The Ultimate SMSF End of Financial Year Checklist 2020


 

OK, so here we are with only a few weeks left to the end of the financial year to get our SMSF in order and ensure we are making the most of the strategies available to us. Here is a checklist of the most important issues that you should address with your advisers before the year-end.

Its been a busy year and I have not had as much time as usual 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

  1. It’s all about timing!

If you are making a contribution the funds must hit the Superfund’s bank account by the close of business on the 30th June.  Careful of making contributions through Clearing houses as they often hold on to funds before presenting them to the individual’s superannuation fund for 7-30 days and it’s when the fund receives the payment that the contribution is counted except if paid via the government’s Small Business Clearing House. Pension payments must leave the account by the close of business unless paid by cheque in which case the cheques must be presented within a few days of the EOFY and there must have been sufficient funds in the bank account to support the payment of the cheques on June 30th. Get you payments in by Friday 26th or earlier to be sure (yes I’m Irish).

  1. Review Your Concessional Contributions options – 25K per year up to 65 this year but work test from 1 July 2020 will apply to 67.

 The big news is the government have 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 concessional contribution cap but do not exceed your Concession Limit. The sting has been taken out of Excess contributions tax but you don’t need additional paperwork to sort out the problem. So check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super as they may all be included in the limit.

       3.   If your Super balance on 1 July 2019 was under $500,000 Review your previous Concessional Contributions (CC) and consider using the ‘Carry forward’ concessional contributions cap

 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, providing their total superannuation balance just before the start of that financial year was less than $500,000.

This measure applies from 2018-19 so effectively, this means an individual can make up to $50,000 of CC in a single financial year by utilising unapplied unused CC caps since 1 July 2018 and going forward from up to five previous financial years.

Prior to these amendments, if an individual did not fully utilise their annual CC cap in a financial year, they could not carry forward the unused cap to a later year. But please note the balance refers to $500,000 across all of your Superannuation accounts.

 

  1. Review plans for Non-Concessional Contributions (NCC) options

From 1 July 2020 the new age limit of 67 will apply to Non-Concessional Contributions (NCC) without meeting the work test so you have the option of making $100,000 NCC per year up to turning 67.

Hopefully this month (tabled for 18th June 2020 sitting) the Parliament will also pass legislation allowing you to also use the “3 year bring forward rule” up to age 67.

So people who turned 64 0r 65 this year and who planned to use the “3 year bring forward rule” may want to review that strategy if they wish to get more money in to super

Current Option if turned 65 in 2019-20 FY: NCC of $100,000 or $300,000

Proposed Option: NCC $100,000 2019-20, NCC $100,000 2012-21, NCC $300,000 2021-22

Have you considered making non-concessional contributions to move investments in to super and out of your personal, company or trust name. Maybe you have proceeds from and inheritance or sale of a property sitting in cash.

As shares and cash have been hit by the Covod-19 crisis value you may find that it is opportune for personal tax reasons to take this time to move some assets to super may help control your tax bill.

 

  1. Co-Contribution

Check your eligibility for the co-contribution and if you are eligible take advantage. Note that the limits have changed and it is “free incentive money to save for your retirement” – grab it if you are eligible.

To calculate the super co-contribution you could be eligible to receive based on your income and personal super contributions, use the Super co-contribution calculator.

 

  1. Spouse Contribution

If your spouse has assessable income plus reportable fringe benefits totalling less than $37,000 for the full $540 tax offset and up to $40,000 for a partial offset, then consider making a spouse contribution. Check out the ATO guidance here

 

  1. Over 65 and soon up to 67? Do you meet the work test? (The 40 hours in any 30 days rule)

 You should review your ability to make contributions as if you if you have reached age 65 you must pass the work test of 40 hours in any 30 day period during the financial year, in order to continue to make contributions to super. Check out ATO superannuation contribution guidance . Keep an eye later this month for new of the age limit rising form 65 to 67 before needing to meet the work test from 1 July 2020.

