The decision to purchase property through an SMSF requires careful consideration. This is perhaps why, in September 2024, the Australian Tax Office (ATO) reported that of the total estimated value of non-residential property assets held by the 621,809 SMSFs, only makes up about 13%.
One of the most common queries we get is “can our SMSF acquire a residential property from us personally”
Talk to an accountant or financial adviser about whether you can buy a residential property from a related party or rent one to your family and often the answer is a simple one; “you cannot acquire a residential property from a related party or lease it to a member or related party” But is this true in all cases?
An SMSF Specialist Advisor (SSA) will often dig deeper to explore the proposed strategy in more detail because it is not about the nature of the property, whether it is a residential property or a commercial office or industrial unit, but rather it is about the actual use of that property at the time of acquisition or when entering the lease.
We often see a residential property in suburbs or regional towns where a Doctor, Dentist, Accoutnant or other professional is using a residential property 100% for their business with no one living in the property. In this case the residential property is actually a Business Real Property and can be acquired from your fund.
Who is the property being acquired from and how is that property being used at the time of the purchase?
The exemption in s66 for business real property is tested at acquisition, so if it is currently not 100% Business Real Property as per s66(5) of the SIS Act, it cannot be acquired from a related party. But there is another chink in this rule, in that it does not have to be exactly 100% as in the case of a Farm where the use of the farmhouse for residential is incidental and therefore allowed. Another example would be the managers quarters in a Motel. So you can se that it pays to look deeper in to the exact details of a property’s use.
Tip on Scenario: Can an SMSF acquire a residential property and repurpose it as a business property so it can be let back to related party business?
– If the property will be used WHOLLY AND EXCLUSIVELY for the business at the time of acquisition, then YES. If not, then is the non-business use incidental? If not, then No
What if some portion of property is used for personal storage?
– Then the property is not used WHOLLY AND EXCLUSIVELY for business, so NO.
One solution maybe to change the nature of the residential property before purchase with the cooperation of the vendor and lease the premises properly from them. This might involve fitting out the rooms as offices/treatment rooms etc. Then when you go to acquire/move the property in to the SMSF it meets the Business Real Property definition. Please don’t try to bend rules, the ATO and your auditor will be looking to see that the changes are long term and with a serious intention for the property to remain as a business real property.
To help is is good to refer to the ATO definition of Business Real Property “Business real property generally means land and buildings used wholly and exclusively in a business.”
For more detailed information on what qualifies as Business Real Property see the ATO self-managed superannuation funds ruling SMSFR 2009/1: business real property for more information.
Other Tips and Traps
Minor Personal Use: In terms of using a small part of a property for personal use such as storage then refer specifically to paragraph 215 : “215. It is the Commissioner’s view that the de minimus principle of statutory interpretation will apply to the ‘wholly and exclusively’ threshold in the business real property definition. This principle will accommodate non-business use of the property that is relatively minor or trifling.”
Changing use of property while under an LRBA: you cannot change nature of the property while under an LRBA. It would be a breach of the rules by changing a residential property in to a commercial property while under a LRBA.
Warning before you jump into implementation of any strategy without checking your personal circumstancesand the specifics of the property you are considering.
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 July 2025 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!
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.
The ATO online services site, accessible through myGov, has now become a very useful tool for individuals in managing their superannuation and accessing superannuation information. Unfortunately, their financial planners cannot still access this information so they will often ask you to access this information for them.
You can look up your superannuation information such as contributions for the year to date, carry forward unused concessional contributions, total superannuation balance or transfer balance cap transactions, saving valuable time and minimising the risk of missing important information and making the wrong contributions.
NAVIGATING THE MYGOV WEBSITE
It is relatively easy to find the superannuation data on myGov, and access has improved over time.
If you do not have a myGov account, you need to create one at my.gov.au
Once logged in they need to scroll down to “Link a Service” and follow the steps to link to the ATO.
Those who already have a myGov account which is linked to the ATO, need to click on Australian Taxation Office (ATO) under Your Linked Services.
