By Liam Shorte 4 Jun 2015

30 June 2015 action list for SMSF trustees

Financial year-end (30 June) is fast approaching. We explain what you need to do before then.

Snapshot

  • Payments made too close to 30 June may not be processed in the current financial year
  • Various thresholds and caps for the 2015 financial year
  • Strategies to consider right now

Financial year-end is almost upon us and if you’re an SMSF trustee, you need to ensure you’ve acted on a range of issues before then.

An important point to note this year is that 30 June falls on a Tuesday. Depending on your bank, payments made on the Monday or Tuesday might not be processed by 30 June (remember, if you’re making contributions, they must be received by the super fund to count against this year’s cap).

If you’re seeking to make payments in the current financial year, we recommend doing so before Friday 26 June.

Now for the action list.

Concessional contributionsThe 'normal' contributions made to your super account. Concessional contributions include compulsory contributions made on your behalf by your employer, voluntary contributions made out of your salary package and cash contributions by self-employed people (who are entitled to a tax deduction for it). Concessional contributions are either made from 'pre-tax' income or are tax deductible. See the ATO website for more information. caps

While the sting has been taken out of the penalties for excess contributions, you still don’t want to mess up, especially with the administration involved in fixing the problem. The concessional contributionsThe 'normal' contributions made to your super account. Concessional contributions include compulsory contributions made on your behalf by your employer, voluntary contributions made out of your salary package and cash contributions by self-employed people (who are entitled to a tax deduction for it). Concessional contributions are either made from 'pre-tax' income or are tax deductible. See the ATO website for more information. caps for 2014/15 are set out in Table 1.

Remember, concessional contributionsThe 'normal' contributions made to your super account. Concessional contributions include compulsory contributions made on your behalf by your employer, voluntary contributions made out of your salary package and cash contributions by self-employed people (who are entitled to a tax deduction for it). Concessional contributions are either made from 'pre-tax' income or are tax deductible. See the ATO website for more information. include employer contributions, salary sacrificed contributions, some insurance premiums, any expenses paid on behalf of the fund, in-specieA transfer of an asset to satisfy an obligation. In-specie transfers are used as an alternative to selling the asset and paying cash from the proceeds. transfers and work done by a member, like labour on an SMSF property project. Add everything up and make sure you’re under the cap, especially if you’re planning more contributions before year-end.

If you exceed your concessional caps and choose to leave the amount in your fund then it’s counted towards your non-concessional contribution limit. So you need to be careful where you have used or are planning on using the ‘bring forward ruleThe colloquial term for the rule that allows you to accelerate (bring forward) three years worth of non-concessional contributions to super. See the ATO website for details.’, as you might exceed both caps inadvertently.

Fortunately, the new rules limit the penalties but the paperwork and accounting costs involved can be significant. Liam often recommends to clients that, unless they’re sure they won’t be maximising their non-concessional contributionsVoluntary contributions made to your super account out of after-tax income (savings). Non-concessional contributions are not tax deductible and can't be salary packaged. See the ATO website for more information., they take the option to refund excess concessional contributionsThe 'normal' contributions made to your super account. Concessional contributions include compulsory contributions made on your behalf by your employer, voluntary contributions made out of your salary package and cash contributions by self-employed people (who are entitled to a tax deduction for it). Concessional contributions are either made from 'pre-tax' income or are tax deductible. See the ATO website for more information..

Non-concessional contributionsVoluntary contributions made to your super account out of after-tax income (savings). Non-concessional contributions are not tax deductible and can't be salary packaged. See the ATO website for more information.

If you’re considering making a non-concessional contributionVoluntary contributions made to your super account out of after-tax income (savings). Non-concessional contributions are not tax deductible and can't be salary packaged. See the ATO website for more information., keep in mind the annual limit of $180,000 from 1 July 2014 and the ‘bring forward ruleThe colloquial term for the rule that allows you to accelerate (bring forward) three years worth of non-concessional contributions to super. See the ATO website for details.’. If you turned 65 during this financial year, this is your last chance to trigger the ‘bring forward’ and you might want to act before the end of June. Remember, if you’re over 65 when you make a contribution you need to satisfy the work test.

As with concessional contributionsThe 'normal' contributions made to your super account. Concessional contributions include compulsory contributions made on your behalf by your employer, voluntary contributions made out of your salary package and cash contributions by self-employed people (who are entitled to a tax deduction for it). Concessional contributions are either made from 'pre-tax' income or are tax deductible. See the ATO website for more information., do the maths early to ensure your total non-concessional contributionsVoluntary contributions made to your super account out of after-tax income (savings). Non-concessional contributions are not tax deductible and can't be salary packaged. See the ATO website for more information. (including any salary sacrificing to be treated as non-concessional) don’t exceed the cap.

