With the end of the financial year drawing close, Trustees of Self Managed Superannuation Funds need to be aware of some of the tips and traps that could assist them. Better not to leave the following until the last minute:
- Counting the caps – Even though the rules for both concessional and non-concessional contribution caps have been changed to allow people to avoid triggering excess contributions . However, it is important to remain within the caps.
- Concessional contributions – The concessional cap relates to the total concessional contributions which includes superannuation guarantee (SG) and self-employed contributions made on a yearly basis. It is important to remember that it can also include contributions made to pay for insurance premiums or any expenses paid on behalf of the fund.
- Non-concessional contributions – Some important facts to remember:
- The Work Test – For people between age 65 and 74, do not forget a work test applies which is gainful employment of 40 hours over 30 consecutive days.
- Using the ‘bring forward’ – A person age 64 or below at 1 July 2014 can use the ‘bring forward’ which is the next two years’ contribution caps and make a larger one-off contribution of up to $540,000 before 30 June 2015.
- Already triggered the ‘bring forward’ – Any person that has already triggered the ‘bring forward’ prior the 2014/15 financial year (ie at a maximum of $450,000) cannot take advantage of the indexation which has occurred (which means they are unable to contribute the additional $90,000).
- In-specie contributions – time is running out
When making contributions into superannuation a person might transfer shares they own in a stock exchange listed company to the SMSF provider to make a superannuation contribution (such as a concessional or non-concessional contributions). To ensure the in-specie contribution is counted for the current financial year, the trustee acquires the beneficial ownership of shares when the trustee obtains a properly executed off-market share transfer in registrable form.
Failure to properly complete the form will mean the date the contribution is counted for contribution cap purposes as at the date of trustee having legal ownership (which occurs once the trustee is entered on the register of shareholders). This could be next financial year.
- Minimum pension payments
All members who are receiving a pension need to ensure they have at least received the minimum pension payment for the current financial year (as shown in the following table).
The taxation law is strict, and the Australian Tax Office has published guidance for trustees that do not pay the minimum pension payment. All in all, miss out of paying the minimum pension payment and the fund will lose the taxation exemption on the investment earnings.
Don’t forget: For Transition to Retirement pensions, remain within the 10 per cent maximum payment. Should trustees breach the limit, it could result in fines and personal income tax implications for the member.
- Heading overseas or you are overseas
Even though trustees of a SMSF can live and work overseas, it important to ensure the fund is a resident Australian superannuation fund at all times. Seek advice if you are departing or living overseas. A SMSF is an Australian superannuation fund if it meets all three of these conditions:
- your fund was established in Australia, or at least one of the fund’s assets is located in Australia
- the central management and control of your fund is ordinarily in Australia
- your fund either has no active members or it has active members who are Australian residents and who hold at least 50% of:
- the total market value of your fund’s assets attributable to super interests, or
- the sum of the amounts that would be payable to active members if they decided to leave the fund.
Should the fund fail one or all of the above conditions, the fund can be deemed a non complying fund and all of the assets (less certain contributions) and its income are taxed at the highest marginal tax rate.
- Contribution splitting
You can also split your concessional super contributions with your spouse or de-facto partner. Splitting makes sense to combat future legislative change (eg introduction of limits of certain benefits) or to split with an older spouse who will retirement age earlier (and tax-free benefits after age 60).
Contribution splitting can only be done after the end of the financial year and for SMSF’s this is a simple exercise. Don’t miss out on splitting contributions for the 2014, this window of opportunity closes at 30 June.
Important: Contribution splitting also applies to self-employed people also not just employee’s. Speak to your accountant or financial planner about how you could take advantage of this.
- End of financial year contributions
All contributions must be received into the SMSF’s bank account prior to 30 June. Otherwise, it will be counted in next financial year and this can have an impact for people want to take advantage of the following:
- Co-contribution – If a person earns less than $49,488 per year, the Government may add to the non-concessional contributions made. The amount is a maximum of $500 for a minimum non-concessional contribution of $1,000. The eligibility rules can be found on the ATO’s website – click here.
- Spouse contribution – A spouse contribution involves making a contribution to a spouse’s super fund to build their retirement savings. The contribution will be applied to the receiving spouses non-concessional contribution cap, and the standard contribution rules apply. If your spouse’s assessable income (plus reportable fringe benefits and reportable employer super contributions) totals $10,800 or less, you can reduce your tax by up to 18% on the first $3,000 of after-tax income you contribute into their super. This means you get $540 back on the $3,000 you contribute.
- Personal deductible contributions – for self-employed people, the contribution must be received by 30 June however the required deduction notice to amount that you will claim can wait. Speak to your accountant about your personal tax situation and the rules about providing the deduction notice.
If you would like to know more about how we may be able to help you plan for your future, either call on 1300 99 77 34 or email your enquiry to FinancialOptions@chan-naylor.com.au for a complementary initial consultation.
Damian Hearn – Senior Wealth Advisor
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* Applies from 1 July 2013 for excess non-concessional contributions and for the 2013–14 financial year onwards, excess concessional contributions are no longer subject to excess contributions tax.