On this page
- 1. Watch out for catch-up contributions
- 2. Prepare for Protecting Your Super rollovers
- 3. Safeguard insurance cover with other funds
- 4. Check work test exemption for new retirees
- 5. Monitor capped defined benefit income streams
- 6. Reassess use of reserves within an SMSF
- 7. Watch the timing of Transfer Balance Account Reports (TBARs)
- 8. Prepare for ATO scrutiny of cryptocurrency investments
- 9. Review mental capacity strategies
- A few more things to watch for in 2019/2020
The past few years have seen SMSF trustees kept busy implementing numerous legislative modifications to the super system, plus the major reform package commencing on 1 July 2017. Unfortunately, this financial year seems unlikely to be any different.
With the new Morrison Government announcing plans for yet another review into Australia’s retirement income and super system, SMSF trustees are undoubtedly set to endure yet more changes in the months ahead.
To help trustees stay on top of things, SuperGuide has compiled a list of the top issues many SMSF trustees will be facing during the 2019/2020 financial year, plus some legislation and pre-election promises that may now pass through the new Parliament.
1. Watch out for catch-up contributions
From 1 July 2019, SMSF members are able to make catch-up concessional (before-tax) contributions into their super account using their unused concessional contributions cap amounts from previous years. To qualify, members must have a Total Superannuation Balance (TSB) of less than $500,000 on 30 June of the previous financial year and must not have used all their $25,000 annual concessional contributions cap in the previous financial year.
Under the rules, SMSF members can carry-forward up to five years of unused concessional contributions caps for use in a later financial year, but the rolled forward amounts expire after five years. If the member is aged 65 or over, the normal work test rules apply.
The five-year carry-forward period started on 1 July 2018, meaning 2019/2020 is the first year in which an SMSF member can actually make catch-up contributions, so trustees need to be prepared to receive these additional contributions from fund members looking to boost their existing super account balance.
SMSF trustees also need to be prepared for requests from fund members needing information to calculate their TSB and their annual amount of concessional (before-tax) contributions to ensure they are eligible 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
2. Prepare for Protecting Your Super rollovers
The Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 introduced a number of reforms to protect super fund members’ retirement savings from erosion by fees and unnecessary insurance. Although SMSFs and small APRA funds are excluded from the new rules requiring super funds to report and pay inactive low-balance accounts to the ATO, SMSFs trustees may still be affected by the reforms.
From 1 November 2019, the ATO will start proactively consolidating eligible unclaimed super money (USM) into active super accounts (including SMSF accounts) for fund members. This will occur even if a fund member hasn’t requested a direct payment of this money, or for it to be rolled over to a fund of their choice.
While SMSFs will not be required to report and pay inactive low-balance accounts, SMSF trustees need to be prepared to receive rollovers of consolidated USM from the ATO for one of their members.
For more about the Protecting Your Super reforms, see SuperGuide articles:
- The rules of superannuation: Your guide for 2019/2020
- 2019 Federal Election: Coalition policies on super, tax and retirement
3. Safeguard insurance cover with other funds
The Protecting Your Superannuation reform package also includes several insurance reforms that may have significant implications for some SMSF fund members, due to the low level of insurance coverage provided by SMSFs. In fact, the Super System Review conducted by the federal government in 2015 found less than 13% of SMSFs have insurance coverage for their members, with members much more likely than those in other super sectors to hold insurance outside their SMSF.
Despite holding significant assets in an SMSF, many SMSF members continue to maintain small super accounts in public offer super funds so they can access the cheap group life insurance cover and automatic acceptance (without personal underwriting) offered by many large super funds.
Under the new Protecting Your Superannuation legislation, this life, total and permanent disablement (TPD) and income protection cover may be at risk if fund members with a small inactive super account fail to notify their public offer super fund they wish to retain their policy. The new rules require insurance to be maintained on an opt-in basis for inactive accounts, defined as those that have not received a contribution in 16 months.
SMSF trustees holding insurance through a small inactive account in a public offer super fund should check on the impact of these reforms on their insurance protection. They may also need to reconsider the SMSF’s approach to insurance if fund members lose their coverage under the new rules.
For more information on insurance in super, see SuperGuide articles:
- Guide to SMSFs and insurance
- Life insurance through super: A definitive guide
- Super funds with the lowest fees for life and TPD insurance
4. Check work test exemption for new retirees
From 1 July 2019, new retirees aged between 65 and 74 have an additional 12-month period in which they can make voluntary contributions into their SMSF account without needing to satisfy the work test, so trustees need to be prepared for this rule change.
To qualify for the work test exemption, the SMSF member must have had less than $300,000 in their super account at the end of the previous financial year.
The relaxation of the work test rules only applies once and the SMSF cannot accept contributions in subsequent financial years without the member meeting the work test.