 

  1. Check any payments you may have made on behalf of the fund.

It is important that you check for amounts that may form a superannuation contribution in accordance with TR 2010/1 (ask your advisor), such as expenses paid for on behalf of the fund, debt forgiveness or in-specie contributions, insurance premiums for cover via super paid from outside the fund.

 

  1. Notice of intent to claim a deduction for contributions

If you are planning on claiming a tax deduction for personal concessional contributions you must have a valid ‘notice of intent to claim or vary a deduction’ (NAT 71121).

If you intend to start a pension this notice must be made before you commence the pension. Many like to start pension in June and avoid having to take a minimum pension but make sure you have claimed your tax deduction first. The same applies if you plan to take a lump sum withdrawal from your fund. GET THE NOTICE OF INTENT IN FIRST

 

  1. 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 everyone look at. See my blog about this strategy here.

 

  1. Off Market Share Transfers (selling shares from your own name to your fund)

If you want to move any personal shareholdings into super you should act early. The contract is only valid once the broker receives a fully valid transfer form not before so timing in June is critical.

 

  1. Pension Payments – so many more options this year 2019-2020 and in 2020-2021

If you are in pension phase, the government have brought in the Temporary Reduction in Minimum Pensions as part of the Covid-19 response. So please ensure you take the new minimum pension of at least 50% of your age-based rate below. For transition to retirement pensions, ensure you have not taken more than 10% of your opening account balance this financial year.

The following table shows the minimum percentage factor (indicative only) for each age group.
Minimum annual payments for super income streams for 2019/20 and 2020/21 Financial years.

Age at 1 July Standard 

Minimum % withdrawal 

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%

 

FINER DETAILS with TIPS and TRAPS

Here is some of the finer detail on how these measures will work, along with some tips and traps to consider when taking withdrawals for the rest of this financial year and the full 2020-21 financial year:

The measures are forward looking so if a pension member has already taken your minimum pension for the year then they cannot change the payment for this year but they can get organised for 2020/21. So, no you can’t try to sneak a payment back in to the SMSF bank account!

If a pension member has already taken pensions 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 2020.  For example, many would have taken quarterly or half yearly payments. If they add up to the 50% reduced minimum then you do not need to take anymore payments this financial year.

If you still need your pension payments for living expenses but have already taken the 50% reduced minimum then, it may be a good strategy for amounts above the 50% reduced minimum to be treated as either:

  1. 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. OR
  2. for those with both pension and accumulation accounts to take the excess as a lump sum from the accumulation account balance to preserve as much in tax exempt pension phase as possible going forward to future years.

See here for a worked example

 

  1. Sacrificial Lamb

Think about having a sacrificial lamb, a second lower value pension that can sacrificed if minimum not taken. In this way if you pay only a small amount less than the minimum you only have to lose the smaller pensions concession rather than the concession on your full balance. When combined with the ATO relief discussed in the following article “What-happens-if-i-don’t-take-the-minimum-pension” you will have a buffer for mistakes.

Before reading the above: Be careful not to reset a pension that has been grandfathered under the new deeming of pension rules that came in on Jan 1st 2015 without getting advice.

 

  1. Reversionary Pension is often the preferred option to pass funds to a spouse or dependent child. Review your options

A reversionary pension to you spouse will provide them with up to 12 months to get their financials affairs organised before having to make a final decision on how to manage your death benefit.

You should review your pension documentation and check if you have nominated a reversionary pension. If not, consider your family situation and options to have a reversionary pension.

This is especially important with blended families and children from previous marriages that may contest your current spouse’s rights to your assets. Also consider reversionary pensions for dependent disabled children. T

The reversionary pension has become more important with the application of the  $1.6m Transfer Balance Cap limit to pension phase.

 

  1. Review Capital Gains Tax Position of each investment

Review any capital gains made during the year and over the term you have held the asset and consider disposing of investments with unrealised losses to offset the gains made. If in pension phase then consider triggering some capital gains regularly to avoid building up an unrealised gain that may be at risk to government changes in legislation like those proposed this year.