Information you need to link your myGov account to ATO online services
You will need at least 2 of the following:
Your Bank Account Details where a tax refund paid to or has earned interest in last 2 years
PAYG Payment Summary within last 2 years
Centrelink Payment Summary from last 2 years
Notice of Assessment within last 5 years
Dividend Statement within last 2 years
Superannuation account statement from last 5 years
More detailed information on each option is available here
INFORMATION
Once you have accessed your online ATO account, go to the Super tab, select Information and follow the links:
The information that appears here comes via the ATO from various reporting that superannuation funds and employers are obliged to do as well as from the individual’s income tax return.
It is important to remember that whilst myGov is a useful resource, it may not always be up to date, especially early in a financial year when super funds and individuals have not yet lodged income tax returns for the previous year.
In addition, those who use self-managed super funds (SMSFs) may find their information is not up to date as SMSFs do not have the same reporting frequency as retail and industry funds.
TOTAL SUPERANNUATION BALANCE (TSB)
This tab indicates an individual’s TSB on the most recent 30 June as well as historic TSBs going back to the 2016/17 financial year.
TSB is used to determine if an individual qualifies for several super-related measures the following financial year including the ability to make non-concessional contributions or use carry forward concessional contributions.
TSB is not always as simple as the member’s account balance on 30 June, so being able to look it up on myGov is invaluable.
BRING FORWARD ARRANGEMENT
This section advises you whether or not you are in a bring-forward arrangement.
CONCESSIONAL CONTRIBUTIONS
Here you can find out the total concessional contributions you made each year and how you compare with your own concessional contributions cap. Remember that current year contributions may not all be showing up, so should be cross checked. For example, contributions to SMSFs such as personal contributions and related employer contributions, or personal contributions where a tax deduction hasn’t been successfully claimed.
CARRY-FORWARD CONCESSIONAL CONTRIBUTIONS
The carry-forward concessional contribution tab shows the total unused concessional contributions available to carry forward from previous years. It also links the you directly through to the TSB tab to check your eligibility to use the carry-forward amounts available (ie to check that TSB on the previous 30 June was under $500,000).
TRANSFER BALANCE CAP
If you already had a retirement phase income stream at 1 July 2017, or you commenced a retirement phase income stream since 1 July 2017, you can check the balance of your Transfer Balance Account, your personal transfer balance cap and any available cap space.
EMPLOYER CONTRIBUTIONS
This section is handy if you are looking to make personal deductible contributions and aren’t sure how much your employer has already contributed on your behalf as well as to check that an employer has been making Super Guarantee or salary sacrifice contributions.
MANAGE
Under the “Manage” tab, the following functions are available:
request a transfer of super between funds
withdraw any ATO-held super
make an excess non-concessional contribution election (ie release the excess or retain in the fund)
make a Division 293 election
apply for a release of super on compassionate grounds
apply for a First Home Super Saver Determination
NB: It appears that the Transfer Super, Withdraw ATO-held super and the Non-concessional election tabs only appear if these options are available to you. That is, if you have at least two super funds (for the Transfer super tab), or amounts held by the ATO (for Withdraw ATO–held super) or an excess non-concessional determination (Non-concessional election).
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. Thank you to the industry tech experts who prepare much of this useful information for advisers but let me amend it to meet the needs of SMSF trustees. They do the heavy lifting for which I am eternally grateful.
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.
Like every strategy we discuss with clients we stress that have to look at the exit strategies up front rather than scramble to react if something happens that changes the financial position of the members or of the fund.
While a self managed superannuation fund can increase its assets and leverage the potential growth by borrowing to purchase a property, that borrowing can also cause financial distress if a fund member dies or becomes disabled. The lack of liquidity and cash flow could force the trustee to:
Sell the property in a difficult or dropping market
Realise capital gains or losses before expected i.e. before the members are in pension phase
Have to deal with increased transaction costs.
Since August 2012 Trustees of an SMSF have been required to consider insurance for members and we would say that is very sensible when debt is involved.
SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 – REG 4.09 (2)(e)
The trustee of the entity must formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:
for a self managed superannuation fund – whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund
In the past strategies like Cross insurance on each member of superannuation fund was often used to reduce the impact that the sudden death or disability of a member may have on a fund however the ATO have ruled out many of these strategies including using the SMSF to fund Buy-Sell Agreements between business partners.
