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15 things for SMSF trustees to consider before 30 June 2014

With 30 June nearly here there are many things that Self Managed Superannuation Fund (SMSF) Trustees must consider before this date if they want to maintain a complying superannuation fund as well as take advantage of the many tax benefits available to them.  In this article I have listed the top 15 that come to mind. Speak to your accountant or your financial planner to take advantage of these as well as many more that are available.

1.   Valuation of your SMSF's assets

It is a requirement under the superannuation law that the assets in your SMSF be valued each financial year.  This is so that your accountant can record the market value of the assets in the SMSF's 2013/2014 financial statements for income tax purposes and your SMSF auditor can verify that you have not contravened various provisions of the income tax and superannuation laws.   The superannuation law does not require that you use a qualified independent valuer, as long as the valuation that you have arrived at is based on objective and supportive data. The ATO has published two documents on its website - "Valuation guidelines for SMSFs" and "Market valuation for tax purposes" that addresses how assets should be valued. 

2.  Contributions into your SMSF

If you are intending to make contributions into your SMSF, you need to make sure the contributions are received by your SMSF on or before 30 June in order for it to be counted for the 2013/2014 financial year.  This is important if you are making contributions by electronic funds transfer (EFT) as some transactions may not be credited into your SMSF's bank account until the following day. 

3.  Don't exceed your contribution caps

You will need to ensure that you do not exceed the contributions caps.  If you are making a non-concessional contribution, check that the non-concessional contributions made during the previous two (2) financial years are reviewed so that the two year bring forward provision has not been triggered in an earlier year. If it has it will affect the amount you can contribute in the current financial year.

The contribution caps for the current financial year (i.e. 1 July 2013 to 30 June 2014) are:

Contribution type

Age of the member

Contribution cap

Concessional contribution

Everyone

$25,000

Concessional contribution

Aged 59 or over on 30 June 2013

$35,000

Non-concessional contribution

Everyone

$150,000

Non-concessional contribution

Under 65 at any time in the 1st year

* $450,000 for 3 years

* Please remember that only people who are under aged 65 at any time in the first year of contribution can bring forward two (2) years of non-concessional contributions and make three years worth of non-concessional contributions
(i.e. a total of $450,000) in one year or over three years. 

The contribution caps for the next financial year (i.e. 1 July 2014 to 30 June 2015) are:

Contribution type

Age of the member

Contribution cap

Concessional contribution

Everyone

$30,000

Concessional contribution

Aged 49 or over on 30 June 2014

$35,000

Non-concessional contribution

Everyone

$180,000

Non-concessional contribution

Under 65 at any time in the 1st year

* $540,000 for 3 years

* Please remember that only people who are under aged 65 at any time in the first year of contribution can bring forward two (2) years of non-concessional contributions and make three years worth of non-concessional contributions (i.e. a total of $540,000) in one year or over three years. 

4.  Employer contributions received by your SMSF

Employer Superannuation Guarantee (SG) contributions are treated as concessional contributions. Employers are required to make SG contributions by the 28th day of the month following the end of the quarter in which an employee's salary was earned.  Therefore an employee's SG contribution for the June 2013 quarter (i.e. last financial year) may have been received by your SMSF around 28 July 2013 (i.e. current financial year).  This means, you need to include the SG contribution received in your concessional contribution cap for the 2013/2014 financial year.

Also if you are an employer and you wish to claim a tax deduction for SG contributions made for your employees for the June 2014 quarter in the 2013/2014 financial year, then you will need to make sure those contributions are received by your employees' superannuation funds by 30 June 2014.  If they are received by your employees' superannuation funds after 30 June 2014, you cannot claim the deduction in this financial year.  The minimum SG contribution percentage required to be provided by employers for eligible employees for the 2013/2014 financial year is 9.25%.  The rate increases to 9.50% for the next financial year (i.e. 2014/2015).   

5.  Salary sacrifice contributions received by your SMSF

If you have a salary sacrifice arrangement (SSA) with your employer to sacrifice your pre-tax wages for superannuation contributions, those SSA contributions are treated as concessional contributions.  Therefore, check your records before contributing more concessional contributions into your SMSF to avoid exceeding your concessional contributions cap.

