to the TBA and immediate when in fact it is a debit and occurs 30 June at end of financial year the pension ceased. Thank you to Mark Ellen of Accurium for picking up on our error.
The pension can only restart once the member rectifies any errors (e.g., failing to meet minimum pension draw down requirements), which may take 13 to 22 months from the date the pension has to be commuted under the enforced rules. Why? Because for many people the first they realise that they have not paid the full minimum pension payment is when their accountant or administrator drafts the financial which is often 9 months after the end of the financial year. e.g., 20 June 2025 financials not completed until March 2026 and that’s when mistake found. But then the Pension is deemed to have been commuted on 01 July 2024!
During this gap, market growth could lock a portion of the funds out of pension phase due to the Transfer Balance Cap issues, limiting tax efficiency and spoiling estate planning strategies.
3. Investment Market Risks
If markets rise while a pension is inactive, the increased account balance may exceed the available transfer balance cap. This means:
Some funds could remain stuck in accumulation phase, missing out on tax-free pension earnings.
Members may not be able to restore their pension to its original value, reducing retirement income benefits.
What Should SMSF Trustees, Accountants and Advisers Do?
Given these changes, it’s crucial to: ✔ Review pension compliance to avoid accidental failures. Request a Minimum Pensions Report from your Accountant/Adviser.
✔ Do not just rely on the last 30 June Financials as you need to ensure you include any new pensions that began in the current financial year
✔ Monitor minimum drawdowns before 30 June each year to prevent unintended cessations. Have someone cross check the payments for you.
✔ Beware that Market Linked and Term Allocated Income Streams have different minimum drawdowns
✔ Plan for tax implications if pensions lapse and merge with accumulation accounts. ✔ Consider timing and market risks when restarting pensions.
Final Thoughts
The ATO’s stricter interpretation of pension rules means SMSF trustees, accountants and advisers must be more vigilant than ever to avoid costly tax, estate planning and transfer balance cap issues. Proactive planning can help mitigate risks and ensure retirees maximise their superannuation benefits.
Stay informed,seek advice and adjust strategies accordingly!
Warning before you jump into implementation of any strategy without checking your personal circumstances.
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.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking into account 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.
Here we go again. We have only a short time left to the end of the 2025 financial year to get our SMSF in order and ensure we are making the most of the strategies available to us. Here is a checklist of the most important issues that you should address with your advisers before the year-end.
It’s been another busy year and I have not had as much time to put this together so if you find an error or have a strategy to add then please let me know. Links were working at the time of writing.
Warning before we begin,
You need to check your personal super balances, contribution limits, caps and tax position before implementing any of these strategies as your own particular circumstances may warrant alternative options.
It’s all about timing
If you are making a contribution, the funds must hit the super fund’s bank account by the close of business on 30 June. Some clearing houses hold on to money for up to 14 days before presenting them to the super fund. Some Retail and Industry funds are asking for funds at least to be contributed by the 18th-20th June!
In addition, pension payments must leave the account by the close of business unless paid by cheque in which case the cheques must be presented within a few days of the EOFY. There must have been sufficient funds in the bank account to support the payment of the cheques on 30 June but a cheque should only be your very last-minute option! You can also ask your adviser or administrator about a Promissory Note if time is against you but funds are ready.
So, for SMSFs get your payments in the fund by Monday 23rd June or earlier to be sure (yes I’m Irish) as the 30th is a Monday this year. This is even more important if using a clearing house for contributions.
Review your Concessional Contributions (CC) options including Unused Carry Forward Limits
The government changed the contribution cap from 1 July 2024 to $30,000 and remember that you have the ability to make concessional contributions up to age 67 even if not working and to 75 if you meet the Work Test . This is important for those who have retired but may have sold a property or shares and triggered a large capital gain during the year. Do not not exceed your limit unless you have Unused Carried Forward Concessional limits and Total Super Balance under $500K as of last 01 July 2024.
Check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super paid by employers, as they are all included in the limit.
This current 5 year period for Unused Concessional Contributions applies from 2019-20 so effectively, this means an individual can make up to $162,500 of CCs in a single financial year by utilising unapplied unused CC caps since 1 July 2019 and this years limit. Guidance on how to check your Unused Carried Forward Concessional limits via MyGov records available here. ..
This is the last year to use the 2019/20 unused Carried Forward Concessional Caps as they fall outside the 5 year rolling period from 30 June 2025.
Beware that once your Income including Salary, Investment income, Employer SGC, Personal Concessional Contributions goes over $250,000 you will be subject to Div 293 Tax
From 1 July 2025 the Super Guarantee also rises to 12%. Re-evaluate your contribution plans for 2025-26
Review plans for Non-Concessional Contributions (NCC) options
From 1 July 2022 the NCC contribution rules changed and currently the age limit of 75 (28 days after the end of the month your turn 75) applies to NCCs (that is, from after-tax money) without meeting the work test. Check out ATO superannuation contribution guidance.
NCCs are an opportunity to move investments into super and out of a personal, company or trust names.
For those couples where one has a higher balance that may be affected by the proposed Division 296 Tax, it is important to review you option to even-up spouse balances and maximise super in pension phase up to age 75. For couples where one spouse has exhausted their transfer balance cap and has excess amounts in accumulation or above $3m, they are able to withdraw from the higher balance and recontribute to the other spouse who has transfer balance cap space available to commence a retirement phase income stream. This can increase the tax efficiency of the couple’s retirement assets as more of their savings are in the tax-free pension phase environment and may help minimise Div 296 Tax.
If you have considerable additional funds to add to contribution then maybe contribute up to $120,000 before June 30 and then you may be able to contribute up to $360,000 after 1 July to maximise contributions.
From 1 July 2024 the Non-Concessional Cap rose to $120,000 per year or $360,000 under the 3 Year Bring Forward Rule.
RECONTRIBUTION STRATEGIES
Consider doing the drawdown before 30 June 2025 so that your Transfer Balance Cap and Total Super Balance on 1 July 2025 gets some additional space with the rise in the TBAR and TSB full limits to $1.2m. Note that if you had and existing pension(s) at 30 June 2024 your current limit will be anywhere between $1.6m and $2M after 1 July (Frustrating for Advisers!)
You can also make your tax components more tax free by using recontribution strategies. SMSF members can cash out their existing super and re-contribute (subject to their contribution caps) them back in to the fund to help reduce tax payable from any super death benefits left to non-tax dependants. From 1 July 2022 you can do this until they turn age 75 (contribution to be made with 28 days after the end of the month you turn 75).
Downsizer contributions
If you have sold your home in the last year and you are over 55, consider eligibility for downsizer contributions of up to $300,000 for each member.
From 1 jan 2023, the eligibility age to make downsizer contributions into superannuation was reduced from 60 to 55 years of age. All other eligibility criteria remain unchanged, allowing individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. These contributions will continue not to count towards non-concessional contribution caps.
The $300,000 downsizer limit (or $600,000 for a couple) and the $360,000 bring forward NCC cap allow up to $660,000 in one year contributions for a single person and $1,320,000 for a couple subject to their contributions caps.
PLEASE BE CAREFUL AS THE DOWNSIZER IS A ONCE ONLY STRATEGY AND IF YOU WOULD BENEFIT MORE IN OLDER YEARS USING THE STRATEGY THEN MAXIMISE NCCs FIRST.
Calculate co-contributions
Check your eligibility for the co-contribution, it’s a good way to boost your super. The amounts differ based on your income and personal super contributions, so use the super co-contribution calculator.
Examine spouse contributions
If your spouse has assessable income plus reportable fringe benefits totalling less than $37,000 for the full $540 tax offset or up to $40,000 for a partial offset, then consider making a spouse contribution. Check out the ATO guidance here.
You can implement this strategy up to age 75 as a Spouse Contribution is treated as a NCC in their account (and therefore counted towards your spouse’s NCC cap).
Give notice of intent to claim a deduction for contributions
A notice must be made before you commence the pension. Many people like to start pension in June and avoid having to take a minimum pension in that financial year but make sure you have claimed your tax deduction first. The same notice requirement applies if you plan to take a lump sum withdrawal from your fund.
Consider contributions splitting to your spouse
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 age pension by retaining funds in superannuation in the younger spouse’s name.
This is a simple no-cost strategy I recommend for everyone here.
Remember, any spouse contribution is counted towards your spouse’s NCC cap.
Act early on off-market share transfers
If you want to move any personal shareholdings into super (as a contribution) you should act early. The contract is only valid once the broker receives a fully-valid transfer form so timing in June is critical. There are likely to be brokerage costs involved.
Review options on pension payments
Ensure you take the standard minimum pension at your age-based rate. If a pension member has already taken pension payments of equal to or greater than the the minimum amount, they are not required to take any further pension payments before 30 June 2025. For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.