SMSF mortgage repayment solutions on death
If there is life insurance on the member that dies then any proceeds are added to their account balance and can be paid as a lump sum out of the fund to beneficiaries but that may leave a fund a debt still to be paid off and with less contributions going in as one member is deceased and the fund may not have the free cash-flow to fund the full balance pay out without selling the property.
The strategies outlined below are those now available as to manage the cash-flow liquidity issues and death benefit payment requirements that have arisen when a fund member dies suddenly, whilst the fund still has a Limited Recourse Loan Arrangement in place.
Payment of insurance benefits as an income stream to spouse
If it is 2 spouses or defacto’s that have set up an SMSF and borrowed to purchase an investment property, life insurance is often used to extinguish the debt. The reason for this is that generally the disability or death will eliminate or reduce the level of contributions that are made for the member, from which the loan repayments have been sourced.
Where the members of a fund are spouses then death benefits can be paid as an income stream. This means that even if a fund has borrowed to purchase a property, the property does not need to be disposed of to pay out the death benefit. This is even more important if your business is run out of the property.
In this case the life/TPD cover can be held by the member covered by the insurance and the premium can be paid from that members account. These arrangements comply with the SIS Regs, and the policy can be held through the self managed fund.
If the member dies or becomes disabled, the proceeds will be credited to the affected member’s account and loan will be repaid. Following the repayment of the loan a pension will commence to be paid to the member in the event of TPD or to the spouse in the event of death. If under 65 they can take as little as 4% per annum to keep as much in the fund as possible.
Example: Tax Dependants like spouses
Jack and Diane are married and members of Mellencamp Family Super Fund (“SMSF”)
Account Balances:
Jack – $100,000
Diane – $100,000
SMSF took out a loan of $300,000 to acquire property valued at $500,000
Jack dies after getting a bad knock playing football ( for the younger readers get the full story here
anyway thank you for indulging me and now back to the example:
SMSF Cash flow after Jack’s death
The loan is paid out.
Diane starts a minimum 4% annual death benefit pension. Only one member left contributing now but no interest to pay.
Rent
$17,500
Concessional contributions
$5,000
Total inflows
$22,500
Interest
$0
Operating costs
($2,000)
Life premiums
$0
Pension
($16,000)
Total outflows
($18,000)
Tax
($675)
Net cash flow (surplus)
$3,825
what are the tax implications of the pension
Age at Death
Type of Super Death Benefit
Age of Recipient- DEPENDANT
Taxation Treatment of Taxed Element
Any age
Lump Sum
Any age
Tax free
60 & above
Income stream
Any age
Tax free
Below 60
Income stream
60 & above
Tax free
Below 60
Income stream
Below 60
Marginal rate of tax less 15% tax offset
To implement the strategy, the following factors, need to be considered:
The funds trust deed must permit the fund to hold the insurance and to pay the TPD or death benefits as an income stream
The fund’s investment strategy should state that the trustees have considered the needs of the individual members and determined to take out life insurance for the fund members in order to repay any outstanding mortgage under an LRBA
Whether the fund’s cash flow allows for the taking out of the insurance policies. The premiums will normally be deductible in this circumstance as the benefits can be paid as a pension. For younger trustees you should consider Level Premiums and reviewing the cover as the loan is paid down.
Funding benefits from a reserve
If a fund is not able to pay a death or disability benefit in the form of a pension because they don’t have a spouse or the fund trust deed does not permit the payment of a benefit as a pension, then it may need to consider the use of a reserve strategy.
This strategy involves the fund trustee taking sufficient TPD and death cover over the lives of the fund members to enable the repayment of a loan and the payment of benefits as a lump sum.
The fact that the insurance policies are paid from the fund’s reserve and the insurance proceeds in the event of an insured event are credited to the reserve, means that the insurance benefit can remain in the fund. The fact that the insurance proceeds can remain in the fund means that insurance liabilities can be met and the loan repaid without the asset purchased under the borrowing arrangement needing to be sold.
In order to implement the strategy effectively, insurance policies premiums for each of the fund members will need to be paid from the reserve. The fact that the premium is paid from the reserve will then require any insurance proceeds after an insured event to be credited to the reserve.
Example 2 – Non- Tax Dependants – 2 brothers in a business
So sadly Brad dies …big ahhhh!
SMSF Cash flow after Brad’s death
Death benefits are held in a Reserve.