Minimum pension payments

If you’re in pension phase, double-check your numbers and ensure you’ve made the minimum withdrawal before the end of June. Remember to check the timing of electronic payments to ensure they happen before 30 June.

The indicative minimum withdrawal rates for 2014/15 are set out in Table 2.

Those on a transition to retirement (TTR) pension need to ensure they don’t end up taking more than the limit (10 per cent of the opening account balance).

If you're planning to start a pension and claim a tax deduction for personal concessional contributionsThe 'normal' contributions made to your super account. Concessional contributions include compulsory contributions made on your behalf by your employer, voluntary contributions made out of your salary package and cash contributions by self-employed people (who are entitled to a tax deduction for it). Concessional contributions are either made from 'pre-tax' income or are tax deductible. See the ATO website for more information., then you must have submitted a valid ‘notice of intent to claim a tax deduction’. If you intend to start a pension during the year, this notice must be made before you commence the pension. Remember, for a pension started in June there’s no requirement to make a payment this year.

Co-contribution and spouse contribution

Check your eligibility for the government co-contribution and, if you are eligible, take advantage of it. To calculate the super co-contribution you could be eligible to receive (it’s based on your income and personal super contributions) use the 'super co-contribution calculator'.

If your spouse has assessable income plus reportable fringe benefits totalling less than $13,800 then consider making a spouse contribution to obtain a tax offset for yourself (worth up to $540). You can find more detail at the ATO website.

Contribution splitting

Consider splitting contributions with your spouse, especially if your family has one main income earner with a substantially higher balance. This is a simple ‘no cost’ strategy that everyone should consider, especially with the ever-present threat of the government seeking to tax higher balances (for instance, see Labor’s proposal in Super Snippets: May 2015).

It can also be a great strategy for tax and Centrelink planning where one spouse/partner is older than the other. Funds in the younger partner’s accumulation account are ignored for age pension and Commonwealth Seniors Health Card purposes. You can still elect to split last year's contributions so don’t miss the opportunity.

Work test for over 65s

If you’re over 65 when you make a contribution, you need to satisfy the work test, which requires you to work more than 40 hours during any 30-day period during the financial year. Ensure you’ve satisfied this criteria before making any further contributions and if you haven’t, it might still be possible before 30 June.

Investment strategy and insurance

You must review your fund’s investment strategy regularly and ensure all investments have been made in accordance with it and the fund’s trust deed. It’s equally important to ensure your investment strategy covers the obligation that the trustees show consideration of the members' insurance needs. If it doesn’t, get it updated or you’ll face penalties and the risk of trustee disqualification.

Year-end is also a good time to do a general review of your insurance, both inside and outside super.

Contributions reserving strategy

If your taxable income is higher this year than next (pushing you into a higher tax bracket), you can consider a ‘contribution reserving’ strategy where a contribution is made before 30 June, but only credited to the member’s account in July. This allows you to claim extra deductions this year but utilise next year’s cap.

Be aware that complications can arise in the ATO processing, so seek personal advice before proceeding.

Other matters

SMSF trustees should also consider:

  1. Crystallising capital losses. If your fund’s not in pension mode, you should estimate your capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. for the year and consider whether you can sell assets with unrealised capital losses, to offset the gains.
  2. Ownership details. Before year-end, check all assets of the fund are held in the name of the trustee(s) on behalf of the fund. It’s critical to keep fund assets separate from other investments.
  3. Market valuations. SMSF assets must be valued at market value each year. So year-end is a good time to get valuations of property, collectibles and other ‘difficult to value’ investments.
  4. Documentation. Make sure your fund’s activities (for instance, buying or selling investments) have been properly documented with trustee minutes.
  5. Death benefit nominations. You should check any binding death benefit nominationsAlso known as BDBNs. A BDBN is a document given by a super fund member to the super fund trustee. A valid BDBN legally compels the trustee to pay death benefits as directed by the member. to ensure they still reflect your wishes. Also consider an ‘enduring power of attorneyAn EPOA is a legal agreement that allows someone to appoint another person to make financial and property decisions on their behalf. Unlike an ordinary power of attorney, an EPOA continues to operate even if the donor (the person who granted it) loses legal capacity (for instance, becomes mentally ill).’ to allow someone to act in your place as trustee in the event of death, mental illness or incapacity.

If your contributions, withdrawals and administration are already in order then sit back and relax. But if not, remember that many of these things can’t be done at the last minute, so it’s time to get cracking.

 

Liam Shorte is a principal of Verante Financial Planning Pty Ltd (www.verante.com.au), a corporate authorised representative of Magnitude Group Pty Ltd (AFSL 221557). This article is a general information article and to the extent it contains any financial advice it is general advice only. We recommend seeking personal advice on your own circumstances.

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