Minimum annual payments for pensions for 2024/25 financial year onwards.
Age at 1 July
2024 – Standard Minimum % withdrawal
Under 65
4%
65–74
5%
75–79
6%
80–84
7%
85–89
9%
90–94
11%
95 or older
14%
If a pension member has already taken a minimum pension for the year, they cannot change the payment but they can get organised for 2025/26. No, you can’t sneak a payment back into the SMSF bank account unless you treat to as a new contribution!
If you need more than the minimum pension payments for living expenses then it may be a good strategy for amounts above the minimum to be treated as either:
a partial lump commutation sum rather than as a pension payment. This would create a debit against the pension member’s Transfer Balance Account (TBA). Please discuss this with your accountant and adviser first as all funds now have to report these quarterly to the ATO.
for those with both pension and accumulation accounts, take the excess as a lump sum from the accumulation account to preserve as much in tax-exempt pension phase as possible.
Check your documents on reversionary pensions
A reversionary pension to your spouse will provide them with up to 12 months to get their financial affairs organised before making a final decision on how to manage your death benefit. In NSW this may avoid issues with Binding Death Nominations and the Notional Estate (see Benz v Armstrong; Benz v Armstrong; Benz v Armstrong – 2022 NSWSC)
You should review your pension documentation and check if you have nominated a reversionary pension in the context of your family situation. This is especially important with blended families and children from previous marriages that may contest your current spouse’s rights to your assets. Also consider reversionary pensions for dependent disabled children.
The reversionary pension has become more important with the application of the $1.6-$2m million Transfer Balance Cap (TBC) limit to pension phase.
Tip:If you have opted for a nomination instead then check the existing Binding Death Benefit Nominations (many expire after 3 years in older deeds) and look to upgrade to a Non-Lapsing Binding Death Benefit Nomination. Check your Deed allows for this first.
Review Capital Gains Tax on 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 legislation changes.
Collate records of all asset movements and decisions
Ensure all the fund’s activities have been appropriately documented with minutes, and that all copies of all statements, valuations and schedules are on file for your accountant, administrator and auditor.
The ATO has now beefed up its requirements for what needs to be detailed in the SMSF Investment Strategy so review your investment strategy and ensure all investments have been made in accordance with it and the SMSF Trust Deed, including insurances for members. See my article on this subject here.
Arrange market valuations (beware of the proposed Div 296 Tax Sting)
Regulations now require assets to be valued at market value each year, including property and collectibles. For more information refer to ATO’s publication Valuation guidelines for SMSFs.
On collectibles, play by the new rules that came into place on 1 July 2016 or remove collectibles from your SMSF.
Tip:The ATO is targeting audit compliance this year on Property Valuations in SMSFs as we approach the implementation of the proposed Division 296 Tax from 1 July 2025.
Tip 2: It would be better to ensure your properties truly match the market value on 1 July 2025 than to have a large rise in value recorded in future years that will trigger higher Div 296 Tax.
Check the ownership of all investments.
Make sure the assets of the fund are held in the name of the trustees (including a corporate trustee) on behalf of the fund. Carefully check any online accounts and ensure all SMSF assets are separate from your other assets.
We recommend a corporate trustee to all clients. This might be a good time to change, as explained in this article on Why SMSFs should have a corporate trustee. If you have previously moved to a Corporate Trustee ten double check all accounts/investments were changed to the name of this trustee.
Review Estate Planning and loss of mental capacity strategies
Review any Binding Death Benefit Nominations (BDBN) to ensure they are valid, consider Non-Lapsing Nominations and check the wording matches that required by the Trust Deed. Ensure it still accords with your wishes.
Also ensure you have appropriate Enduring Powers of Attorney (EPOA) in place to allow someone to step into your place as trustee in the event of illness, mental incapacity or death.
Check your Trust Deed and the details of the rules. For example, did you know you cannot leave money to stepchildren via a BDBN if their birth-parent has pre-deceased you?
Review any SMSF loan arrangements
Have you provided special terms (low or no interest rates, capitalisation of interest etc) on a related party loan? Review your loan agreement and 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? For Related Party LRBA’s the Variable interest rate is currently 9.35% (will be updated for 2026FY in late May)
Ensure SuperStream obligations are met
For super funds that receive employer contributions, the ATO is gradually introducing SuperStream, a system whereby super contributions data is made electronically.
All funds should be able to receive contributions electronically and you should obtain an Electronic Service Address (ESA) to receive contribution information.
All funds should be able to receive contributions electronically and you should obtain an Electronic Service Address (ESA) to receive contribution information.
If you change jobs your new employers may ask SMSF members for their ESA, ABN and bank account details.
Ensure you are meeting your Quarterly TBAR Reporting deadlines
From 1 July 2023 you need to be checking in with your accountant/administrator Quarterly
All SMSFs are required to report quarterly, even if the members total super balance is less than $1 million. This means you must report the event that affects the members transfer balance within 28 days after the end of the quarter in which the event occurs.
Example: All unreported events that occurred between 1 April and 30 June 2024 must be reported by 28 October 2023. This means you cannot report at the same time as your SMSF annual return (SAR) for the 2023-24 income year. More info here
ASIC fee increased from 1 July 2023
ASIC is increasing fees by $2 for the annual review of a special purpose SMSF trustee company $63 to $65. The Government is moving gradually to a “user pays” model so expect increases to accelerate in future years. Before 30 June, for $452 you can pre-pay the company fees for 10 years and lock in current prices with a decent discount. There is a remittance form linked here.
On 6 December 2024, regulations were released to allow the commutation of legacy pensions for a limited 5-year period. There is considerable additional detail in this feature so consult an adviser if you are affected, especially to ensure you do not lose other entitlements such as the age pension.
The regulations allow a five-year timeframe for lifetime or life expectancy pensions and MLIS to be commuted.
You have the following options:
▪ withdraw the funds from superannuation (all these clients have previously met a condition of release) ▪ rollover the amount to accumulation phase, or
▪ use the funds to commence an account based pension (if transfer balance cap space is available).
Under this measure, if a lifetime or life expectancy pension is commuted, any reserve supporting that income stream is also added to the commutation value. However, no amount from the reserve is counted tow
HAS NOT PASSED: Relaxing residency requirements for SMSFs– Labor Government has failed to move on this issue.
SMSFs and small APRA funds still do not have relaxed residency requirements through the extension of the central management and control test safe harbour from two to five years as the LNP government failed to pass it before the last election and Labor have put it on the backburner. The active member test was also to be removed, allowing members who are temporarily absent to continue to contribute to their SMSF.
Improving the Home Equity Access Scheme – Social security benefits for you or your mum and/or dad
The Home Equity Access Scheme formerly called The Pension Loan Scheme is now up and running. The Government introduced a No Negative Equity Guarantee for HEAS loans and allow people access to a capped advance lump sum payment.
No negative equity guarantee – Borrowers under the HEAS, or their estate, will not owe more than the market value of their property, in the rare circumstances where their accrued HEAS debt exceeds their property value. This brings the HEAS in line with private sector reverse mortgages.
Immediate access to lump sums under the HEAS – Eligible people will be able to access up to two lump sum advances in any 12-month period, up to a total value of 50% of the maximum annual rate of Age Pension (currently maximums are $14,937 for singles and $22,518.60 for couples).
Careful if replacing Income Protection or TPD Insurance (Total Permanent Disability)
Have you reviewed your insurances inside and outside of super? Don’t forget to check your current TPD policies owned by the fund with an own occupation definition as the rules changed a few years ago. So be careful about replacing an existing policy as you may not be able to obtain this same cover inside super again.
There were major changes to Income Protection insurance in 2021 so be very careful about switching insurer unless costs have blown out as new cover is often vastly inferior to current covers. Read more here before switching cover.
Large one-off Personal income or gain – Bring forward Concessional Contributions
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 by bringing some or all of your 2026FY limit forward to this 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. See my article on this strategy here.
Providing Proof of Crypto Currency Holdings as of 30 June.
You should be using an exchange that is set up for SMSF accounts. They should provide a Tax Summary but it may cost extra. Some exchanges are now partnering with Specialised services that are experts in Australian to offer tax reports that meet Australian Audit requirements.
The auditor will also want to verify holdings by checking:
An exchange account is set up in the name of the fund
Wallet purchased using funds from the SMSFs cash account
Cold Wallet Audit management extra step: For annual audit purposes, take a screenshot of the assets held in your Ledger wallet (e.g. via the Ledger ‘Live’ App or similar) on 30 June 2023 and also on the day you submit your paperwork and email this to the tax agent at tax time.