The loan is paid out but the value is held in the reserve account
Results in large reserve ($400,000)
allocate back to Brian < 5% of his balance p.a. or
allocate up to $25,000 p.a. this year and $25,000pa going forward to Brian’s account depending on other concessional contributions in year
Rent
$17,500
Concessional contributions
$10,000
Total inflows
$27,500
Interest
($18,000)
Operating costs
($2,000)
Life premiums
($1,500)*
Pension
$0
Total outflows
($21,500)
Tax
($900)
Net cash flow (surplus)
$5,100
* Deducted from general fund expenses
Other Issues to consider
There are a number of other issues that fund trustees will need to consider when implementing this strategy:
If the members of the fund are business partners rather than spouses, the spouse of the deceased member may feel that the business partners are benefiting from the death of their spouse. It is really important to discuss these strategies upfront with family so they know they are provided for but that the business needs stability too.
When the insurance proceeds are credited to a reserve, it may be difficult to transfer that reserve back to fund members without exceeding the excessive concessional contributions cap.
The insurance premiums are not tax-deductible under Section 295-465 of the ITAA 97 because the policy is not held for the purpose of providing a fund member with a death or disability benefit.
The cost of the insurance premiums could be very high so seek advice on all possible solutions.
The cost of the insurance premiums may limit the trustee’s capacity to take out other insurance cover for members
By the Way – one other reason to cover your exit strategies
What happens if a trustee fails to address insurance in their SMSF?
The trustees could be fined 100 penalty units ($21,000) for each trustee – Section 34 SIS Act; Section 4AA Crimes Act 1911
and if someone else has been affected by the loss as a result:
A person who suffers loss or damage …may recover … against that other person or against any person involved in the contravention. – Section 55(3) SIS Act
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 98993 693, Mobile: 0413 936 299
PO Box 6002 , Norwest NSW 2153
40/8 Victoria Ave. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net
Small business is hard work. Ask any small business owner and he or she will tell you about the hard work, sacrifices and many hours of dedication it’s taken to get to where they are. Many see their business as their superannuation and have poured profits back in to it over the years. Which is why when they sell, they absolutely deserve to get the highest return they can.
While the 2016 federal budget was full of surprises and we have seen back-flips and changes to the proposals, there was some relief for small business owners. All the media attention has been on the changes proposed to be made to superannuation contributions and balances in pension phase. There was, however, some welcome news for small business owners with regard to continued access to the small business CGT tax concessions.
So what do you know about these very valuable concessions and how do you qualify for them if you are selling a business or business assets. Firstly, identify if you need to be considering them at all:
Are you selling a business asset and expecting a significant capital gain?
Are you looking to retire after the sale of your business?
Do you wish to use the sale proceeds to fund your retirement?
How does it work?
Subject to meeting the basic requirements, business owners can take advantage of the Government’s small business concessions to reduce or even extinguish any capital gains tax (CGT) realised from the sale of a business or business asset.
If the business asset was held for more than 15 years, and the owner is either over 55 and retiring or permanently incapacitated when the asset is sold:
• any capital gains could be disregarded; plus
• up to $1,415,000 of any sale proceeds could be contributed into super without counting towards the concessional or non-concessional contributions caps.
What does it mean for me?
This is potentially a significant opportunity for small business owners. Not only does it provide scope to reduce your CGT liability, it also allows you to turn the proceeds from the sale of your business into a tax-effective income stream in retirement
through your super.
If you’re considering this strategy, it’s important to seek professional financial, legal and tax advice specific to your circumstances. You should also note that lifetime limits apply to all contributions under these concessions, and the specific forms must be completed and given to the super fund before or at the time the super contribution is made to be effective.
How do I know if I qualify?
To be eligible for the small business CGT concession, you need to meet the following basic requirements:
• Your net asset value is less than $6 million or your business turnover is less than $2 million p.a. Your net asset value includes assets used in your business but are owned by
your affiliates or an entity connected with you.
• The asset you own is an ‘active’ asset – meaning it has been used or held ready for use in a business carried on by yourself (whether alone or in partnership), your affiliate, your
spouse, your child under 18 or an entity connected with you.
• The asset has been used in the business for at least half of the ownership period or for a minimum of 7.5 years if you’ve owned it for at least 15 years.