 

  1. Review and Update the Investment Strategy not forgetting to include Insurance of Members

 Review your investment strategy and ensure all investments have been made in accordance with it, and the SMSF trust deed. Also, make sure your investment strategy has been updated to include consideration of insurances for members. See my article of this subject here. Don’t know what to do…..call us.

 

  1. Collate and Document records of all asset movements and decisions

Ensure all the funds activities have been appropriately documented with minutes, and that all copies of all statements and schedules are on file for your accountant/administrator and auditor.

 

  1. Double Dipping! June Contributions Deductible this year but can be allocated across 2 years.

For those who may have a large taxable income this year (large bonus or property sale) and are expecting a lower taxable next year you should consider a contribution allocation strategy to maximise deductions for the current financial year. This strategy is also known as a “Contributions Reserving” strategy but the ATO are not fans of Reserves so best to avoid that wording! Just call is an Allocated Contributions Holding Account.

 

  1. Market Valuations – Now required annually

Regulations now require assets to be valued at market value each year, ensure that you have re-valued assets such as property and collectibles. Here is my article on valuations of SMSF investments in Private Trusts and Private Companies. For more information refer to ATO’s publication Valuation guidelines for SMSFs.

 

  1. In-House Assets

If your fund has any investments in in-house assets you must make sure that at all times the market value of these investments is less than 5% of the value of the fund. Do not take this rule lightly as the new SMSF penalty powers will make it easier for the ATO to apply administrative penalties (fines) for smaller misdemeanours ranging from $820 to $10,200 per breach pere trustee.

Covid-Relief – The ATO has responded to current market conditions, and has announced it will not take compliance action against SMSFs where:

  • at 30 June 2020 the market value of an SMSF’s in-house assets is over 5% because of the downturn in the share market
  • the trustee of the SMSF prepares a rectification plan
  • by 30 June 2021, the rectification plan either:
      • cannot be effectively implemented because of market conditions
      • does not need to be implemented because the market recovers and the 5% test is again satisfied at 30 June 2021.

For good guidance on this issue https://www.cgw.com.au/publication/what-to-do-if-covid-19-has-ruined-your-smsfs-in-house-asset-ratio-the-atos-no-action-position-for-some-cases/

 

  1. Is your fund providing Covid-19 Rent Relief to a property tenant whether a related party or not? Get your documentation in place.

If you have provided Rent Relief to a tenant, related or not, then get it documented now before June 30 that you have considered, managed and documented the request, the reasoning behind the Trustee’s decision and the details of the relief provided

The ATO have thankfully provided a non-binding practical approach of broadly not applying resources to this issue for FY2020 and FY2021. However, this announcement, while positive, should not be relied on given the considerable downside risks.

For detail of what your auditors will most likely require please check Item 3 in this blog https://smsfcoach.com.au/2020/05/22/be-prepared-with-these-9-smsf-audit-tips/

 

  1. Careful if replacing TPD Insurance (Total Permanent Disability – basically “never work again” insurance)

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.

 

  1. Do you need to update to a Corporate Trustee

We recommend a corporate trustee to all clients. To understand why please read this article on Why SMSFs should have a Corporate Trustee

 

  1. Check the ownership details of all SMSF Investments

Make sure the assets of the fund are held in the name of the trustees on behalf of the fund and that means all of them. Check carefully any online accounts you may have set up without checking the exact ownership details. You have to ensure all SMSF assets are kept separate from your other assets.

 

  1. Review Estate Planning and Loss of Mental Capacity Strategies.

Review any Binding Death Benefit Nominations (BDBN) to ensure they are valid (check the wording matches that required by the Trust Deed) and still in accordance with your wishes.  Also ensure you have appropriate Enduring Power of Attorney’s (EPOA) in place allow someone to step in to your place as Trustee in the event of illness, mental incapacity or death. Do you know what your Deed says on the subject? Did you know you cannot leave money to Step-Children via a BDBN if their birth-parent has pre-deceased you?