29. NALE/NALI applies in the 2025 year (in the sense the ATO are going to enforce it) – please ensure that if members perform services for their SMSF which is their ‘day job’ (ie. Accounting work for Accountants, Building and repair work for tradies, etc) that these are charged at the appropriate commercial rate that they charge their clients. A good article explaining this in more detail here from ASF Audits
Don’t leave it until after 30 June, review your Self Managed Super Fund now and seek advice if in doubt about any matter.
Some for 1 July 2025
Check your Salary Sacrifice or Concessional Contributions as SG rises to 12%
The superannuation guarantee (SG) rate will increase from 11% to 11.5% on 1 July 2024. You’ll need to use the new rate to calculate how much of your $30,000 concessional cap will be available to salary sacrifice or make personal deductible contributions.
Div 296 Tax – valuations of all assets on 1 July 2025 will be crucial.
For those with balances over or close to $3m and used to using low end of property valuations for your asset value, you may need to rethink this strategy as you do not want a large increase in value in future years or it will be caught under the “unrealised gains” sting in the proposed Division 296 Tax.
Warning before you jump into implementation of any strategy without checking your personal circumstances.
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.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking into account 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, yet again we have only a short time left to the end of the 2024 financial year to get our SMSF in order and ensure we are making the most of the strategies available to us. Here is a checklist of the most important issues that you should address with your advisers before the year-end.
It’s been another busy year and I have not had as much time to put this together so if you find an error or have a strategy to add then please let me know. Links were working at the time of writing.
Warning before we begin,
Before we start, just a warning as in the rush to take advantage of new strategies you may have forgotten about how good you have it already Be careful not to allow your accountant, administrator or financial planner to reset any pension that has been grandfathered under the pension deeming rules that came in on Jan 1st 2015 without getting advice on the current and possible future consequences resulting in the pension being subject to current deeming rates if you lose the grandfathering. Point them to this document
It’s all about timing
If you are making a contribution, the funds must hit the super fund’s bank account by the close of business on 30 June. Some clearing houses hold on to money for up to 14 days before presenting them to the super fund. Some Retail and Industry funds are asking for funds at least 7 days before the end of the financial year!
In addition, pension payments must leave the account by the close of business unless paid by cheque in which case the cheques must be presented within a few days of the EOFY. There must have been sufficient funds in the bank account to support the payment of the cheques on 30 June but a cheque should only be your very last-minute option! You can also ask your adviser or administrator about a Promissory Note if time is against you but funds are ready.
So, for SMSFs get your payments in the fund by Monday 24th June or earlier to be sure (yes I’m Irish) as the 30th is a Sunday this year. This is even more important if using a clearing house for contributions.
Review your Concessional Contributions (CC) options and new rules
The government changed the contribution rules from 1 July 2020 to extend the ability to make contributions from age 65 up to age 67. Read more here. Maximise contributions up to CC cap of $27,500 but do not exceed your limit unless you have Unused Carried Forward Concessional limits and Total Super Balance under $500K as of last 01 July 2022. Guidance on how to check your Unused Carried Forward Concessional limits via MyGov records available here
Some of the sting has been taken out of excess contributions tax but you really don’t need the additional paperwork to sort out the problem. Check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the limit.
Consider using the ‘Unused Carry Forward Concessional Contribution” limits
Broadly, the carry forward rule allows individuals to make additional CC in a financial year by utilising unused CC cap amounts from up to five previous financial years. Eligibility requires a total superannuation balance just before the start of that financial year of less than $500,000 (across all your super accounts).
This measure applies from 2018-19 so effectively, this means an individual can make up to $132,500 of CCs in a single financial year by utilising unapplied unused CC caps since 1 July 2018. Guidance on how to check your Unused Carried Forward Concessional limits via MyGov records available here
This is the last year to use the 2018/19 unused Carried Forward Concessional Caps as they fall outside the 5 year rolling period from 30 June 2024.
Beware that once your Income including Salary, Investment income, Employer SGC, Personal Concessional Contributions goes over $250,000 you will be subject to Div 293 Tax
From 1 July 2024 the Concessional Cap rises to $30,000 per year. Super Guarnatee also rises to 11.5%. Re-evaluate your contribution plans for 2024-25
Review plans for Non-Concessional Contributions (NCC) options
From 1 July 2022 the NCC contribution rules changed and currently the age limit of 75 (28 days after the end of the month your turn 75) applies to NCCs (that is, from after-tax money) without meeting the work test. Check out ATO superannuation contribution guidance.
NCCs are an opportunity to move investments into super and out of a personal, company or trust names.
Even-up spouse balances and maximise super in pension phase up to age 75. For couples where one spouse has exhausted their transfer balance cap and has excess amounts in accumulation are able to withdraw from the higher balance and recontribute to the other spouse who has transfer balance cap space available to commence a retirement phase income stream. This can increase the tax efficiency of the couple’s retirement assets as more of their savings are in the tax-free pension phase environment.
Make your tax components more tax free by using recontribution strategies. SMSF members can cash out their existing super and re-contribute (subject to their contribution caps) them back in to the fund to help reduce tax payable from any super death benefits left to non-tax dependants. From 1 July 2022 you can do this until they turn age 75 (contribution to be made with 28 days after the end of the month you turn 75).
From 1 July 2024 the Non-Concessional Cap rises to $120,000 per year or $360,000 under the 3 Year Bring Forward Rule. Re-evaluate your contribution plans for 2024-25
RECONTRIBUTION STRATEGIES
Consider doing the drawdown before 30 June 2023 so that your Transfer Balance Cap and Total Super Balance on 1 July 2024 gets some additional space with the rise in the TBAR and TSB full limits to $1.9m. Note that if you had and existing pension(s) at 30 June 2023 your current limit will be anywhere between $1.6m and $1.9M (Frustrating for Advisers!)
If you have additional funds to add to the withdrawal then maybe take up to $330,000 before June 30 and then you may be able to contribute up to $360,000 using the new Non-Concessional Cap.
Downsizer contributions
If you have sold your home in the last year and you are over 55, consider eligibility for downsizer contributions of up to $300,000 for each member.
From 1 jan 2023, the eligibility age to make downsizer contributions into superannuation was reduced from 60 to 65 years of age. All other eligibility criteria remain unchanged, allowing individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. These contributions will continue not to count towards non-concessional contribution caps.
The $300,000 downsizer limit (or $600,000 for a couple) and the $330,000 bring forward NCC cap allow up to $630,000 in one year contributions for a single person and $1,260,000 for a couple subject to their contributions caps. That rises on 1 July 2024 to $660,000 for a single person and $1,320,000 for a couple subject to their contributions caps
PLEASE BE CAREFUL AS THIS IS A ONCE ONLY STRATEGY AND IF YOU WOULD BENEFIT MORE IN OLDER YEARS USING THE STRATEGT THE MAXIMISE NCCs FIRST.
Calculate co-contributions
Check your eligibility for the co-contribution, it’s a good way to boost your super. The amounts differ based on your income and personal super contributions, so use the super co-contribution calculator.
Examine spouse contributions
If your spouse has assessable income plus reportable fringe benefits totalling less than $37,000 for the full $540 tax offset or up to $40,000 for a partial offset, then consider making a spouse contribution. Check out the ATO guidance here.
You can implement this strategy up to age 75 as a Spouse Contribution is treated as a NCC in their account (and therefore counted towards your spouse’s NCC cap).
Give notice of intent to claim a deduction for contributions
A notice must be made before you commence the pension. Many people like to start pension in June and avoid having to take a minimum pension in that financial year but make sure you have claimed your tax deduction first. The same notice requirement applies if you plan to take a lump sum withdrawal from your fund.
Consider contributions splitting to your spouse
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 age pension by retaining funds in superannuation in the younger spouse’s name.
This is a simple no-cost strategy I recommend for everyone here. Remember, any spouse contribution is counted towards your spouse’s NCC cap.
Act early on off-market share transfers
If you want to move any personal shareholdings into super (as a contribution) you should act early. The contract is only valid once the broker receives a fully-valid transfer form so timing in June is critical. There are likely to be brokerage costs involved.
Review options on pension payments
The government has not extended the Temporary Reduction in Minimum Pensions as part of the COVID-19 response. Ensure you take the standard minimum pension at your age-based rate. If a pension member has already taken pension payments of equal to or greater than the the minimum amount, they are not required to take any further pension payments before 30 June 2024. For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.
Minimum annual payments for pensions for 2023/24 financial year onwards.
OK we are back to normal rates from 01/07/2023, no more COVID reductions.
Age at 1 July
2023-24 Back to Standard Minimum % withdrawal
Under 65
4%
65–74
5%
75–79
6%
80–84
7%
85–89
9%
90–94
11%
95 or older
14%
Minimum Pension Standards
If a pension member has already taken a minimum pension for the year, they cannot change the payment but they can get organised for 2024/-25. So, no you can’t sneak a payment back into the SMSF bank account!