Strategy in action
Sarah and James are joint owners of a retail shop in a small town from which they’ve run their newsagency for the last 20 years. They acquired the property in 1992 for $300,000 and have
continuously owned it outright.
In 2015, in line with their pending retirement, Sarah and James sold the property for $1 million. Both aged 60, their net assets are less than $6 million and they are looking to use the sale proceeds to fund their retirement.
Because they’ve owned their shop for more than 15 years and are retiring, Sarah and James would be eligible for the small business CGT concessions. They can apply the sale of their business as follows:
• Proceeds of sale: $1 million
• Capital gain: $700,000 ($1 million – $300,000)
• Assessable capital gain: $0
As a result, Sarah and James can contribute $500,000 each into super under the CGT cap election without it affecting their concessional or non-concessional contributions caps for the financial year. This means they could potentially contribute more into superannuation or an SMSF in the same year under their other contribution caps.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Suppose the government had about A$10 billion a year to fund lower income tax. It could reduce personal income tax by about 6%, or lower each marginal rate by about 1.5 percentage points. Alternatively it could reduce company tax by about 15%, or reduce the current 30% rate to 24%. Which option has more merit?
But the answer as to which is more likely to drive the “jobs and growth” the government has been promising is not that simple. And it is difficult if not impossible to comprehensively model which option is better.
Income tax affects households differently
The two lower income tax options have different implications for the distribution of the tax burden over time. They also impact changes in incentives and rewards to promote a larger economy and higher future living standards, and how much can be clawed back after the first round revenue loss.
A reduction of personal income tax rates provides a more direct and explicit increase in household income, and a quicker gain, when compared with a reduction of the corporate tax rate. Also, lower personal tax rates allow greater government discretion in the distribution of the benefits across households with different incomes, demographic and other characteristics.
Company tax cuts can impact wages and investment
Individuals benefit from lower corporate tax rates with higher market wages. But the higher wage rates will take some years to materialise, and the magnitude of increase attributed to the lower corporate tax rate, versus other factors, is open to debate.
Benefits of a lower corporate tax rate, and in time the flow of these benefits as higher wage rates, involves a chain of decision changes. Australian corporations depend on the savings of international investors for an important share of their investment funds. They use this money to invest in machinery, buildings technology and so forth. But to get it they must show investors they will get a superior return, after Australian corporate income tax is paid, compared to alternative investments in other countries.
If Australia’s company tax rate was cut, this would lower the bar on the required return to attract investment. In the end the lower corporate tax rate induces an increase in investment, resulting in a larger stock of capital and associated technology and expertise. But, this capital accumulation process takes many years.
The enlarged stock of capital, technology and expertise per worker becomes a key driver of increased worker productivity. In time, more productive workers are able to negotiate higher wages. Via this chain of decision changes, employees benefit from the lower corporate tax rate.
Personal tax cuts promote productivity
Lower personal income tax rates provide incentives for a more productive economy and higher living standards through two main mechanisms. Lower marginal income tax rates increase the incentive for, and the rewards from, joining the workforce, working more hours, and putting more into education and skill acquisition. These incentives are especially important for women with children and older workers.
Also, lower personal income tax rates reduce distortions to household decisions on how much to save and where to invest savings in owner occupied homes, other property, financial deposits, shares, superannuation and other options.
The current income tax system imposes different forms of income tax on the different options with very different effective tax rates. For example, income earned on owner occupied housing (of imputed rent and capital gains) is exempt from income tax while the nominal interest on financial deposits (associated with offsetting inflation as well as the returns for delayed consumption) faces the personal rate. Lower personal income tax rates reduce the magnitudes of the distortions caused by different effective tax rates on different saving and investment options.
The difference is in the timing
Lowering the rate of corporate or personal income tax will generate a larger and more productive economy. A larger economy means larger tax bases, and not just income tax, but also GST, payroll and excise. The enlarged tax bases generate larger tax revenues and a partial recapture over time of the first round revenue cost of the income tax rate reductions.
The revenue recapture is expected to be larger for the corporate income tax rate reduction option. With the imputation system, for domestic shareholders a reduction in corporate income tax and less franking credits would be offset by a larger direct personal income tax payment on dividend income.
