Year end Superannuation Checklist

With the year-end already upon us now is a good time to ensure that you have all of your SMSF obligations under control. The following is a quick checklist of items that you should consider as part of your year-end SMSF Review

CONTRIBUTION CAPS

It is important to ensure that you do not exceed your contributions caps as it could potentially result in additional tax payable. The current contributions caps for the year ending 30 June 2015 are as follows:

Concessional contributions

INCOME YEAR

GENERAL CAP

CAP FOR THOSE AGED 50 YEARS OR OVER AT 30 JUNE

2014-15 $30,000 $35,000
2015-16 $30,000 $35,000

From 1 July 2013, any excess concessional contributions may be refunded to a member and will be taxed at their marginal tax rates. Any refunded amounts will not count towards the non-oncessional cap.

Non-concessional contributions

INCOME YEAR

AMOUNT OF ANNUAL CAP

2014-15 $180,000
2015-16 $180,000

The bring-forward cap still applies for those under 65 and remains at three times the non-concessional contributions cap of the first year in which the cap is triggered. If you brought forward your contributions in 2013 or 2014, it would be 3 x $150,000 = $450,000. However, if the cap was triggered after 1 July 2014 then the bring-forward amount would be 3 x $180,000 = $540,000.

The ATO has recently confirmed that any excess non-concessional contributions can now also be refunded to a member, with any associated earnings on the excess (as calculated by the ATO) taxed at the members marginal tax rates. These rules apply retrospectively from 1 July 2013.

It is important to note that you cannot simply repay excess non-concessional contributions from the fund, you need to have received a Notice of Determination from the ATO before refunding any excess monies.

IMPORTANT THINGS TO REMEMBER WHEN MAKING CONTRIBUTIONS

Timing of contributions payments

A contribution counts towards the caps for the year that the money is actually received by the Fund. Therefore, it is important to ensure that any contributions made to your Fund are made with sufficient time for any banks or clearing houses to process the payment prior to 30 June 2015.

Have you made contributions that you are not aware of?

Contributions also consist of more than just cash deposits to a Fund’s bank account. The following items could also count towards your contributions caps:

  • Expense payments for your SMSF that you pay personally or that are paid for by a third party on your behalf
  • Life insurance premiums paid by your employer to another Fund
  • In-specie transfers of assets to your Fund.

If you are unsure whether your Fund has had any expenses paid on its behalf, discuss the matter with one of the Noel May & Associates staff as a matter of urgency.

Work test requirements for those over 65

Remember that if you are 65 or over, you must meet the ‘work test’ before making any contributions to your Fund. This means that you must work at least 40 hours in a 30 consecutive day period before you can make any contributions.

OTHER STRATEGIES FOR MAKING CONTRIBUTIONS

Contributions splitting

You can split up to 85% of your taxable contributions to your spouse as a means of boosting their superannuation. This may be a strategy where your spouse does not have much superannuation in their account, or where they are closer to their preservation age. There are restrictions on splitting super as follows:

  • You can only split 85% of your taxable contributions from a prior year
  • You can only split concessional (taxable) contributions
  • Your spouse must be under their preservation age, or under 65 and not retired.

Government co-contribution

If you earn less than $49,488 for the 2014-15 year, you may be eligible for the government co-contribution. This entitles the recipient to an additional payment of up to a maximum of $500 from the government.

The requirements for this payment are as follows:

  • You earn less than $49,488 for the 2014-15 year
  • You are aged 71 or under at the end of the financial year
  • You make non-concessional contributions to your fund
  • You meet the 10% work test – where at least 10% of your income is employment income.

The government will match your non-concessional contributions amount at the rate of $0.50 for every $1 that is contributed. This tapers off at a rate of 3.33 cents per every dollar where your income is over $34,488 until you reach $49,488 where it cuts out. This is a great way off adding a little extra to your account – as every little bit helps.

Spouse contributions

If your spouse earns less than $13,800, you may be able to claim a tax deduction for contributions that you make on their behalf. The deduction is calculated at 18% of the contributions amount, up to a maximum contribution of $3,000.

This could be a great way of increasing your spouse’s super, as well as decreasing your taxable income should you both be eligible.

Contributions holding account

If you are expecting to have significantly higher taxable income in the 2015 year, it is possible to bring forward a deduction for personal concessional superannuation contributions, effectively claiming the deduction twice in one year.