If you need more than the minimum pension payments for living expenses then it may be a good strategy for amounts above the minimum to be treated as either:
a partial lump commutation sum rather than as a pension payment. This would create a debit against the pension member’s Transfer Balance Account (TBA). Please discuss this with your accountant and adviser first as all funds now have to report this quarterly to the ATO.
for those with both pension and accumulation accounts, take the excess as a lump sum from the accumulation account to preserve as much in tax-exempt pension phase as possible.
Check your documents on reversionary pensions
A reversionary pension to your spouse will provide them with up to 12 months to get their financial affairs organised before making a final decision on how to manage your death benefit. In NSW this may avoid issues with Binding Death Nominations and the Notional Estate (see Benz v Armstrong; Benz v Armstrong; Benz v Armstrong – 2022 NSWSC)
You should review your pension documentation and check if you have nominated a reversionary pension in the context of your family situation. This is especially important with blended families and children from previous marriages that may contest your current spouse’s rights to your assets. Also consider reversionary pensions for dependent disabled children.
The reversionary pension has become more important with the application of the $1.6-$1.9 million Transfer Balance Cap (TBC) limit to pension phase from 01/07/2023.
Tip:If you have opted for a nomination instead then check the existing Binding Death Benefit Nominations (many expire after 3 years) and look to upgrade to a Non-Lapsing Binding Death Benefit Nomination. Check your Deed allows for this first.
Review Capital Gains Tax on 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 legislation changes.
Collate records of all asset movements and decisions
Ensure all the fund’s activities have been appropriately documented with minutes, and that all copies of all statements, valuations and schedules are on file for your accountant, administrator and auditor.
The ATO has now beefed up its requirements for what needs to be detailed in the SMSF Investment Strategy so review your investment strategy and ensure all investments have been made in accordance with it and the SMSF Trust Deed, including insurances for members. See my article on this subject here.
Arrange market valuations
Regulations now require assets to be valued at market value each year, including property and collectibles. For more information refer to ATO’s publication Valuation guidelines for SMSFs.
On collectibles, play by the new rules that came into place on 1 July 2016 or remove collectibles from your SMSF.
Tip:The ATO is targeting audit compliance this year on Property Valuations in SMSFs as we approach the implementation of the Division 293 Tax from 1 July 2025.
Check the ownership of all investments.
Make sure the assets of the fund are held in the name of the trustees (including a corporate trustee) on behalf of the fund. Carefully check any online accounts and ensure all SMSF assets are separate from your other assets.
Review Estate Planning and loss of mental capacity strategies
Review any Binding Death Benefit Nominations (BDBN) to ensure they are valid, and check the wording matches that required by the Trust Deed. Ensure it still accords with your wishes.
Also ensure you have appropriate Enduring Powers of Attorney (EPOA) in place to allow someone to step into your place as trustee in the event of illness, mental incapacity or death.
Check your Trust Deed and the details of the rules. For example, did you know you cannot leave money to stepchildren via a BDBN if their birth-parent has pre-deceased you?
Review any SMSF loan arrangements
Have you provided special terms (low or no interest rates, capitalisation of interest etc) on a related party loan? Review your loan agreement and 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? For Related Party LRBA’s the Variable interest rate is currently 8.85%
Ensure SuperStream obligations are met
For super funds that receive employer contributions, the ATO is gradually introducing SuperStream, a system whereby super contributions data is made electronically.
All funds should be able to receive contributions electronically and you should obtain an Electronic Service Address (ESA) to receive contribution information.
All funds should be able to receive contributions electronically and you should obtain an Electronic Service Address (ESA) to receive contribution information.
If you change jobs your new employers may ask SMSF members for their ESA, ABN and bank account details.
Ensure you are meeting your Quarterly TBAR Reporting deadlines
From 1 July 2023 you need tio be checking in with your accountant/administrator Quarterly
All SMSFs are required to report quarterly, even if the members total super balance is less than $1 million. This means you must report the event that affects the members transfer balance within 28 days after the end of the quarter in which the event occurs.
Example: All unreported events that occurred between 1 April and 30 June 2024 must be reported by 28 October 2023. This means you cannot report at the same time as your SMSF annual return (SAR) for the 2023-24 income year. More info here
ASIC fee increased from 1 July 2023
ASIC is increasing fees by $4 for the annual review of a special purpose SMSF trustee company $59 to $63. The Government is moving gradually to a “user pays” model so expect increases to accelerate in future years. Before 30 June, for $407 you can pre-pay the company fees for 10 years and lock in current prices with a decent discount. There is a remittance form linked here.
HAS NOT PASSED: Relaxing residency requirements for SMSFs– Labor Government has failed to move on this issue.
SMSFs and small APRA funds still do not have relaxed residency requirements through the extension of the central management and control test safe harbour from two to five years as the LNP government failed to pass it before the last election and Labor have put it on the backburner. The active member test was also to be removed, allowing members who are temporarily absent to continue to contribute to their SMSF.
HAS NOT PASSED: Legacy retirement product conversions (Under Review STILL by Government)
Individuals were to be able to exit a specified range of legacy retirement products, together with any associated reserves over a two-year period but the legislation was not passed and is now to be reviewed by the new Government. The specified range of legacy retirement products includes market-linked, life expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution cap.
There is considerable additional detail in this feature so consult an adviser if you are affected, especially to ensure you do not lose other entitlements such as the age pension.
Improving the Home Equity Access Scheme – Social security benefits for you or your mum and/or dad
The Home Equity Access Scheme formerly called The Pension Loan Scheme is now up and running. The Government introduced a No Negative Equity Guarantee for HEAS loans and allow people access to a capped advance lump sum payment.
No negative equity guarantee – Borrowers under the HEAS, or their estate, will not owe more than the market value of their property, in the rare circumstances where their accrued HEAS debt exceeds their property value. This brings the HEAS in line with private sector reverse mortgages.
Immediate access to lump sums under the HEAS – Eligible people will be able to access up to two lump sum advances in any 12-month period, up to a total value of 50% of the maximum annual rate of Age Pension (currently $14,511.90 for singles and $21,876.40 for couples).
Careful if replacing Income Protection or TPD Insurance (Total Permanent Disability)
Have you reviewed your insurances inside and outside of super? Don’t forget to check your current TPD policies owned by the fund with an own occupation definition as the rules changed a few years ago so be careful about replacing an existing policy as you may not be able to obtain this same cover inside super again.
There were major changes to Income Protection insurance in 2021 so be very careful about switching insurer unless costs have blown out as new cover is often vastly inferior to current covers. Read more here before switching cover.
Large one-off Personal income or gain – Bring forward Concessional Contributions
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. See my article on this strategy here.
Providing Proof of Crypto Currency Holdings as of 30 June.
You should be using an exchange that is set up for SMSF accounts. They should provide a Tax Summary but it may cost extra. Independent Reserve provides one audited by KPMG for $50. COINSPOT also offer tax reports that meet Australian Audit requirements.
The auditor will also want to verify holdings by checking:
An exchange account is set up in the name of the fund
Wallet purchased using funds from the SMSFs cash account
Cold Wallet Audit management extra step: For annual audit purposes, take a screenshot of the assets held in your Ledger wallet (e.g. via the Ledger ‘Live’ App or similar) on 30 June 2023 and also on the day you submit your paperwork and email this to the tax agent at tax time.
29. NALE/NALI applies in the 2024 year (in the sense the ATO are going to enforce it) – please ensure that if members perform services for their SMSF which is their ‘day job’ (ie. Accounting work for Accountants, Building and repair work for tradies, etc) that these are charged at the appropriate commercial rate that they charge their clients. A good article explaining this in more detail here from ASF Audits
Don’t leave it until after 30 June, review your Self Managed Super Fund now and seek advice if in doubt about any matter.
One for I July 2024 Check your Salary Sacrifice or Concessional Contributions as SG rises to 11.5%
So busy, I forgot the superannuation guarantee (SG) rate will increase from 11% to 11.5% on 1 July 2024. You’ll need to use the new rate to calculate how much of your new indexed limit of $30,000 concessional cap will be available to salary sacrifice or make personal deductible contributions.
Warning before you jump into implementation of any strategy without checking your personal circumstances.
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.
Please consider passing on this article to family or friends. Pay it forward!
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking into account 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, yet again 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 checklist of the most important issues that you should address with your advisers before the year-end.
It’s been another busy year and I have not had as much time to put this together so if you find an error or have a strategy to add then please let me know. Links were working at the time of writing.
