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22 December 2024

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Top 10 tips for SMSFs before 30 June 2017

With the superannuation law changes taking effect from 1 July 2017, it’s more important than ever for SMSF trustees (and in most cases, members of other super funds) to get their affairs in order. Here are my top 10 items to consider.

1. Valuations. From 1 July 2017, if you are accessing a retirement pension, you can only have up to $1.6 million net assets in your pension account. The limit applies to the total value of all your pensions and not per superannuation fund. If you also have a lifetime pension or a market-linked pension then you will need to take into account the Special Value of those pensions to determine if you have exceeded the $1.6 million transfer balance cap. Your total superannuation balance as at 30 June 2017 is used to assess your eligibility to make non-concessional contributions from 1 July 2017. For help on valuing an SMSF’s assets refer to the ATO publication Valuation guidelines for SMSFs.

2. Contribution timing. Ensure your contributions are received by your SMSF (or any super fund) on or before 30 June 2017 in order to use the higher limits available under the current law. Making the contribution a day late could result in you exceeding the new limits. If you are under the age of 65, check your non-concessional (after-tax) contributions made during the last three financial years to see if the bring forward provision has been triggered. It may affect the amount you can contribute in the current financial year and from 1 July 2017. The non-concessional limit for the 2016/2017 year is $180,000 per person assuming no prior triggering of the bring forward rule, and you may be able to access the full bring forward for three years at $540,000. These amounts are attractive as contribution limits will be reduced from 1 July 2017 to $25,000 per annum for concessional contributions, and $100,000 per annum (or $300,000 using the bring forward provisions) for non-concessional contributions. Anyone with more than $1.6 million in superannuation will not be able to make additional non-concessional contributions.

3. Employer contributions. Check whether Superannuation Guarantee contributions for the June 2016 quarter were received by your SMSF in July 2016. If so, include the contribution in your concessional contribution cap for the 2016/2017 financial year.

4. Salary sacrificed contributions. Salary sacrificed contributions are concessional contributions. Check your records before contributing more to avoid exceeding your cap (this year, caps are $30,000 for those aged 48 or under on 30 June 2016 or $35,000 for older people).

5. Tax deductions on personal superannuation contributions. If you are eligible to claim a tax deduction, then you will need to lodge a ‘Notice of intention to claim a tax deduction’ with your SMSF trustee before you lodge your personal income tax return. Your SMSF trustee must provide you with an acknowledgement of your intention to claim the deduction.

6. Spouse contributions. Spouse contributions must be received by your SMSF on or before 30 June 2017 to claim a tax offset on your contributions. The maximum tax offset claimable is 18% of non-concessional contributions of up to $3,000. Your spouse’s annual income must be $10,800 or less in a financial year to receive the full tax offset. The tax offset decreases as your spouse’s income exceeds $10,800 and cuts out when their income is $13,800 or more. From 1 July 2017, the income threshold for spouses will increase from $10,800 to $37,000 and the cut-off threshold will also increase from $13,800 to $40,000. Also, from 1 July 2017, the low-income spouse’s total superannuation balance must be less than the transfer balance cap immediately before the start of the financial year in which the contribution was made and watch the $100,000 annual limit.

7. Contribution splitting. Contribution splitting is where you take a part of your contribution and pay it into your spouse’s accumulation account. The maximum amount that can be split for a financial year is 85% of concessional contributions up to your concessional contributions cap. You must make the split in the financial year immediately after the one in which your contributions were made. This means you can split concessional contributions made into your SMSF during the 2015/2016 financial year in the 2016/2017 financial year. You can only split contributions you have made in the current financial year if your entire benefit is being withdrawn from your SMSF before 30 June 2017 as a rollover, transfer, lump sum benefit or a combination of these. Due to the $1.6 million limit on retirement pensions and the eligibility to make further non-concessional contributions from 1 July 2017, contribution splitting can be used as a method to reduce your superannuation balance and top up your spouse’s lower balance superannuation account.

8. Superannuation co-contributions. To be eligible for the co-contribution, you must earn at least 10% of your income from a business and/or employment, be a permanent resident of Australia, and under 71 years of age at the end of the financial year. The government will contribute 50 cents for each $1 of your non-concessional contribution to a maximum of $1,000 made to your SMSF by 30 June 2017. To receive the maximum co-contribution of $500, your total income must be less than $36,021. The co-contribution progressively reduces for income over $36,021 and cuts out altogether once your income is $51,021 or more. From 1 July 2017, you will only be eligible for the co-contributions if your total superannuation balance at 30 June of the previous financial year is less than $1.6 million and you have not exceeded your non-concessional contributions limit in the financial year.