 

  1. Review any SMSF Loans

Have you provided special terms (low or no interest rates , capitalisation of interest etc.) on a related party loan? Then you need to review your loan agreement and get advice to see if you need to amend your loan. Have you made all the payments on your internal or third-party loans, have you looked at options on prepaying interest or fixing the rates while low. Have you made sure all payments in regards to Limited Recourse Borrowing Arrangements (LRBA) for the year were made through the SMSF Trustee? If you bought a property using borrowing, has the Holding Trust been stamped by your state’s Office of State Revenue. Please review my blog on the ATO’s Safe Harbour rules for Related Party Loans here 

 

  1. Still have Collectibles in your fund?

Play by the new rules that came into place on the 1st of July 2016 or get them out of your SMSF. More on these rules and what you must do in a good blog from SuperFund Partners  here.

 

  1. SuperStream obligations must be met

For super funds that receive employer contributions it’s important to take note that since 2014 the ATO has been gradually introducing SuperStream, a system whereby super contributions data is received and made electronically.

All funds should be able to receive contributions electronically and you should obtain an Electronic Service Address (ESA) to receive contribution information. If you are not sure if your fund has an ESA, contact your fund’s administrator, accountant or your bank for assistance.

If you change jobs your new employers may ask SMSF members for their ESA, ABN and bank account details. Some employers may also ask for your Unique Superfund Identifier (USI) – for SMSFs this is the ABN of the fund.

 

Don’t leave it until after 30 June, review your Self Managed Super Fund now and seek advice if in doubt about any matter.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

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.

COVID-19 Stimulus Package #2 reduction in Minimum Pensions and Deeming


Corona Virus Stimulus Package 2

 

On Sunday the 22nd March the Morrison Government announced it is temporarily reducing the minimum pension drawdown requirements on superannuation income streams for the rest of the 2020 Financial Year and all of the 2021 Financial Year. This affects Account-based Pensions, Transition to Retirement Pensions, Allocated Pensions and Market Linked Income Streams

The measure will benefit many retirees not just SMSF members by reducing the need of to sell equity and bond investments that have taken a hit to their value in the last month to fund their minimum pension drawdown requirements.

There are some tips and traps for those running their own funds so please read the detail carefully.

Minimum annual payments for super income streams for 2019/20 and 2020/21 Financial years.

Age at 1 July

Standard 

Minimum % withdrawal 

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%

FINER DETAILS with TIPS and TRAPS

Here is some of the finer detail on how these measures will work, along with some tips and traps to consider when taking withdrawals for the rest of this financial year and the full 2020-21 financial year:

  • The measures are forward looking so if a pension member has already taken your minimum pension for the year then they cannot change the payment for this year but they can get organised for 2020/21. So, no you can’t try to sneak a payment back in to the SMSF bank account!
  • If a pension member has already taken pensions 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 2020.  For example, many would have taken quarterly or half yearly payments. If they add up to the 50% reduced minimum then you do not need to take anymore payments this financial year.
  • If you still need your pension payments for living expenses but have already taken the 50% reduced minimum then, it may be a good strategy for amounts above the 50% reduced minimum to be treated as either:
    1. 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. OR
    2. for those with both pension and accumulation accounts to take the excess as a lump sum from the accumulation account balance to preserve as much in tax exempt pension phase as possible going forward to future years.

Let’s look at an example:

Example – 50% reduced minimum pension options

Jenny (66) has an account based pension from her Self Managed Super Fund – The Morrison Pension Fund. The balance of her pension at 1 July 2019 was $800,000, which requires her to take a minimum pension payment for the 2019/20 financial year of 5% ($40,000). Her husband Scotty is still working but will have a large pension on retirement.

