Yes I know, once again the end of the financial year (EOFY) has snuck up on us faster than it should and 2020 could easily be the year of all years to ask for a tax planning leave pass.
Before we throw in the towel however, the team at SMSF Options have been busy little squirrel and we have prepared a super summary of areas you may need to consider actioning before 30 June.
SMSF Options is a Gold Coast based practice, however we continue to offer alternative meetings for our ‘Australia wide’ based clients via Zoom, Skype etc If there is anything in this EOFY year that you are unsure about, we encourage you to contact our office to arrange a time to meet (in person or online) to discuss your specific circumstances in more detail.
Meeting new pension requirements
To help manage the economic impact of COVID-19, the Government has reduced the minimum drawdown requirements by half on common pensions, such as account-based pensions and market-linked pensions, for 2019-20 and 2020-21. This also occurred after the GFC in 2008, and you will need to consider and amend your pension strategies for these two financial years.
This includes ensuring that the minimum pension has been paid for this financial year. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax free.
Where you have been receiving regular pension payments, it’s likely you may have received more than the required minimum payment for this year. Unless you meet contribution eligibility rules, these funds cannot be returned.
It is also important to amend your pension strategies for 2020-21 to reflect the “new” minimum pension standards. Specialist SMSF advice should be sought to help you determine the most effective way to structure benefit payments, please get in contact with me to discuss this further.
Before 30 June, you should review your contribution strategies to ensure you have contributed what you intended to and ensure you are below the contribution caps.
Non-concessional (after-tax) contributions are limited to $100,000 for the 2019-20 financial year and concessional (before-tax) contributions are limited to $25,000. These will remain the same for 2020-21.
Also 2019-20 is the first year you may be entitled to carry forward unused concessional contributions. If you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you may be entitled to contribute more than the general concessional contributions cap ($25,000) and make additional concessional contributions for any unused amounts. Unused amounts are available for a maximum of five years, and after this period will expire
However, SMSF trustees should be aware of the legislation that is slated to pass before the end of the financial year. If passed it will allow people aged between 65 and 66 to make voluntary contributions (previously restricted to people below 65) without meeting a work test. These older individuals will also be able to make up to three years of non-concessional superannuation contributions under the bring forward rule, so it will pay to get advice in order to maximise their contributions.
Claiming a tax deduction for personal superannuation contributions
If you are self-employed, an investor, in receipt of a pension and receive less than 10% of your income, fringe benefits and other related payments from employment you may qualify for a personal tax deduction to superannuation. If you intend to claim a tax deduction make sure you are eligible to claim a tax deduction and seek advice if you are unsure. You need to notify the fund of the amount you wish to claim as a deduction before the end of the next financial year, that is, before 30 June 2016. Make sure you keep all relevant paperwork to save stress when the time comes to see your accountant or tax agent.
If you meet the relevant work tests and earn less than $53,564, it is also worth considering if you can take advantage of the Government super co-contribution. Conditions apply.
Rebalancing accounts between spouses
The end of financial year is also the perfect opportunity to rebalance pension accounts between spouses, to ensure that super balances are as even as possible and the $1.6 million transfer balance cap is maximised for each member.
Transfer Balance Account Reporting (TBAR)
Funds that were started, stopped or amended a pension during 2019-20 will need to complete and lodge a Transfer Balance Account report with the ATO. The date of when you have to report depends on the size of your superannuation balance.
SMSF fund expenses
For members in the accumulation phase, it is important that any expenses are actually incurred or paid before 30 June to be deductible in the current financial year.
LRBA related party Loans
For SMSF’s that have a Limited Recourse Borrowing Arrangement loan from a related party, to ensure compliance with Australian Tax Office ATO Safe Harbour guidelines, you may need to review your variable interest loan repayments amounts and updated for July’s repayment.
Investment strategy and property assessment
Your fund’s investment strategy is a key consideration on the cusp of 2020-21.
It is important to understand that an SMSF’s investment objectives and strategy are not set in stone, with the strategy needing to be reviewed at least once a year and signed off by an auditor.
Before any investment decision is implemented, particularly in a COVID-19 environment, you should examine the impact it will have on the overall portfolio to ensure you are investing in line with your strategy.
For those exposed to property, in some cases with a limited recourse borrowing arrangement (LRBA), there are new considerations. Many SMSF commercial properties (and, to a lesser extent, residential property) will not be receiving full rental payments under their lease agreements because of COVID-19, meaning less income.
All efforts should be focussed on negotiating with tenants and using the Government support packages to ensure they will be able to withstand the effects of COVID-19. This includes considering the property relief measures the ATO have implemented and the use of the National Cabinet’s Mandatory Rental Code to plan out rental income for this and next financial year.
$1.6 million transfer balance cap and total superannuation balance
A delayed lodgement date of 30 June 2020 is in place for all SMSF trustees as the sector navigates the COVID-19 pandemic. It is important that you, as an SMSF trustee, understand the position of your SMSF at 30 June before taking any actions which could cause you to breach superannuation laws.
The $1.6 million transfer balance cap applies to SMSF members who are receiving a pension. A $1.6 million transfer balance cap limits the amount of tax-free assets that can support a pension. Ensure you are aware of the consequences of excess transfer balances and avoid exceeding the cap.
Different total superannuation balance thresholds exist for SMSF. Ensure you are across your fund’s total superannuation balance which may be relevant for contributions, exempt pension income or transfer balance account reporting.
How can we help?
If you need assistance when making decisions about your fund before the end of the 2020 financial year, please call us to arrange a time to meet so that we can discuss your particular circumstances in more detail.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.