9. Low income superannuation contributions. If your income is under $37,000 and you or your employer have made concessional contributions, you will be entitled to a refund of the 15% contribution tax up to $500 paid by your SMSF on your concessional contributions. To be eligible, at least 10% of your income must be from business and/or employment and you must not hold a temporary residence visa. The low-income superannuation contributions tax offset will remain available from 1 July 2017.

10. Minimum pension payments. You must ensure that the minimum pension amount is paid from your SMSF by 30 June 2017 in order for your SMSF to receive the tax exemption. If you are accessing a Transition to Retirement Income Stream (TRIS), ensure you do not exceed the maximum limit also. From 1 July 2017, the tax exemption on earnings from assets supporting a TRIS will cease. The earnings from these assets will be taxed at a maximum of 15%. In addition, from 1 July 2017, partial commutation of a pension will be treated as a lump sum and will not count towards a member’s annual pension payment. A TRIS cannot be commuted unless it contains an unrestricted non-preserved benefit (UNPB). In which case, only the UNPB can be commuted and treated as a lump sum.

 

Monica Rule is an SMSF Specialist and author of the book, The Self Managed Super Handbook. See www.monicarule.com.au. This article is general information based on an understanding of the current legislation.

7 Comments
Andrew Ledingham
May 27, 2017

Great tips. Thanks, Andrew

Ray
May 26, 2017

Maybe I'm slow and missing something but what's in the container that needs to be invested?

Ashley
May 25, 2017

As usual, 99% of the noise is about the structure not what’s inside it. Good or bad investments are good or bad regardless of the structure they are in. The structure is pretty much irrelevant. Super is an over-rated structure. Tax is mainly relevant if/when you sell, and that should be very rarely if you buy well and buy right. The tax advantages of super in a long term low turnover portfolio are more than wiped out by the additional costs of running it (audit, accounting, returns, etc).
It’s like going to the supermarket with a shopping list that says: ‘glass jars’ or ‘tins’ or ‘plastic tubes’. They are just structures or containers, not food. It’s the food inside the containers that is important, not the containers themselves.
(This comment is primarily directed at wealthy people worrying about the $1.6 million transfer cap. Sure, if they can afford it, people should have a couple of million in super – that’s a no-brainer. But beyond repeating that a thousand times, 99% of the debate should be about the content, not the container).

Nick
May 25, 2017

Not sure I agree with Ashley's sentiments towards the tax advantages of super. For every dollar I salary sacrifice to super, I get an instant return of 39% (85 cents to invest after contributions tax, vs 61 cents if taxed at my personal marginal rate). 24/61 = 39% Pretty good deal if you ask me (for money I'd be saving for the long-term no matter where or how I invested it). Then you have CGT-free capital gains once in the pension phase.
Anyone who thinks super is an over-rated tax structure ought to take a course of two in the Australian tax system. The only problem with super is the fact that politicians keep fiddling with it, making long certainty and planning difficult. But then again, they fiddle with taxes outside of super too.

Ashley
May 25, 2017

I can demonstrate that the difference in after tax returns inside and outside super are very small (below 1% pa in most cases). But by the time you cost in advice fees, accounting fees, admin fees, audit fees, platform fees, the differences are non-existent. Most of the wealth in Australia is, always has been and always will be made and held outside super.
As I said – everyone who can afford it should have a couple of million in super, but that’s not investing, that’s just the container.

SMSF Trustee
May 26, 2017

And i'm sure I could demonstrate that, on a like for like basis, the claim that returns outside super are almost the same as those inside super is nonsense.

In one situation, you get paid your income after 30-50% is taken out in tax and levies, then you invest it.
In the other, you pay no tax on the income then only 15% inside super. You are automatically 15-35% better off.

Invest those amounts in the same thing and the fact that you are starting with 15-35% more in super means you grow a larger starting pool of funds by the same amount.

Add onto that the earnings you get outside super are taxed at your marginal rate, but inside are taxed at 15% and this only compounds the benefits of being in the tin rather than outside of it.

I presume that you are also assuming that inside super you are in funds that charge fees, etc, but outside super you will buy your own assets directly and not have to pay all those fees. But that is to introduce another element into the discussion entirely.

You are right that what you invest in matters. But if I can invest 35% more in the first place and pay less tax on my taxable earnings, then I have to be better off.

Laine
June 02, 2017

Ashley

It depends a lot on the amount you have in super and how much other income you have.

A couple over 65 can earn almost $60k outside of super before they pay any tax, so if their total asset balance is around $1m and they make around $60k per year on their investments then they may be better off with their money outside of super as they will be saving admin fees and the tax they pay will be zero whether the money is in pension mode or outside of super.

However if the same couple had $3.2m in super between them in pension mode, earning them $200k per year between them, they would be saving more than $50k a year in tax, which would be well above the cost to administer the fund.

 

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