Warning before we begin,
Before we start, just a warning as in the rush to take advantage of new strategies you may have forgotten about how good you have it already Be careful not to allow your accountant, administrator or financial planner to reset any pension that has been grandfathered under the pension deeming rules that came in on Jan 1st 2015 without getting advice on the current and possible future consequences resulting in the pension being subject to current deeming rates if you lose the grandfathering. Point them to thisdocument
It’s all about timing
If you are making a contribution, the funds must hit the super fund’s bank account by the close of business on 30 June. Some clearing houses hold on to money before presenting them to the super fund.
In addition, pension payments must leave the account by the close of business unless paid by cheque in which case the cheques must be presented within a few days of the EOFY. There must have been sufficient funds in the bank account to support the payment of the cheques on 30 June but a cheque should be your very last-minute preference!
Get your payments in by Friday 23rd June or earlier to be sure (yes I’m Irish). This is even more important if using a clearing house for contributions.
Review your Concessional Contributions (CC) options and new rules
The government changed the contribution rules from 1 July 2020 to extend the ability to make contributions from age 65 up to age 67. Read more here. Maximise contributions up to CC cap of $27,500 but do not exceed your limit unless you have Unused Carried Forward Concessional limits and Total Super Balance under $500K as of last 01 July 2022. Guidance on how to check your Unused Carried Forward Concessional limits via MyGov records available here
Some of the sting has been taken out of excess contributions tax but you really don’t need the additional paperwork to sort out the problem. Check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the limit.
Consider using the ‘Unsed Carry Forward Concessional Contribution” limits
Broadly, the carry forward rule allows individuals to make additional CC in a financial year by utilising unused CC cap amounts from up to five previous financial years. Eligibility requires a total superannuation balance just before the start of that financial year of less than $500,000 (across all your super accounts).
This measure applies from 2018-19 so effectively, this means an individual can make up to $130,000 of CCs in a single financial year by utilising unapplied unused CC caps since 1 July 2018. Guidance on how to check your Unused Carried Forward Concessional limits via MyGov records available here
Beware that once your Income including Salary, Investment income, Employer SGC, Personal Concessional Contributions goes over $250,000 you will be subject to Div 293 Tax
Review plans for Non-Concessional Contributions (NCC) options
From 1 July 2022 the NCC contribution rules changed and currently the age limit of 75 (28 days after the end of the month your turn 75) applies to NCCs (that is, from after-tax money) without meeting the work test. Check out ATO superannuation contribution guidance.
NCCs are an opportunity to move investments into super and out of a personal, company or trust names.
Even-up spouse balances and maximise super in pension phase up to age 75. For couples where one spouse has exhausted their transfer balance cap and has excess amounts in accumulation are able to withdraw from the higher balance and recontribute to the other spouse who has transfer balance cap space available to commence a retirement phase income stream. This can increase the tax efficiency of the couple’s retirement assets as more of their savings are in the tax-free pension phase environment.
Make your tax components more tax free by using recontribution strategies. SMSF members can cash out their existing super and re-contribute (subject to their contribution caps) them back in to the fund to help reduce tax payable from any super death benefits left to non-tax dependants. From 1 July 2022 you can do this until they turn age 75 (contribution to be made within 28 days after the end of the month you turn 75).
The Bring Forward Rule for 2022-23 compared to after 1 July 2023
Maximum NCC cap
Current
From 1 July 2023
$330,000
< $1.48M
< $1.68M
$220,000
$1.48 – $1.59M
$1.68 – $1.79M
$110,000
$1.59 – $1.7M
$1.79 – $1.9M
NIL
> $1.7M
> $1.9M
Bring Forward Limits affected by TSB
RECONTRIBUTION STRATEGIES
Consider doing the drawdown before 30 June 2023 so that your Transfer Balance Cap and Total Super Balance on 1 July 2023 gets some additional space with the rise in the TBAR and TSB full limits to $1.9m. Note that if you have existing pensions you new limit will be anywhere between $1.6m and $1.9M (Frustrating for Advisers!)
Downsizer contributions
If you have sold your home in the last year and you are over 55, consider eligibility for downsizer contributions of up to $300,000 for each member.
From 1 jan 2023, the eligibility age to make downsizer contributions into superannuation will be reduced from 60 to 55 years of age. All other eligibility criteria remain unchanged, allowing individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. These contributions will continue not to count towards non-concessional contribution caps.
The $300,000 downsizer limit (or $600,000 for a couple) and the $330,000 bring forward NCC cap allow up to $630,000 in one year contributions for a single person and $1,260,000 for a couple subject to their contributions caps.
PLEASE BE CAREFUL AS THIS IS A ONCE ONLY STRATEGY AND IF YOU WOULD BENEFIT MORE IN LATER YEARS USING THE STRATEGY THEN MAXIMISE NCCs FIRST.
Calculate co-contributions
Check your eligibility for the co-contribution, it’s a good way to boost your super. The amounts differ based on your income and personal super contributions, so use the super co-contribution calculator.
Examine spouse contributions
If your spouse has assessable income plus reportable fringe benefits totalling less than $37,000 for the full $540 tax offset or up to $40,000 for a partial offset, then consider making a spouse contribution. Check out the ATO guidance here.
From 1 July 2022 you can implement this strategy up to age 75 as a Spouse Contribution is treated as a NCC in their account (and therefore counted towards your spouse’s NCC cap).
Give notice of intent to claim a deduction for contributions
A notice must be made before you commence the pension. Many people like to start pension in June and avoid having to take a minimum pension in that financial year but make sure you have claimed your tax deduction first. The same notice requirement applies if you plan to take a lump sum withdrawal from your fund.
Consider contributions splitting to your spouse
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 age pension by retaining funds in superannuation in the younger spouse’s name.
This is a simple no-cost strategy I recommend for everyone here. Remember, any spouse contribution is counted towards your spouse’s NCC cap.
Act early on off-market share transfers
If you want to move any personal shareholdings into super (as a contribution) you should act early. The contract is only valid once the broker receives a fully-valid transfer form so timing in June is critical. There are likely to be brokerage costs involved.
Review options on pension payments
The government has extended the Temporary Reduction in Minimum Pensions as part of the COVID-19 response. Ensure you take the new minimum pension of at least 50% of your age-based rate below. If a pension member has already taken pension payments of equal to or greater than the 50% reduced minimum amount, they are not required to take any further pension payments before 30 June 2023. For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.
Minimum annual payments for pensions for 2022/23 and 2023/24 financial years.
OK we are back to normal rates from 01/07/2023
Age at 1 July
2023-24 Back to Standard
Minimum % withdrawal
2022-23 50% reduced
minimum pension
Under 65
4%
2%
65–74
5%
2.5%
75–79
6%
3%
80–84
7%
3.5%
85–89
9%
4.5%
90–94
11%
5.5%
95 or older
14%
7%
If a pension member has already taken a minimum pension for the year, they cannot change the payment but they can get organised for 2023/24. So, no, you can’t sneak a payment back into the SMSF bank account!
If you still need pension payments for living expenses but have already taken the 50% minimum then it may be a good strategy for amounts above the 50% reduced minimum to be treated as either:
a partial lump commutation sum rather than as a pension payment. This would create a debit against the pension members transfer balance account (TBA). Please discuss this with your accountant and adviser asap as some funds will have to report this quarterly and others on an annual basis.
for those with both pension and accumulation accounts, take the excess as a lump sum from the accumulation account to preserve as much in tax-exempt pension phase as possible.
Check your documents on reversionary pensions
A reversionary pension to your spouse will provide them with up to 12 months to get their financial affairs organised before making a final decision on how to manage your death benefit. In NSW this may avoid issues with Binding Death Nominations and the Notional Estate (see Benz v Armstrong; Benz v Armstrong – 2022 NSWSC)
You should review your pension documentation and check if you have nominated a reversionary pension in the context of your family situation. This is especially important with blended families and children from previous marriages that may contest your current spouse’s rights to your assets. Also consider reversionary pensions for dependent disabled children.
The reversionary pension has become more important with the application of the $1.6-$1.9 million Transfer Balance Cap (TBC) limit to pension phase from 01/07/2023.
Tip: If you have opted for a nomination instead then check the existing Binding Death Benefit Nominations (many expire after 3 years) and look to upgrade to a Non-Lapsing Binding Death Benefit Nomination. Check your Deed allows for this first.
Review Capital Gains Tax on 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 legislation changes.
Collate records of all asset movements and decisions
Ensure all the fund’s activities have been appropriately documented with minutes, and that all copies of all statements and schedules are on file for your accountant, administrator and auditor.
The ATO has now beefed up its requirements for what needs to be detailed in the SMSF Investment Strategy so review your investment strategy and ensure all investments have been made in accordance with it and the SMSF Trust Deed, including insurances for members. See my article on this subject here.
Arrange market valuations
Regulations now require assets to be valued at market value each year, including property and collectibles. For more information refer to ATO’s publication Valuation guidelines for SMSFs.
