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5 Essential tax tips for SMSF trustees

Tags Money Management
Category SMSF Tax Tips

This article has been updated, please view the latest article here



Tax tips for SMSF

With the end of the financial year fast approaching, now is the time for SMSF trustees to turn their attention to their funds leading up to 30 June. To ensure your money works its hardest for you, here are some strategies to consider.

1.   Maximise your concessional contributions

Use your contributions to save on tax and build your savings, but stay within the contribution limits for your age. Check with your payroll department to see how much you have contributed to date and look to maximise your contributions.

Age bracket Contributions
Under 59 years on 1 July 2013 $25,000
59 or over on 1 July 2013 $35,000

From 1 July 2014 the general concessional contributions caps will be:

Age bracket Contributions
Under 49 years on 1 July 2014 $30,000
49 or over on 1 July 2014 $35,000

2.  Double-dipping strategy

Those who are self-employed or retired under 65 with a larger than usual income or capital gain could look at bringing forward an additional tax deduction for this year by using the contribution reserving strategy this June.

The contribution reserving strategy effectively works by allowing a taxpayer to ‘double dip’. You make a second concessional contribution in June 2014 up to your annual limit outlined above, but then hold this second contribution in a contributions allocation reserve in your SMSF until the new financial year and allocate it to the member’s account before 28 July 2014. You get two times the tax deduction this year, but the contribution is allocated over two financial years. It’s best to seek advice on this strategy.

3.   Time your use of non-concessional contributions caps

If you trigger the $450,000 three-year bring forward rule in 2013-14, you will not be able to access the additional amount up to $540,000 in the following two years. The limit is set at the date on which you exceed the annual non-concessional limit.

Age bracket Contributions
Under 65 on 1 July 2013 $150,000 or three-year bring forward limit of $450,000
65 or older on 1 July 2013 * $150,000

*If aged 65 and over you must meet the ‘work test’ to be eligible to make contributions to super. You must have worked at least 40 hours in a 30-day consecutive period prior to the date the contribution is made.

From 1 July 2014, the non-concessional contributions cap will increase in line with the concessional cap – always six times the base cap.

Age bracket Contributions
Under 65 on 1 July 2014 $180,000 or three-year bring forward limit of $540,000
65 or older on 1 July 2014 and meet the work test* $180,000

Make sure to meet your minimum pension payment requirements before 26 June for safety

4.   Pension payments

Make sure to meet your minimum pension payment requirements before 26 June for safety. If the minimum pension is not met, the fund will not receive the tax exemption on income generated by the pension for the whole year, and any pension payments withdrawn will be treated as lump sums, which could cause a major issue if you are in a transition-to-retirement pension.

If you have consolidated accounts during the year or moved into a new age bracket, make sure you have calculated the new minimum pension amount and adjusted your pension payments.

5.  Investment strategy and insurance considerations

Regulations are now in place that require SMSF trustees to include, as part of the fund’s investment strategy, consideration of the insurance needs of the fund members. Document your discussion and decisions so that an auditor can be assured you have met your duty as trustee.

Remember that auditors are now required to be independent of your accountant and are under more ATO scrutiny and obligated to report breaches. New rules for paying for ‘own occupation’ TPD and trauma insurance in super apply from July 2014, so review your policies and needs now.

By investing time into creating a strategy for your fund this financial year, you stand the best possible chance for generating the most wealth in your SMSF.

Disclaimer: The views expressed, and any advice given, in the above article are those of the author, and do not necessarily reflect the views of RaboDirect. We recommend that you seek professional advice before making any decisions relating to the matters discussed in the article.