Thanks to the Stimulus Package Part #2 she can take a 50% reduced minimum pension for 2019-20, meaning that Jenny is only required to draw down $20,000 before 30 June 2020. As Jenny still needs the income and usually takes her pension every month so has already taken $30,000 for the year. There is still room to use a strategy and benefit. Jenny can now stop the monthly payments for April-June and take a Partial Lump Sum Commutation  of $10,000 to cover her income needs but this will now reduce her Transfer Balance Account by $10,000 as well freeing up the ability to add more to pension phase at a later date (such as on the death of Scotty)

If as of 1 July 2020 Jenny’s Pension account has dropped to $600,000 as a result of the impact of the coronavirus on financial markets, Jenny’s now has the option to do some planning for 2020/21 financial year as well. Based on the 1 July balance Jenny’s 50% reduced minimum pension for the 2020-21 financial year is calculated at $$15,000 or $600,000 x 2.5%. So, she can take the $15,000 via monthly pension payments of $1,250 and her remaining income needs for the year of $25,000 via combination of one or more Partial Lump Sum Commutations during the 2020/21 year. Plan ahead with your adviser to document this properly.

The result of this change is that Jenny can still meet her income needs but will be able to free up some of her Transfer Balance Cap for future use.

More details on this package here Supporting Individuals and Households –Temporarily reducing superannuation minimum drawdown rates

Changes to Deeming Rates

In Stimulus Package #2 the government approved new lower Deeming Rates for Centrelink/DVA income tested benefits. the measure is a further 0.25% drop in Lower Rate to 0.25% and the Higher Rate to 2.25% 

On 12 March, the Government had already announced a 0.5 percentage point reduction in both the upper and lower social security deeming rates. The Government will now reduce these rates by another 0.25 percentage points.

As of 1 May 2020, the upper deeming rate will be 2.25 per cent and the lower deeming rate will be 0.25 per cent. The reductions reflect the low interest rate environment and its impact on the income from savings. The change will benefit around 900,000 income support recipients, including around 565,000 Age Pensioners who will, on average receive around $105 more of the Age Pension in the first full year the reduced rates apply.

What are the new deeming rates?
Situation Deeming rate
Single 0.25% on the first $51,800 of your investment assets, plus 2.25% on your investment assets over the amount of $51,800
Couple 0.25% on the first $86,200 of your combined investment assets, plus 2.25% on your investment assets over the amount of $86,200

Examples provided by Government:

Helen is a single part-rate age pensioner
Helen receives a single part-rate Age Pension. She has $200,000 in financial assets with $175,000 held in a term deposit which returns 1.5 per cent and the remainder in a cash transaction account earning a negligible rate of interest.

Under the former deeming rates, Helen’s Age Pension would have been reduced by $8.50 per fortnight as her income was above the income test threshold. With the change in deeming rates Helen has less deemed income and will now be eligible for a maximum rate Age Pension.

Leslie and Brian are an age pensioner couple
Leslie and Brian are an age pensioner couple. They have $550,000 worth of financial assets. They hold $300,000 in a superannuation account with a conservative investment strategy which returned around 5 per cent last year. They have invested $130,000 in a term deposit with an annual return of 1.5 per cent and hold the remainder in a cash transaction account earning a negligible rate of interest.

Under the former deeming rates, Leslie and Brian’s Age Pension would have been reduced by $65 each per fortnight. Under the new deeming rates, Leslie and Brian’s Age Pension will only be reduced by around $32 each per fortnight.

More details on this package here Supporting Individuals and Households –Reducing social security deeming rates

LASTLY BUT IMPORTANTLY PLEASE BE CAREFUL ABOUT CLICKING ON LINKS IN SMS MESSAGES OR EMAILS. IF YOU WANT TO CHECK ANY ATO/CENTRELINK/Government OFFER THEN GO TO YOUR ADVISER/TAX AGENT OR THE ATO/CENTRELINK WEBSITE DIRECTLY TO VERIFY IT.

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 2019 the year to get organised or it will be 2029 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

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.

Retirement Planning Tips for 2017 onwards


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Retirement planning is vitally important and with the new rules it may be more important to start as early as possible. New limitations on contributions to super will mean you must be actively making additional contributions sooner. Then when you have been working hard to get money into the super environment, and have complied with all the rules and contribution caps, you want to ensure you are maximising your opportunities when you start to draw on your super savings for a retirement income stream.

What are the changes?

