- 1. Start of ‘event-based’ reporting – transfer balance account
- 2. Reassess use of reserves within an SMSF
- 3. Monitor each member’s Total Superannuation Balance
- 4. Review your fund’s trust deed
- 5. Prepare for catch-up contributions
- 6. Check super contributions are under the new limits
- 7. Get ready for additional concessional contributions
- 8. Prepare for ATO scrutiny of asset valuations
- 9. Watch for downsizing contributions
- 10. Release of First Home Super Saver Scheme (FHSSS) benefits
Although the past few years have kept SMSF trustees busy with numerous legislative changes and a major shake-up of the super system since 1 July 2017, the upcoming financial year does not look like it will bring much of a respite.
In fact, from 1 July 2018 most SMSFs trustees are going to face a range of new reporting requirements and compliance challenges that will keep them up to their elbows in paperwork.
Background: For more detailed information about the latest super rules – including July 2017 changes and July 2018 changes – see SuperGuide article Latest superannuation rules: 2018/2019 guide.
To help trustees stay on top of things, SuperGuide has compiled a list of 10 issues that many SMSF trustees will need to consider during the 2018/2019 year.
1. Start of ‘event-based’ reporting – transfer balance account
From July 2018, the ATO’s new SMSF ‘event-based reporting’ regime will come into force, requiring many SMSF trustees to lodge a new report to the regulator called a Transfer Balance Account Report (TBAR). TBARs will be separate to the traditional SMSF annual return.
Note: Reporting requirements can be divided into two categories – retirement phase pensions in existence as at 30 June 2017, and new events on or after 1 July 2017. If you super fund doesn’t run a retirement phase pension, and has not done so at all between 30 June 2017 and today, then Transfer Balance Account reporting is not relevant for your fund at this time.
From the start of the 2018/2019 financial year, an SMSF with a member who has a total super balance of $1 million or more must report ‘relevant events’ for their retirement phase pension members within 28 days of the end of the quarter in which the event occurs. Relevant events include commencing a super pension, commuting a pension in part or full, or when a rollover occurs.
Affected SMSF trustees will need to put into place new procedures to ensure the super fund can comply and they will no longer be able to wait until after year-end to report the event. For more information about TBAR reports, see the following SuperGuide articles:
- SMSFs: Transfer Balance Account Report requirements
- Compliance alert! 85% of SMSFs exempt from quarterly event-based reporting
2. Reassess use of reserves within an SMSF
SMSF trustees may need to reconsider their use of contribution reserving during the 2018/2019 year, as the ATO has published new information about its views on the use of reserves within SMSFs. In it, the ATO described administrative and investment reserves as ‘unnecessary’ and operational risk reserves as ‘not necessary’ in SMSFs.
The ATO has flagged that although the establishment of a reserve within an SMSF is not strictly prohibited, the regulator believes there are only limited circumstances where the use of reserves may be suitable, such as suspense accounts for holding unallocated contributions. It appears the ATO now views SMSFs attempting to use reserving strategies to get around the Total Super Balance or Transfer Balance Cap limits as being engaged in tax avoidance.
For more information, see SuperGuide article Latest super changes: 25-point SMSF guide to ATO’s hot issues.
3. Monitor each member’s Total Superannuation Balance
A further complication to the super reforms that took effect from 1 July 2017 was the introduction of the concept of a ‘Total Superannuation Balance’. A person’s Total Superannuation Balance includes all super money in both accumulation and retirement phase.
If your Total Superannuation Balance is $1.6 million or more, you cannot make non-concessional contributions. The $1.6 million Total Superannuation Balance is a separate concept to the $1.6 million transfer balance cap.
SMSF trustees will need to continue monitoring each member’s Total Superannuation Balance to ensure a fund member who has reached the $1.6 million limit, does not make any further non-concessional contributions. In certain situations, a fund member with a Total Superannuation Balance of $1.5 million or $1.4 million will be affected by this new rule.
Note: If you’re planning to take advantage of the catch-up concessional contributions rules, your Total Superannuation Balance cannot exceed $500,000 as at 30 June 2018. For more information, see Job 5 later in the article.
For more information about the $1.6 million Total Superannuation Balance limit, see the following SuperGuide articles:
- Total Superannuation Balance: 7 reasons why your TSB matters
- A super guide to understanding the bring-forward rule
- Carry-forward contributions: How your unused contribution limits can help you catch up
4. Review your fund’s trust deed
With politicians seemingly determined to continue imposing changes on the super system, SMSF trustees need to ensure they have the necessary powers within their fund’s trust deed to deal with the challenges and opportunities created by the new rules that took effect from 1 July 2017, and from 1 July 2018.
For example, anti-detriment payments are permitted by many SMSF trust deeds, but are not permitted since 1 July 2017 (see SuperGuide article Anti-detriment payments banned since July 2017).
Some examples of the trustee powers an up-to-date trust deed should now include are the power to:
- permit commutation of different types of pensions to reduce or avoid exceeding the transfer balance cap
- allow SMSF members to ‘choose’ specific investments for their account
- permit roll over of death benefits to and from the SMSF
For more information about reviewing trust deeds, see the following SuperGuide articles:
- SMSF compliance for super beginners
- Guide to SMSF trust deeds
- SMSF compliance: Is your fund due for a super service?
5. Prepare for catch-up contributions
Since 1 July 2018, if a SMSF member has a Total Superannuation Balance of less than $500,000 at the end of a financial year, they will be able to utilise the unused portions of their concessional caps from previous years (up to 5 years’ worth) in the following financial year, or future years. This new contribution rule could see fund members making additional contributions to help boost their existing super account balance.