6.  Claiming a tax deduction on your personal superannuation contributions made into your SMSF

You may be able to claim a tax deduction on your non-concessional contributions made into your SMSF.  First check the eligibility rules.  The deduction is normally restricted to self-employed people and people who either do not receive any superannuation support (e.g. retirees) or receive very limited superannuation support from their employer.  They must also be aged under 75.  If you are 75 years or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month in which you turned 75. 

If you are eligible and intending to claim a tax deduction you will need to lodge a "Notice of intention to claim a tax deduction" with your SMSF trustee before you lodge your personal income tax return.  Your SMSF trustee must also provide you with an acknowledgement of your intention to claim the deduction. The amount claimed as a deduction will then change the character of your original non-concessional contribution into a concessional contribution.  Don't forget that the maximum amount of deduction you can claim is limited to your assessable income.  Therefore, you may not be able to claim the maximum concessional contribution limit of $30,000 or $35,000.

7.  Spouse contributions into your SMSF

If you are intending to make non-concessional contributions for your spouse, you will need to make sure the contributions are received by your SMSF on or before 30 June in order for you to claim a tax offset on your contributions.  The maximum tax offset that you can claim is eighteen per cent (18%) of non-concessional contributions of up to $3,000 (i.e. $3,000 x 18% = $540 maximum claimable).  However, in order for you to be able to claim the maximum tax offset your spouse's income must be $10,800 or less in a financial year.  The tax offset decreases as your spouse's income exceeds $10,800 and cuts off when their income is $13,800 or more.  Your spouse must be under 70 year of age.  If your spouse is aged 65 to 69, they must be gainfully employed for at least forty (40) hours over thirty (30) consecutive days.  Your age and work status as the contributor does not matter, however, you will both need to be Australian residents for tax purposes and not be living separately and apart on a permanent basis at the time the contribution is made.

8.  Contribution splitting in your SMSF

Concessional contributions that you have made into your SMSF can be split between you and your spouse.  The requirement is that your spouse must not have reached their preservation age or if they have reached their preservation age, they need to be aged under sixty five (65) and not retired from the workforce.  The maximum amount that can be split for a financial year is eighty-five per cent (85%) of the amount of concessional contributions made into your SMSF in that financial year up to your concessional contribution cap.   You cannot split non-concessional contributions.  The 30 June date is important because if you are intending to do contribution splitting, you must make the split in the financial year immediately after the one in which your contributions were made.   This means you can split concessional contributions you have made into your SMSF during 2012/2013 financial year in the 2013/2014 financial year.  You can only split contributions you have made in the current financial year (i.e. 2013/2014) if your entire benefit is being withdrawn from your SMSF before 30 June 2014 as a rollover, transfer, lump sum benefit or a combination of these.  If you split your concessional contribution with your spouse, the full amount of the original concessional contribution counts towards your concessional contribution cap.  In addition, you cannot claim the superannuation spouse contribution tax offset for a contribution split to your spouse's superannuation account.

9.  Your entitlement to the superannuation co-contribution

If you have made non-concessional contributions into your SMSF, the Commonwealth Government will match your contributions with a co-contribution of up to $500 per year if you are an eligible person.  To be eligible you must earn at least 10% of your income from business and/or employment, be a permanent resident of Australia and under 71 years of age at the end of the financial year. The government will contribute 50 cents for each $1 of your non-concessional contribution to a maximum of $1,000 made to your SMSF by 30 June 2014.  To receive the maximum co-contribution of $500, your total income must be less than $33,516. The co-contribution progressively reduces for income over $33,516 and cuts out altogether once your income is $48,516 or more.  The government will pay the co-contribution directly into your SMSF once you have lodged your personal income tax return.

10.  Your entitlement to the low income superannuation contribution (LISC)

If your income is under $37,000 and you and/or your employer have made concessional contributions into your SMSF, you will be entitled to a refund of the 15% contribution tax up to $500 paid by your SMSF on your concessional contributions. To be eligible at least 10% of your income must be from business and/or employment and you must not hold a temporary residence visa.  To receive the refund, you need to make sure that the concessional contributions are received by your SMSF by 30 June 2014. The refund will be paid directly into your SMSF by the ATO.