  • A maximum limit of $1.6 million is permitted to be transferred into retirement income stream products.
  • Excessive balances can remain in super in accumulation phase
  • Earnings on assets supporting transition to retirement income streams will be taxed within super

Limits on amounts that can be transferred into retirement income streams

There has been considerable talk in recent times about whether a limit should be placed on the amount that can be accumulated within super and afforded tax concessions. Rather than simply place an arbitrary ceiling on how much can be held inside super, the Government has instead targeted potentially excessive superannuation balances by limiting the amount that will be eligible for the nil tax on earnings concession. From 1 July 2017, the maximum amount that can be placed into retirement income streams will be $1.6 million. For anyone who has started income streams and account balances exceeding that limit, there will be a requirement to roll-back (or withdraw) amounts to bring them in line with these new maximums. The current tax free status of earnings on assets supporting superannuation income streams will only be available to the extent that the income streams are within this new limit.

Excessive balances can remain in superannuation

There is a lot of media hype and some misconceptions floating around at present. It’s important you understand that if you are in the fortunate position to have more than $1.6 million in super, you aren’t forced to withdraw the additional benefits. Amounts above the $1.6 million threshold can remain in super, but must remain in the accumulation phase. Earnings will be taxed at the standard superannuation tax rate of 15% which for many people will be better than paying their marginal tax rate on the earnings if they take the funds out of the system.

Also remember if you have $1.6m in pension then if you take the excess funds out of your SMSF then you will not have an opportunity to put the funds back in as you will be blocked form making further non-concessional (after tax) contributions.

For some, it may be worthwhile to explore taking some of the excess out in to your own names after July 2017 if you have a low level of assets outside in your personal names or through family trusts. But remember if you’re minimum pensions from  the remaining money in superannuation pensions is more than you need to live on then these funds can build up quickly outside of the system and you could be come taxable now or when the first spouse passes.

Earnings on assets supporting transition to retirement income streams will be taxed within super

Despite considerable speculation, the Government has not removed the ability to commence and run transition to retirement (TTR) income streams. TTR income streams are available to you once you reach your preservation age. They allow you to access your super in the form of an income stream without the need to retire or alter your employment arrangements. However, the Government has opted to reduce the concessions available for these income streams. From 1 July 2017, instead of earnings on assets supporting these income streams being exempt from tax within the super environment (as would apply to all other income streams within the new $1.6 million threshold), earnings will instead remain subject to the standard 15% tax rate that applies to funds in accumulation phase.

So for those accessing their super via a TTR so they can salary sacrifice more of their wages back to super within the new $25,000 limit from 1 July 2017, then this is still a very valid strategy. How ever if you have the savings and can manage without accessing your super balance then it may be better to move your fund to accumulation phase.

Look for opportunities to change from a transition to retirement income streams to a full account based pension

If you retire before 60 or leave any one employer after age 60 then you can switch your TTR to a full tax free pension. So think about your situation and do you or can you do marking of exams, AEC electoral role work, stocktaking, Christmas short term employment, part-time survey work, bar work, filling in for family in a business while they go on holidays. If you can document a work arrangement and it genuinely ceases then you can meet that further condition of release which could move your fund in to tax free earnings phase again.

Summary

What hasn’t changed is the tax treatment of superannuation benefits received by individuals from their retirement savings. Payments received after reaching age 60 will continue to be received tax free. To ensure you get the right advice for your situation give us a call on 02 9984 1844 or click here to schedule an appointment

We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Reminder: Minimum annual payments for Superannuation Income Streams in 2014 / 15 including SMSF Pensions.


Yes the Government have been messing about with the system so much over the last few years that many clients have been totally confused and had to confirm their minimum pension payments for last year so I thought I would just remind everyone of this years limits so they can put their payment plans in place.

How much to take to stay compliant with your pension

How much to take to stay compliant with your pension

If you started a pension or annuity on or after 1 July 2007, a minimum pension amount is required to be paid each year. There is no maximum amount other than the balance of your super account, unless it is a transition to retirement pension in which case the maximum amount is 10% of the account balance.