On collectibles, play by the new rules that came into place on 1 July 2016 or remove collectibles from your SMSF.
Check the ownership of all investments
Make sure the assets of the fund are held in the name of the trustees (including a corporate trustee) on behalf of the fund. Check carefully any online accounts and ensure all SMSF assets are separate from your other assets.
Review Estate Planning and loss of mental capacity strategies
Review any Binding Death Benefit Nominations (BDBN) to ensure they are valid, and check the wording matches that required by the Trust Deed. Ensure it still accords with your wishes.
Also ensure you have appropriate Enduring Powers of Attorney (EPOA) in place to allow someone to step into your place as trustee in the event of illness, mental incapacity or death.
Check your Trust Deed and the details of the rules. For example, did you know you cannot leave money to stepchildren via a BDBN if their birth-parent has pre-deceased you?
Review any SMSF loan arrangements
Have you provided special terms (low or no interest rates, capitalisation of interest etc) on a related party loan? Review your loan agreement and 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.
Ensure SuperStream obligations are met
For super funds that receive employer contributions, the ATO is gradually introducing SuperStream, a system whereby super contributions data is made electronically.
All funds should be able to receive contributions electronically and you should obtain an Electronic Service Address (ESA) to receive contribution information.
All funds should be able to receive contributions electronically and you should obtain an Electronic Service Address (ESA) to receive contribution information.
If you change jobs your new employers may ask SMSF members for their ESA, ABN and bank account details.
Ensure you are ready for Quarterly TBAR Reporting
From 1 July 2023
All SMSFs will be required to report quarterly, even if the members total super balance is less than $1 million. This means you must report the event that affects the members transfer balance within 28 days after the end of the quarter in which the event occurs.
All unreported events that occurred before 30 September 2023 must be reported by 28 October 2023. This means you cannot report at the same time as your SMSF annual return (SAR) for the 2022–23 income year. More info here
ASIC fee increases from 1 July 2021
ASIC is increasing fees by $4 for the annual review of a special purpose SMSF trustee company $59 to $63. The Government is moving gradually to a “user pays” model so expect increases to accelerate in future years. Before 30 June for $407 you can pre-pay the company fees for 10 years and lock in current prices with a decent discount. There is a remittance form linked here.
HAS NOT PASSED: Relaxing residency requirements for SMSFs– new Government to review.
SMSFs and small APRA funds still do not have relaxed residency requirements through the extension of the central management and control test safe harbour from two to five years as the LNP government failed to pass it before the election. The active member test was also to be removed, allowing members who are temporarily absent to continue to contribute to their SMSF.
HAS NOT PASSED: Legacy retirement product conversions (Under Review By New Government)
Individuals were to be able to exit a specified range of legacy retirement products, together with any associated reserves over a two-year period but the legislation was not passed and is now to be reviewed by the new Government. The specified range of legacy retirement products includes market-linked, life expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution cap.
There is considerable additional detail in this feature so consult an adviser if you are affected, especially to ensure you do not lose other entitlements such as the age pension.
Improving the Home Equity Access Scheme – Social security benefits for you or your mum and/or dad
The Home Equity Access Scheme formerly called The Pension Loan Scheme is now up and running. The Government introduced a No Negative Equity Guarantee for HEAS loans and allow people access to a capped advance lump sum payment.
No negative equity guarantee – Borrowers under the HEAS, or their estate, will not owe more than the market value of their property, in the rare circumstances where their accrued HEAS debt exceeds their property value. This brings the HEAS in line with private sector reverse mortgages.
Immediate access to lump sums under the HEAS – Eligible people will be able to access up to two lump sum advances in any 12-month period, up to a total value of 50% of the maximum annual rate of Age Pension (currently $13,882 for singles and $20,852 for couples).
Careful if replacing Income Protection or TPD Insurance (Total Permanent Disability)
Have you reviewed your insurances inside and outside of super? Don’t forget to check your current TPD policies owned by the fund with an own occupation definition as the rules changed a few years ago so be careful about replacing an existing policy as you may not be able to obtain this same cover inside super again.
There were major changes to Income Protection insurance in 2021 so be very careful about switching insurer unless costs have blown out as new cover is often vastly inferior to current covers. Read more here before switching cover.
Large one-off Personal income or gain – Bring forward Concessional Contributions
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 it an Allocated Contributions Holding Account. See my article on this strategy here.
Providing Proof of Crypto Currency Holdings as of 30 June.
You should be using an exchange that is set up for SMSF accounts. They should provide a Tax Summary but it may cost extra. Independent Reserve provides one audited by KPMG for $50. COINSPOT also offer tax reports that meet Australian Audit requirements.
The auditor will also want to verify holdings by checking:
An exchange account is set up in the name of the fund
Wallet purchased using funds from the SMSFs cash account
Cold Wallet Audit management extra step: For annual audit purposes, take a screenshot of the assets held in your Ledger wallet (e.g.via the Ledger ‘Live’ App or similar) on 30 June 2023 and also on the day you submit your paperwork and email this to the tax agent at tax time.
Don’t leave it until after 30 June, review your Self Managed Super Fund now and seek advice if in doubt about any matter.
One for 1 July 2023 Check your Salary Sacrifice or Concessional Contributions as SG rises to 11%
So busy, I forgot the superannuation guarantee (SG) rate will increase from 10.5% to 11% on 1 July 2023. You’ll need to use the new rate to calculate how much of your $27,500 concessional limit will be available to salary sacrifice or make personal deductible contributions.
Warning before you jump into implementation of any strategy without checking your personal circumstances.
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 (after 1 February 2023 due to our waiting list). Just click the Schedule Now button up on the left to find the appointment options.
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 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 into account 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.
Not only do SMSF members need to have an up-to-date will but everyone who is a member of an SMSF needs to also put into place an enduring power of attorney.
The Australian Law Reform Commission’s (ALRC) recommendations in its final report titled “Elder Abuse – A National Legal Response” are positive steps towards helping mitigate the risks that could face ageing self-managed super fund (SMSF) members.
It involves changes to the superannuation laws to ensure that trustees consider planning for the loss of capacity of an SMSF member and estate planning as part of a fund’s investment strategy, and for the ATO to be told when an individual becomes a trustee of an SMSF because of an enduring power of attorney (EPOA).
TRUSTING SOMEONE TO DEAL WITH YOUR FINANCIAL MATTERS IF YOU CAN’T
An enduring power of attorney (EPOA) deals with your finances if you lose capacity or are unable to attend to financial matters personally and/or as a trustee of your SMSF. Your attorney is able to deal with your assets in the same way that you deal with them (subject to any directions or limitations and being appointed as a director of the SMSF Corporate Trustee). This includes signing tax returns and financial statements of the fund, buying and selling real estate or shares, accessing bank accounts and spending money on behalf of yourself personally and on your behalf as trustee of your SMSF.
For an EPOA to take your place as Trustee you must resign and they are appointed in your place. They cannot manage affairs of the SMSF using the EPOA alone, they must be made a trustee or a trustee director.
This is because if a member loses their mental capacity, perhaps through having a stroke or suffering onset of dementia, they will no longer be able to be a trustee of their fund, or a director of the corporate trustee, putting at risk the complying status of the fund.
Another occasion may be if a member departs overseas indefinitely. In this case their enduring attorney in Australia can become the trustee or director of the trustee in their place to avoid fund residency issues under subsection 295-95(2) of the Income Tax Assessment Act 1997.
Scenario we handled: Judith’s father was in the UK and had a fall. She flew back to check he was ok but found it was worse than expected and that he would need multiple surgeries and rehab over a protracted period and she would need to be there most of the time to manage the process and care for him. Her son, James, was her EPOA so she resigned as Director of the Trustee Company and James used the Enduring Power of Attorney to allow him to be appointed as director with her 2nd husband for the 3 year period she was away.
If you do not address the situation within the six-month period of grace allowed under section s17A(4) of the Superannuation Industry (Supervision) Act 1993 (SISA), the consequences for the fund and your retirement savings could be very serious indeed and attract severe penalties.
Unlike a general power of attorney, an EPOA continues to operate in the event that you lose capacity.
WHY SHOULD YOU HAVE A TRUSTED ENDURING POWER OF ATTORNEY?
It is important to have an EPOA in place for each fund member because without it, in the event that you lose capacity, your next of kin would have to make an application to the NSW Civil and Administrative Tribunal (or relevant government body in your state) to obtain a financial management order to deal with your assets. This lengthy (often more than the 6 month grace period allowed under the SIS Act) and costly process can be avoided if you have the foresight to establish your EPOA in advance. It can also lead to major friction in the family and especially with blended families and outcomes you did not expect or wish for under any circumstances!