Note that in doing this you are using ‘next years’ contribution cap and will therefore be limited in the 2016 financial year with regard to contributions you can make to your super fund.

This is a complex strategy and it is recommended that you contact your NMA adviser should you wish to discuss this strategy in further detail.

HAVE YOU MET YOUR MINIMUM PENSION REQUIREMENTS?

The ATO continues to closely monitor Funds claiming the exempt current pension income (ECPI) exemption. For a SMSF to be able to claim the ECPI, the minimum pension payment standards must be met. The minimum standards for the 2014-15 year are as follows:

AGE AT 1 JULY *

MINIMUM % WITHDRAWAL FOR 2014-15 YEAR

Under 65 4%
65-74 5%
75-79 6%
80-84 7%
85-89 8%
90-94 11%
95 or more 14%

* Or age at commencement of pension if commenced part way through the financial year.

The minimum percentage refers to the percentage of your pension account balance that must be withdrawn. The maximum withdrawal amount for Transition to Retirement Income Streams remains at 10%.

Failure to adhere to these limits could result in your SMSF potentially losing the ECPI exemption and even beaching the payment standards.

OTHER PENSION CONSIDERATIONS

Lump sum payments

The ATO has confirmed that lump sum payments may be counted towards your minimum pension requirements. This may present tax planning opportunities where you are drawing down a pension and have not yet turned 60. Lump sum payments are subject to a low rate tax exemption, where the first $185,000 can be taken tax free in 2015. This limit is indexed each year. $185,000 is the limit for the 2015 financial year.

It is important to note that this option is unlikely to be available for those who have a Transition to Retirement income stream as they do not provide for lump sum payments.

Taking a lump sum also provides the ability of a Fund to transfer assets to a member should this be required. Remember that there are strict rules around transferring assets to members, as it must be done at market value and on commercial terms.

If you are in pension phase and are yet to turn 60, talk to your NMA adviser about the ability to withdraw a lump sum from your Fund.

Government Age Pension recipients

It is important that you let us adviser know if you receive the Age Pension. Rules around the Age Pension income test changed from 1 January 2015. Any changes made to a pension from your Fund could affect how your Government Age Pension is calculated. Please ensure that you discuss this with us to ensure that these changes do not impact on your current arrangements.

INVESTMENTS

Related party loans

Another area that the ATO is paying close attention to is related party loans. The ATO has recently indicated that income earned from an arrangement involving a loan from a related party which is not maintained at arms length, is at risk of being subject to the non-arms length income rules. This would result in such income being taxed at 47%.

There are a number of other factors that the ATO will also look at in relation to related party loans. If you are concerned about whether your arrangement could be subject to these rules, please contact your NMA adviser.

Investment valuations

It is a requirement that all Funds report their investments at market value. Where a market value is not readily available for a particular asset, trustees must be able to provide a valuation that accurately reflects the current market price for the asset, based on objective and supportable data. Assets that will require valuations include residential and commercial property, artworks and collectables.

It is also important to note that the new rules for artworks and collectables come into effect from 1 July 2016. From this date, any artworks or collectables transferred out of a fund will need to be valued by an independent qualified valuer, regardless of the purchase date.

Naming of assets

The ATO has confirmed that they will apply a strict interpretation of the laws surrounding the requirements to keep assets of the Fund separate from assets of the individual members. This means that all assets of the fund must be held in the correct name of the Fund – including bank accounts, insurance policies and properties.

The correct naming conventions are as follows:

Corporate Trustee

J & B Smith SMSF Pty Ltd as trustee for the Smith Family Superannuation Fund

Individual Trustees

John Smith & Betty Smith as trustees for the Smith Family Superannuation Fund

Ensure you review the naming of your Fund’s investments to ensure that they are correct and up to date.

SUPERSTREAM

From 1 July 2015, employers with 20 or more employees will be required to meet their superannuation obligations under the new SuperStream requirements. This requires all contributions data (not monies) to be sent electronically.

If you are unsure of what details must be provided to your employer for your Fund, or whether your Fund meets the SuperStream requirements, please contact your NMA adviser.

OTHER ISSUES

For these and other year-end tax planning tips make sure you contact your NMA adviser before 30 June on (03) 9585 7555 or email us atnoel@noelmay.com.au

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