SMSF trustees will need to start preparing their fund to receive catch-up contributions, even though the complex rules around this type of contribution mean the 2019/2020 year will be the first financial year fund members can take advantage of unused cap amounts from previous financial years. They are also likely to find fund members need detailed information to calculate their Total Superannuation Balance and annual amount of concessional contributions to ensure they able to make this type of contribution.
For more information, see SuperGuide article Carry-forward contributions: How your unused contribution limits can help you catch up.
6. Check super contributions are under the new limits
Super contributions caps are now much lower than two years earlier. For the 2018/2019 year (as was the case for the 2017/2018 year) the concessional contributions cap is $25,000 per annum for all concessional contributions (compared with pre-July 2017 caps of $30,000 for those under age 50 and $35,000 for those age 49 or over in the previous financial year). For more information about concessional contributions, see SuperGuide article Super concessional (before-tax) contributions: 2017/2018 survival guide).
Non-concessional contributions have an annual cap of $100,000 (or $300,000 using the bring-forward provisions). Fund members with a Total Superannuation Balance of $1.6 million or more are no longer able to make non-concessional contributions (including spouse super tax offset contributions) (for more information on non-concessional contributions, see SuperGuide article 2018/2019 guide to non-concessional contributions (after-tax super contributions)).
Since SMSF trustees are also SMSF fund members, such individuals will need to monitor super contributions to ensure they comply with these annual contributions caps.
7. Get ready for additional concessional contributions
The old rule that prevented super fund members from making tax deductible concessional contributions if more than 10% of their income was sourced from employment ceased applying on 30 June 2017. Under the post-July 2017 super rules, an individual aged under 75 can make concessional contributions up to the $25,000 concessional contributions cap (including people aged 65 to 74 who meet the ‘work test’), regardless of their employment situation.
This relatively new contributions rule means people who previously could not contribute to super in a tax-effective way (such as individuals whose employers do not offer salary sacrifice, or those who are partly self-employed and partly salary earners) are now free to utilise the tax benefits of the super system.
For more information about the tax-deductible contributions rule, see the following SuperGuide articles:
- Employees can now make tax-deductible super contributions
- Who can now make tax-deductible super contributions?
- Tax-deductible super contributions: No longer need to meet 10% income test
- Work test: Making super contributions over 65
Note: SMSF trustees/members need to ensure they have systems in place to deal with members who submit a ‘Notice of intention to claim a tax deduction’ form before lodging their personal income tax return. Trustees will need to issue the SMSF member with an acknowledgement that the fund has received the form and is taking the required action in relation to the contributions.
This is an area of particular interest for the ATO, as it was given an additional $3 million in the May 2018 Federal Budget to check on personal super deduction claims due to the new rules allowing anyone to claim a deduction for personal super contributions. The ATO intends to check everyone claiming a deduction is telling their super fund about their deduction claims by lodging a ‘Notice of intention to claim a tax deduction’ form.
For more information about the paperwork required for tax-deductible super contributions, see the following SuperGuide articles:
- Concessional contributions: What form do I use to claim a tax deduction?
- Who can now make tax-deductible super contributions?
8. Prepare for ATO scrutiny of asset valuations
SMSFs are likely to face much greater ATO attention to the valuations they place on fund assets during the 2018/2019 year. In recent speeches, ATO representatives have noted the increased importance of SMSF asset valuations and have indicated the valuations used in an SMSF’s 2016/2017 annual accounts will be closely examined.
The ATO has noted it will be looking at how the fund trustee came up with the valuations and also whether or not they are reasonable. SMSF trustees must ensure that the values attributed to assets in the SMSF “can be supported by objective data and evidence every year”.
Asset valuations will be an ongoing area of interest for the ATO, particularly if an SMSF member is close to the limit for their $1.6 million Total Superannuation Balance or Transfer Balance Cap. For more information on the issue, see the following SuperGuide articles:
- SMSF asset valuations: Why the ATO is taking greater interest
- Latest super changes: 25-point SMSF guide to ATO’s hot issues
9. Watch for downsizing contributions
Since 1 July 2018, an Australian aged 65 years or over will be able to make non-concessional (after-tax) contributions into the super fund account (accumulation account), up to a maximum of $300,000, from the proceeds of selling his or her home. If a couple sells their home, they can contribute up to $300,000 each.
The downsizing contributions will not count towards an individual’s annual non-concessional contributions cap, which is currently $100,000.
SMSF trustees should check that the fund’s trust deed allows for these contributions to be accepted. For more information, see SuperGuide article Contributing super by downsizing your home: 10-point guide.
For more information on non-concessional contributions generally, see SuperGuide article 2018/2019 guide to non-concessional contributions (after-tax super contributions).
10. Release of First Home Super Saver Scheme (FHSSS) benefits
Since 1 July 2017, eligible Australians have been able to make voluntary superannuation contributions of up to $15,000 a year, and a maximum of $30,000 over more than one year, to their superannuation account for the purposes of purchasing a first home.
Since 1 July 2018, eligible Australians can apply to their SMSF to release these contributions (and the associated earnings) for the purposes of purchasing a first home. First Home Super Save Scheme contributions can be non-concessional contributions or concessional contributions, and count towards a fund member’s respective contributions cap (concessional or non-concessional).
SMSF trustees should ensure their trust deed permits the fund to receive First Home Super Saver Scheme contributions and allows the SMSF, upon receipt of a release authority from the ATO, to release these contributions directly to the ATO rather than the member. The SMSF must also regularly notify the ATO when a member makes an eligible contribution. For more information, see SuperGuide article 10-point guide to First Home Super Saver Scheme).