EPOA SHOULD BE SOMEONE YOU TRUST AND CONSIDER APPOINTING SUBSTITUTE ATTORNEYS
We recommend that you seek legal advice and arrange for an EPOA to be prepared covering your personal finances and SMSF role. You may like to appoint your spouse, adult child, accountant, lawyer, business partner or close friend as your attorney in the first instance. Our legal advisers also suggest appointing substitute attorneys in case your primary attorney is unwilling or unable to act. We had one case where father had dementia but son who was EPOA was on secondment to PNG so could not take up the power of attorney
Your nominated attorney should be someone whom you trust and believe would make decisions in your best interests. I often recommend that you leave written details of your preferences for dealing with asset sales, buy backs, dividend reinvestment plans, term deposit maturities, minimum pensions and add clear instructions if they should work with trusted advisers like Financial planners, accountants and auditors before making major decisions.
You should of course consider having reversionary pensions or non-lapsing binding death nominations to ensure as much as possible that your wishes are carried out.
So when next reviewing your wills and powers of attorney just ask your solicitor if they are confident that the EPOA would also cover Superannuation matters or if that should be specifically mentioned.
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 found this excellent article on LinkedIn and and re-blogging it here for your guidance.
By now, many of us would be aware, that from 1 July 2017, earnings generated by Transition to Retirement (TtR) pensions are taxed at accumulation rates. Indeed, we are questioning what to do with an existing TtR pension, whether to roll it back to accumulation or maintain it post 30 June 2017?
Estate planning dynamics of Transition to Retirement (TtR) pensions
Through this post, I hope to share with you an estate planning consideration in situations involving TtR pensions, especially in light of typical TtR range clients (preservation age but less than 65) contributing $540,000 before 1 July 2017.
For some clients, this estate planning benefit of TtR pensions could provide sufficient benefits to maintain TtR pensions or deal with new ones in a specific way.
Hopefully, the example can highlight the role of the proportioning rules in ITAA 1997 307-125 at play and its use in estate planning context.
What about TtR clients contributing $540,000 before 30 June 2017 or $300,000 after 1 July 2017?
Julie (56) has an existing accumulation phase balance of $600,000 (all taxable component). A TtR pension on the existing $600,000 balance wasn’t recommended in the first place because:
i. her cashflow is in surplus, not needing the income from a TtR pension to use the concessional contributions cap of $35,000 (in 2016-17)
ii. given the balance is entirely taxable component, the 4% minimum pension payment were surplus to her needs and cost her more in personal income tax (despite the 15% rebate on the pension payments). The rise in personal income tax was more than the benefit of tax-free earnings of a TtR pension
So that’s just setting the scene around current state of play with Julie’s superannuation savings.
With advice, Julie contributes $540,000 to superannuation before 30 June 2017 under the bring-forward provisions (the concept applies equally to TtR range clients contributing $300,000 post 30 June 2017).
Unfortunately, Julie recently became widowed. She has no other SIS dependents other than adult children. She has nominated her financially independent adult children as her beneficiaries under a binding death benefit nomination.
One initial question is where to contribute the $540,000? Into her existing accumulation fund of $600,000 or a separate accumulation account/fund?
Focusing on public offer funds, there is a chain of thought that perhaps Julie might consider contributing the $540,000 non-concessional contribution into a separate super account to the existing one and immediately soon after starting a TtR pension.
The benefit of contributing to a separate retail fund plan / account:
At the heart of the issue, TtR pensions despite not being classed as retirement phase income streams from a tax perspective (and therefore paying accumulation phase tax rate) are still pensions under SIS standards. It is this classification of it being pension under SIS that allows a favourable proportioning rule compared to accumulation phase.
Earnings in accumulation phase are added to the taxable component whereas earnings in pension phase are recorded in the same proportion of tax components as at commencement.
If a pension is commenced with 100% tax-free component, then this pension during its existence will consist of 100% tax-free component, irrespective of earnings and pension payments.
Had the $540,000 contribution added to existing accumulation balance of $600,000, then any pension commencement soon after, will have tax-free component of 47% (540,000 / 1,140,000)
So if Julie contributes to a separate super fund or a separate super account and starts a TtR pension immediately soon after, her $540,000 TtR pension will start with $540,000 tax-free component. If it grows to $600,000 in a year’s time or two, the balance will still be 100% tax-free component.
To flesh out the benefit of proportioning rules, imagine if she passed away in 8 years time. The $540,000 has grown nicely by $100,000 with the TtR pension balance standing at $640,000 (all tax-free component).
Had she left the funds in accumulation, the $100,000 growth would be recorded against the taxable component.
The benefit to her adult children is to the tune of $17,000.
As can be seen, starting a TtR pension means that adult children benefited by an additional $17,000 and shows the differing mechanics of earnings in accumulation and TtR pensions. The larger the growth, the bigger the death benefit tax saving when comparing funds sitting in accumulation or TtR pension phase.
But the TtR pension does come with a downside doesn’t it? While the pension payments are tax-free as the TtR pension consists entirely of non-concessional contributions and therefore tax-free component, there is leakage of 4%, being the minimum pension payment requirement of the TtR. For some clients, this may be a significant hurdle, not wanting leakage from superannuation, as it is getting much harder to make non-concessional contributions. For others, this could be overcome where non-concessional cap space is available (or refreshed once the bring-forward period expires) in their own name or in a spouse’s account.
Going back to Julie, she may be okay with the 4% leakage as her total superannuation balance is well below $1.6 million for the moment. The 4% minimum pension payments are accumulated in her bank account and contributed when the 3 year bring forward period is refreshed on 1 July 2019. On 1 July 2019, assuming her total superannuation balance is less than $1.4 million, she could easily contribute up to $300,000 non-concessional contributions under the bring-forward provisions at that time.
It is this favourable aspect of the superannuation income stream proportioning rules which could offer estate planning benefits for TtR pensions. I have seen the proportioning rules as they apply to TtR pensions mentioned by some but not by many as the focus has been the loss of exempt status on the earnings. As demonstrated by Julie’s example, for some of our clients, when relevant, the proportioning rule may be something to look out for as we look to add value to our client’s situation.
Other estate planning issues around pensions (including TtRs)
1. What if Julie was retired and over 60? Has an existing standard account based pension of $600,000 (all taxable component) with $540,000 non-concessional contribution earmarked to be in pension phase?
Would you have one pension or two separate pensions?
There is a chain of thought that two separate pensions, keeping the 100% tax-free component one separate, allows more planning options with drawdown and may assist with minimising death benefit tax. If Julie’s requirements are more than the minimum level (4%), then stick to minimum from the one that is 100% tax-free component and draw down as much as needed from the one that has the higher proportion in taxable component.
Two separate pensions can dilute the taxable component at the point of death whereas one loses such planning option involving drawdown where a decision is made to consolidate pensions.
2. What if Julie was partnered?
Naturally, there are many variables but the concept of separate pensions and proportioning continues from an estate planning perspective.
The impact of $1.6 million transfer balance cap upon death for some clients may show the attractiveness of separating pensions where possible for tax component reasoning.
Say Julie had $800,000 in one pension (all taxable component) and $700,000 in another pension (all tax-free component). To illustrate the issue simplistically, if the hubby only has a defined benefit pension using up $900,000 of the transfer balance cap, then having maintained separate pensions has meant that he possibly may look to retain the $700,000 (all tax free component) death benefit pension and cash out the $800,000 pension outside super upon Julie’s death.
This way the $700,000 account based pension (and whatever it grows to in the future) could be paid out tax-free to the beneficiaries down the track.
Had Julie’s pensions been merged at the outset, the proportion of components would have been 53% taxable (800,000 / 1.5 million) and 47% tax-free. Her husband would have inherited those components. Any subsequent death benefit upon the hubby’s death passed onto the adult children would have incurred up to 17% tax on 53% of the death benefit.
The example hopefully shows the power of separate pensions in managing estate planning issues.
3. Going back to Julie. What if she was over 60 and under 65, still working and intending to work for the next 6-7 years? Has no funds to contribute to super but has accumulation phase of $600,000
You could consider having a TtR pension simply for taking 10% of account balance out as a pension payment and re-contributing it back as a non-concessional contribution assuming Julie has non-concessional contribution space available.
To ensure the re-contribution strategy dilutes as much of taxable component, there may be a need for separate pensions though. For example:
1. $600,000 TtR pension on 1 July 2017. 10% pension payment ($60,000) taken out closer to the end of FY
2. $60,000 contributed to a separate accumulation interest before in 17-18 and separate TtR pension commenced with $60,000. At this point, Julie has two pensions. One with $60,000 and the other with say $540,000.