The greater price sensitivity of the international supply of funds to Australia enticed by a lower corporate tax rate is expected to boost the size of the Australian economy, and tax bases, more than the labour supply response to lower personal tax rates.
Models don’t have the answer
Ultimately, quantifying the relative national productivity, distribution and revenue effects of the lower corporate tax and personal income tax options requires detailed computable general equilibrium models.
Arguably, available models, including those used by government, lack the detail of progressive personal income tax rates for different households, and details of household choices among different investment options with different effective tax rates, to confidently measure the relative effects of the two options.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Sira Anamwong at FreeDigitalPhotos.net
In a good sign that the Superannuation system may be safe from tinkering for the next few years, both Tony Abbot and Joe a Hockey have come out strongly in the last few days emphasising they see no need for more Reviews or Inquiries at the moment. They say they have no intentions to change the taxation of Superannuation.
Tony Abbott told Parliament in May 2015 there would be “no changes to super, no adverse changes to super in this term of Parliament, and we have no plans to make adverse changes to super in the future”
From the AFR:
From the SMH:
But as the government showed a sensitivity to voter anxiety absent from its first budget, Mr Hockey ruled out a review of Australia’s retirement incomes system, a review he had previously said was under “active consideration”.
Asked at the National Press Club whether there would be any point in a review after he declared in the budget there would be “no new taxes on superannuation under this government”, he said he and his colleagues had had their “fill of reviews”.
“Changing the taxation regime for superannuation is certainly not the answer,” he said. “Having a review at this point of time is not the answer either. We have no plans to have it reviewed.”
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 are a “High income earning” taxpayer you may receive a tax assessments from the ATO for top-up tax on your concessional superannuation contributions for the previous financial year.
Bleeding Taxpayers Dry!
The “top-up tax” on concessional contributions for high income earners is known as Division 293 tax. It is effective from the 2012/13 financial year. In effect this Division 293 tax reduces the superannuation tax concession they receive.
This ATO explains the tax in sumary and I will detail it afterwards:
If you want to know now rather than wait for the notice of assessment, then here are the criteria that apply.
What determines that you are subject to Division 293 Tax?
An individual is generally liable to pay Division 293 tax if the sum of their income and their low tax contributions (concessional contributions) is greater than $300,000.
Component s of Income used
To calculate an individual’s income for Division 293 Tax purposes, the ATO will look at the individual’s income tax return and use:
taxable income (assessable income less deductions)
total reportable fringe benefits amounts
net financial investment loss
net rental property loss
amounts on which family trust distribution tax has been paid
super lump sum taxed elements with a zero tax rate.
These elements are summed (except the super lump sum amount, which is subtracted) to give the income amount.
What is the top-up tax rate
The high-income earner will be subject to an additional 15% tax on the lesser of their concessional contributions or the amount above the $300,000.
How is it Calculated
Add the income and low tax contributions.
Compare the amount from Step 1 to the $300,000 threshold to identify any excess above the threshold.
Compare the low-tax contribution amount and the amount from Step 2. Take the lesser of the two amounts, which then become the taxable contributions.
Apply a 15% tax rate to the taxable contributions.
When will the top-up tax be assessed?
The top-up tax is assessed only after both of the following matters are finalised:
Your individual tax return has been processed, and
Your SMSF annual return or retail, employer or industry fund member contribution statement has been issued.
What is the process for payment
Payment is the individual taxpayer’s responsibility once the Tax Office assessment notice is issued. The individual may also choose to get their fund to pay the top-up amount using the release authority provided by the Tax Office.
Example
Rachel from Baulkham Hills, earned $291,000 in income during the 2012-13 year. In addition, she has employer contributions of $25,000. The total, $316,000, is over the $300,000 threshold. Rachel is subject to the Division 293 “top up” tax.
Rachel is subject to the top-up tax on the lesser of her actual concessional contributions or the amount above the $300,000 threshold. Her concessional contributions are $25,000 while the excess over the threshold is $16,000. The lesser amount is $16,000, therefore Rachel has taxable contributions of $16,000
The amount of Division 293 tax levied on this individual equals $16,000 at 15%, being $2,400.
Once she receives her Notice of Assessment, she can either choose to pay it herself or get her fund to remit the amount directly to the ATO using a form provided with the assessment.
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 offices in the Northwest of 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.