11.  Check whether you are entitled to any CGT small business retirement exemptions

There are four capital gains tax (CGT) concessions available to small business owners on the sale or replacement of certain assets associated with their business. The four concessions are referred to as: (1) The small business 15 year exemption; (2) The small business 50% active asset reduction; (3) The small business retirement exemption; and (4) The small business rollover.  Speak to your accountant as to whether you qualify for one or more of these and if so ensure that you comply with the legislative requirements by 30 June 2014 in order to claim the exemptions.

12.  Minimum pension payments from your SMSF

If you are accessing an account based pension from your SMSF, then you need to make sure that the minimum amount required to be paid under the superannuation law is paid from your SMSF by 30 June 2014 in order for your SMSF to receive tax exemptions.  The minimum amount is determined by your age and the percentage value of your pension account balance at either the commencement date of the pension or 1 July each year. See the table below for your percentage value.

Age

Percentage factor

Under 65

4%

65 to 74

5%

75 to 79

6%

80 to 84

7%

85 to 89

9%

90 to 94

11%

95 or more

14%

There is no maximum pension payment amount required unless you are accessing your pension under the "Transition To Retirement" (TTR) ground.  If so, the maximum amount that you can withdraw/receive from your SMSF is ten per cent (10%) of your pension account balance.  If you exceed the maximum limit under TTR, then your SMSF will not be entitled to tax exemptions.  The minimum pension payment requirement also applies to you if you are accessing a pension under TTR.  You need to make sure that your pension meets both the minimum and maximum requirements. The Law Central Pension Pack provides all of the documentation to commence either a TRIS or Account Based Pension, including calculating the minimum and maximum pension amounts as applicable.

13.  Review the investment strategy of your SMSF

The superannuation law requires that the investment strategy of your SMSF is regularly reviewed.  Make sure you have documented something (perhaps in the trustees' minutes) that the investment strategy has been reviewed. You should also document your decision as to whether the SMSF should hold any insurance for the members of your SMSF. You can prepare your complying Investment Strategy on Law Central for the 2013/14 year here, or the 2014/15 year here.

14.  Is your death benefit nomination still valid?

There have been a few court cases mentioned in the media in relation to death benefits paid from SMSFs.  Although a binding death benefit nomination is not compulsory for SMSFs, you may choose to have one.  If you do choose to have one, then trustees of your SMSF must follow the instructions on the binding nomination.  However, for a nomination to be binding, it must be paid to dependants or to an estate.  This means only dependants and a legal personal representative can be nominated.  So if you have divorced, remarried or have children during the financial year, make sure you update your nomination to reflect your new wishes and circumstances.  Normally a binding nomination has to be renewed every three (3) years or it will lapse.  As binding nominations are not compulsory in an SMSF, SMSFs are able to offer non-lapsing or lapsing binding nominations, depending on the SMSF's trust deed.  If no binding nomination is made, then the trustees of your SMSF will use their discretion to distribute your superannuation benefits on your death.  A non-binding nomination enables you to advise the trustees of your SMSF of how you wish your superannuation benefits to be distributed. However, because it is not binding it is used as important information for the trustees to consider but the final decision is at the trustee's discretion. Law Central SMSF Deeds and Deed updates allow for non-lapsing binding nominations, and include the necessary forms.

15.  Rectify any outstanding contraventions made by your SMSF

New penalties come in on 1 July 2014.  The financial penalties range in value from $850 to $10,200.  On top of these monetary penalties the ATO can also direct an SMSF trustee to obtain education on the superannuation law or rectify a contravention within a certain time frame.  These penalties not only apply to new contraventions which occurred on or after 1 July 2014, they are also imposed on existing contraventions that cannot be rectified by 1 July 2014.  The penalties must be paid by the trustees out of their own pocket and not from their SMSF. So if your SMSF is established under an individual trustees' structure the penalty will be imposed on each trustee.  Each trustee is liable for the penalties personally For example, if a four trustee SMSF is penalised $10,200, each trustee will have to pay this penalty (i.e. $10,200 x 4 trustees = $40,800 in total).  However, if your SMSF is structured under a corporate trustee then because the corporate trustee is liable, the directors of the corporate trustee are jointly liable for the penalty, which is one liability of $10,200.

Happy end of financial year to everyone!

 

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