3. Next FY in 18-19, 10% taken from both pensions and the amount contributed to a separate accumulation interest and a TtR pension commenced. The smaller TtR pension balance are consolidated (with all tax-free component) and similar process is repeated Julie turns 65 at which time she could do a cash-out and recontribution if she has non-concessional space, including the application of bring-forward provisions.
Slightly different application to SMSFs
While the concepts regarding proportioning of tax components and multiple pension interests remain the same in SMSFs, the steps taken to plan and organise multiple pension interests is different to public offer funds. In public offer funds, it is typically straightforward to establish a separate superannuation account. In SMSF’s, the planning around such things requires further steps.
Relevant to SMSFs, the ATO’s interpretation is that a SMSF can only have one accumulation interest but is permitted to have multiple pension interests.
Here is the ATO link with detail on this concept of single accumulation interest and multiple pension interest for SMSFs.
Conclusion
No doubt, there are many other things to consider with many variables leading to different considerations.
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 you have reached that point where you want to access your superannuation or your advisor has told you about the tax effectiveness of starting an income stream or more commonly called a pension. So what are the steps involved?
Once an SMSF moves from the accumulation stage to paying an income stream, there are tax benefits available! Watch this ATO video and learn about the conditions that have to be met in order for you to benefit.
When an SMSF moves from the accumulation stage into paying an income stream to a member — there are tax benefits to be had! But — to be eligible the fund must meet certain conditions.
Steps involved in starting a pension or income stream:
A member needs to make a written request to the trustee to start an income stream including some details on what they require and if the pension is to be reversionary to their spouse or partner.
The member receiving the income stream payment must have met a condition of release, for example turning 65. More details here
The type of income stream being paid must be allowed under the law and your fund’s trust deed. Always check your Deed, it’s the instruction manual for your fund
The Trustees of the fund should acknowledge the request and minute the decision to allow the pension based on a condition of release and provide the member with a Pension Agreement and Product disclosure Statement. (this can often be all processed as part of a Pension Kit so just ask your adviser or administrator)
You need to value fund assets when the income stream starts and on one July each year you continue to make payments.
Make sure the minimum income stream payment is paid to the member each year.
You may have to withhold tax from some income stream payments for members aged 55-59. To do this, you’ll need to register for Pay As You Go withholding and complete some forms which you can get from the ATO website here.
At the end of each tax year if more than one member has a share in the fund assets supporting the income stream — you will need an actuarial certificate to work out the tax implications for your fund which is organised by your accountant or administrator.
Even if all members are receiving an income stream, you still have to meet all of your fund’s obligations including arranging the annual audit and lodging the SMSF annual return.
Planning ahead before you start an income stream — and staying on top of the administrative tasks and record keeping will make it easier for your fund to meet all the conditions and enjoy the tax benefits.
Remember — this is a big step for your fund so if you need help you should contact an SMSF professional to help you get 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 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.
In November 2011, a draft tax ruling (TR2011/D3) by the ATO caused concern among Self Managed Superannuation Fund trustees and property investors in particular. The ruling suggested that the pension tax exemption …
The release of draft taxation ruling TR 2011/D3 in July last year caused much concern when it suggested that the pension exemption ceases automatically upon death (unless a reversionary pension was in place).
Under those proposed rules if an SMSF member died with assets carrying unrealised Capital Gains, even if the deceased were receiving a pension, upon death the pension would cease (unless the pension qualified as an auto-reversionary pension). If SMSF assets were then sold/transferred, the SMSF would have CGT implications. (more…)
Here is one solution to a big problem that may become more common with blended families and increased divorce as well as de facto arrangements.
Our client , lets call him , Scott (age 78) is a widower in the Hills district and he has a $652,000 account based pension (containing a 100% taxable component to keep it simple). His two adult daughters who are financially independent are noted as 50/50 beneficiaries on his non-lapsing binding death benefit nomination (see here for more details). Any lump sum death benefit they receive will be subject to 17 per cent tax. In dollar terms, this is $110,500 (calculation: $652,000 x 17%) and he wasn’t too happy about this.
Scott was advised by his specialist he has 2-3 years maximum to live due to an aggressive cancer. He threw this curly one at me to come up with a strategy as he wants to maximise his estate for his kids but also retain access to the funds while alive to fund medical and living expenses. Our strategy involves Scott taking a tax-free withdrawal from his account based pension. He then let me know about some skeletons he had in his cupboard!
Scott could retain these funds within a bank account, however the account will form part of his estate upon his death. Even though his estate will be paid predominately to his adult daughters, he is concerned about his estranged son from an affair he had in his late 50’s who might challenge the Will.
We advised that a valid alternative available to Scott is to invest into an investment bond with himself as the owner and the life insured. Since an investment bond is a non-estate asset, upon his death the funds will be paid tax-free to his adult daughters.
Both strategies will avoid the $110,500 of death benefits tax on funds paid to his daughters, however only the investment bond will ensure the funds do not become part of his estate. Scott’s two daughters need only produce a copy of his death certificate to gain access to the funds within the bond. This could also avoid lengthy delays with the administration of the estate and overcome possible estate challenges from his estranged son.
In terms of costs we were looking at foregoing the tax-free status in pension phase for the 2 years but that was far outweighed by the savings in the death benefits tax and we are actually able to wind up the SMSF to save his children the hassle of dealing with that later.
For further information on the issues raised in this blog please contact our Castle Hill SMSF Centre or Windsor Financial Planning Office or choose an appointment option here
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page if you found information helpful.
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.
If you have reached your preservation age you can use a transition to retirement pension to access your superannuation as a non-commutable income stream while you are still working. This may be particularly attractive if you have reduced your working hours and need to top-up your income to maintain your standard of living.
There was another great benefit of setting up the pension which was that all the funds supporting the pension move in to a tax exempt status. Yes that means those funds paid no earnings tax and in fact they received a full refund of any franking credits on your investments. For the average investor this can increase your returns by 0.5% to 1% a year risk free every year! However that tax free status was removed as of 1 July 2017.
The strategy still remains effective for those needing a boost in income or those who can combine the pension with salary sacrifice.
What is a transition to retirement pension?
Transition to retirement pensions allow you to access your superannuation as a non-commutable income stream, after reaching preservation age (see below), but while you are still working.
The aim of these income streams is to provide you with flexibility in the lead up to retirement. For example, you may choose to reduce your working hours and at the same time access your superannuation as a transition to retirement pension that can supplement your other income. It may also allow you to salary sacrifice to give your retirement savings a boost.
Not all superannuation funds offer the transition to retirement pensions, so you need to check with your own fund to see if they do. You can also start one in a self-managed superannuation fund.
Are there any special characteristics?
These pensions are essentially like a normal account-based pension, but with two important differences.
Firstly, they are non-commutable, which means they cannot be converted into a lump sum until you satisfy a condition of release, such as retirement or age 65.
Secondly, you have a minimum pension amount you must withdraw each year but you can only withdraw up to 10% of the account balance (at 1 July). No lump sum withdrawals are allowed.
What is my preservation age?
Your preservation age is generally the date from which you can access your superannuation benefits and depends upon your date of birth.
Date of birth
Preservation Age
Before 1 July 1960
55
1 July 1960 – 30 June 1961
56
1 July 1961 – 30 June 1962
57
1 July 1962 – 30 June 1963
58
1 July 1963 – 30 June 1964
59
After 30 June 1964
60
How are transition to retirement pensions taxed?
Transition to retirement pensions are taxed the same as regular superannuation income streams.
If you are under age 60, the taxable part of your pension will be taxed at your marginal rate, but you receive a 15% tax offset if your pension is paid from a taxed source*.
However, once you reach 60, your pension is tax-free if paid from a taxed source*.
Most people belong to a taxed superannuation fund. Some government superannuation funds may be untaxed and you will pay higher tax on pensions.
Can you still contribute to superannuation?
As long as you are eligible to contribute, you and your employer can still contribute to superannuation for your benefit. In any case, your employer’s usual superannuation guarantee obligations would still apply. You need to have an accumulation account to pay these amounts into.
Is a transition to retirement pension right for you?
Transition to retirement pensions can provide you with flexibility in the years leading up to your retirement and can help to boost your retirement savings in some circumstances.
People who might find the transition to retirement pensions attractive include those who:
have reduced working hours from full-time to part-time, eg down to three days per week. The reduced salary can be topped up with income from the transition to retirement pension
are able to salary sacrifice to your superannuation or your spouse’s super for tax savings – the outcome of combining the transition to retirement pension with salary sacrifice can be a greater build-up of superannuation savings by the time you reach actual retirement
The transition to retirement rules and associated strategies can be very complicated. It is recommended that you seek expert advice from your financial adviser before deciding if this type of income stream and strategy is right for you.
Want a Superannuation Review or are you just 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 this year the year to get organised or it will be 2030 before you know it.
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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 