The minimum payment amounts will not be reduced for the  2014-15 year. The following table shows the minimum percentage factor (indicative only) for each age group.

Age

Minimum % withdrawal (2014-15)

Under 65

4%

65-74

5%

75-79

6%

80-84

7%

85-89

9%

90-94

11%

95 or more

14%

Note that these withdrawal factors are indicative only. To determine the precise minimum annual payment (especially for market linked income streams), see the pro-rating, rounding and other rules in the Superannuation Industry (Supervision) Regulations 1994.

For rules and limits on other Payments from super here are the relevant links to the ATO site.

Low rate cap amount

Untaxed plan cap amount

Minimum annual payments for super income streams

Preservation age

Super lump sum tax table

Super income stream tax tables

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Please reblog, retweet, put on your Facebook page if you found information helpful.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

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.

New changes to Superannuation in summary for SMSF Trustees


Firstly nothing to scary but some stings in the tail.    Tax Reform

Mr Swan and Superannuation Minister Bill Shorten fronted announced a tax exemption on superannuation earnings supporting pensions and annuities will be capped at $100,000, and anything above that level taxed at a rate of 15 per cent from 01/07/2014.

Based on a 5% earnings rate that would only impact on those with super assets of more than $2 million. Remember this is per account so for a couple each of them could have $2,000,000 without paying tax on their pension

The $100,000 threshold will be indexed to the Consumer Price Index (CPI), and will increase in $10,000 increments.

Special Treatment for Capital gains on Assets purchased before 01/07/2014 ( Did not proceed)

-  For existing assets (such as property or shares) that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;

-  For new assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and

-  For new assets that are purchased after 1 July 2014, the new limits will apply to the entire capital gain.

Higher concessional cap for people aged 60 and over brought forward

Accordingly, the government will bring forward the start date for the new higher concessional cap of $35,000  to July 1 for people aged 60 and over. Concessional includes employer SGC (9-12%) and Salary Sacrifice.

Individuals aged 50 and over will be able to access the higher concessional cap of $35,000 from the current planned start date of 1 July 2014.

The general concessional cap is expected to reach $35,000 from 1 July 2018 for those under 50.

Excess contributions tax to be reformed

Mr Shorten said the government will reform the system of excess contributions tax (ECT) that was introduced by the former government in 2007, to make it fairer and give individuals greater choice.

Under the current arrangements, concessional contributions that are in excess of the annual cap are effectively taxed at the top marginal tax rate (46.5 per cent) rather than the normal rate of 15 per cent.

Now you will pay tax on the excess contribution to match what you would have paid at your marginal tax rate. for example if you are on the 37% tax bracket you would pay ECT at 22% rather than 30% if you had to pay it on the top marginal rate of 45% (plus Medicare).

Income Streams will be Deemed like non-superannuation assets

Under the change announced today, standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules after 1 January 2015.

Instead of the concessional treatment of Account Based Pensions currently for those accessing an Aged Pension, they will be deemed like normal assets. This will affect those on the borderline of $55K income for a single person and $80K for a couple who previously benefited from deductible amounts on their account based or allocated pensions.

Extending concessional tax treatment to deferred lifetime annuities

The Government will encourage the take-up of deferred lifetime annuities (DLAs), by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive. This reform will apply from 1 July 2014.

Mr Swan also announced the Gillard government will establish a Council of Superannuation Custodians to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.

Here is the link to the full press release “A fairer superannuation system”

As always please contact me if you want to look at your own particular situation and we will break it down in plain English for you. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

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.

What happens if I don’t take the minimum pension?


The Australian Tax Office (ATO) in January 2013 released guidance on the consequences of trustees not paying minimum amounts from account based pensions, including the loss of tax exempt status. It has issued two documents on starting and stopping a superannuation income stream (pensions) for self-managed superannuation funds. Tax Free

 (more…)

ATO backs off on SMSF property crunch | | MacroBusiness


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 …

See the full article on www.macrobusiness.com.au

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