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7 Essential tax tips for SMSF trustees

Tags Money Management
Category SMSF Tax Tips
Tax tips for SMSF

Now that the proposed budget changes to superannuation have had time to sink in and with the end of the financial year fast approaching, SMSF trustees need 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 higher concessional contributions while you can 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.

Current Rules Limits
Age bracket Contributions
Under 49 years on 1 July 2015 $30,000
49 or over on 1 July 2015 $35,000
Proposed New Rules from 1 July 2017
Up to age 75 $25,000

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 2016 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 2016. 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 and document the process.

3.   Understand the proposed non-concessional contributions caps

Under the proposed legislation there is now a $500,000 lifetime limit. if you have contributed $500,000 or more since 1 July 2007, you can no longer make any further non-concessional contributions but you do not need to withdraw any excess if contributed before 7.30pm(AEST) on 3 May 2016 . So the annual $180,000 limit and three-year bring forward rule are no longer valid. The $500,000 is a lifetime limit and you need to know your contribution history to all funds (open and closed) since 1 July 2007 before making any further contributions. This warning also applies to a common habit of just recontributing pension payments not required to meet living expenses.

On the positive side for those who have not used the limit or are over 65, you no longer have to use bring forward rules or meet a work test. You can now use your $500,000 whether working or not, anytime up to your 75th birthday.

4.  Pension payments

Make sure to meet your minimum pension payment requirements before 27 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 are turning 60 in this financial year then consider delaying any pension payment until after your 60th birthday to ensure the payment is tax free.

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.  Look at strategies to trigger Account Based Pension

After the budget changes some may question the benefit of a Transition to Retirement Pension but it still remains a very valid strategy to 01 July 2017 and for those earning $37,000 to $2250,000 (no ability to salary sacrifice beyond that income point) a valid strategy beyond that date.

However, anyone who will be 60 on or after 1 July 2017 might want to consider taking on a second part-time job that qualifies for Superannuation Guarantee contributions. The reasoning is that by doing so and then ending that arrangement you will trigger a “condition of release”, in this case “when an arrangement under which the member was gainfully employed has ceased on or after the member reached age 60”. This would give you the opportunity to convert a Transition to Retirement pension taxed at 15% to a full Account Based Pension that is tax exempt, while still working your main career, up to a limit of $1,600,000 on 1 July 2017.

Another version of this strategy is to retire after age 60 from your current job and return at a later date. Not many people have the flexibility or good-natured employer that would all this.

6.  Consider 2014-15 Contribution splitting

Yes, I know we are already in 2015-16 but you can still super split any concessional contributions from last financial year to your spouse/partners account before 30 June 2016. With the new $1,600,000 pension transfer limit in place, it is more important than ever to ensure couples use both limits available to them. So if one member of the couple has a higher balance in superannuation to their partner they should look at super splitting on an annual basis to even up the account balances and maximise use of the limits.

7.  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. If you don’t feel members require insurance then simply state that and the reason why in the strategy document.

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 have applied since July 2014, so be very careful about changing or moving pre-July 2014 insurance policies as you will not be able to replace like for like cover under the new rules.

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. This is an updated article, view the old article here.