Once an SMSF members reaches age 65 and wishes to make a voluntary contribution into their super account, they must meet the requirements of the work test unless they qualify for the new ‘recent retirement’ exemption, or are making a Downsizer contribution.
For more information, see SuperGuide articles:
- Work test: Making super contributions over 65
- The rules of super: Your guide for 2018/2019
- Downsizer contributions: How do they work and what are the current rules?
5. Monitor capped defined benefit income streams
SMSF trustees should check they are meeting their pay-as-you-go (PAYG) responsibilities if they pay a capped defined benefit income stream to a member, as the ATO has been highlighting trustee obligations in this area.
From 1 July 2017, SMSFs have had PAYG obligations to withhold tax from income streams they pay to members when the member is aged 60 or older; or aged under 60 years old and the income stream is a death benefit capped defined benefit income stream where the deceased was aged 60 or over when they died.
If the amount of tax the SMSF needs to withhold is nil, trustees are still required to provide the pensioner with a pension payment summary and lodge a PAYG withholding payment summary with the ATO, usually by 14 August in the following financial year.
SMSF trustees with these obligations also need to ensure they are registered for PAYG withholding. These reporting obligations are addition to SMSF trustees’ longstanding withholding obligations in relation to income streams paid to members under 60.
For more information, see SuperGuide article Definitive guide to the $1.6 million transfer balance cap.
6. Reassess use of reserves within an SMSF
SMSF trustees should reconsider their use of contribution reserving after the ATO published 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 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 TSB or Transfer Balance Cap limits as being engaged in tax avoidance.
For more information, see SuperGuide articles:
7. Watch the timing of Transfer Balance Account Reports (TBARs)
After an initial period of leniency on TBAR lodgments, the ATO has made it clear it expects all SMSFs required to submit these reports to start doing so in a timely fashion from the start of the 2019/2020 financial year. To ensure they can comply with the reporting deadlines, SMSF trustees need to ensure they have appropriate systems in place.
The ATO’s SMSF ‘event-based reporting’ regime came into force on 1 July 2018, with many SMSF trustees now required to lodge both a TBAR and the traditional SMSF annual return with the regulator.
The ATO is also encouraging SMSFs to move towards electronic lodgment of TBARs, as there have been a significant number of errors by trustees using paper-based spreadsheets. Paper TBARs will eventually be phased out in favour of electronic lodgment.
From the start of the 2018/2019 financial year, an SMSF with a member who has a TSB 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.
- retirement phase pensions in existence as at 30 June 2017; and
- new events on or after 1 July 2017.
If your SMSF does not run a retirement phase pension, and has not done so at all between 30 June 2017 and today, TBARs are not relevant for your fund at this time.
For more information about TBAR reports, see the following SuperGuide articles:
- What are the Transfer Balance Account Report (TBAR) rules for SMSFs?
- TBAR – Transfer balance account reporting for SMSFs
8. Prepare for ATO scrutiny of cryptocurrency investments
SMSF trustees using cryptocurrency investments should take care with these assets, as the ATO has started collecting customer and transaction information from designated cryptocurrency service providers on any individual or SMSF buying, selling or transferring cryptocurrency.
According to the ATO, it is collecting the data and matching it with taxpayer records to verify purchase and sale information, ensuring people are meeting their tax obligations. The regulator will then be able to “identify SMSF trustees or members who may need help to understand their obligations, so we can provide further advice and guidance of the rules around the tax treatment of crypto-assets”.
Following the data-matching exercise, the ATO will contact SMSF trustees if they need to verify the information it has collected. SMSFs acquiring or disposing of cryptocurrency must keep records of all transactions.
The ATO considers cryptocurrency a high-risk, volatile investment. “We’ve already seen incidences of SMSFs losing significant amounts of their retirement savings. We strongly recommend all trustees undertake their own investigation and appropriate due diligence before investing with any organisation investing super assets into cryptocurrency holdings,” the regulator has warned.
See here for more information about the ATO’s views and the tax determination covering SMSF’s investing in cryptocurrencies.
9. Review mental capacity strategies
SMSF trustees should regularly ensure they have the necessary powers within the fund’s trust deed to deal with the challenges being created by reforms to the super system. An often overlooked area, however, is preparing the SMSF for a situation where a trustee loses mental capacity due to dementia, or an illness such a stroke.
It is essential all SMSF trustees have an Enduring Power of Attorney (EPOA) in place to allow someone to step into their role as a fund trustee in the event of illness, mental incapacity or death. Trustees should also check the SMSF’s trust deed permits this and if it is not, it needs to be reviewed.
Updating the trust deed to permit a non-lapsing binding death benefit nomination is also a good idea. This means a binding death benefit nomination will not lapse if a fund member becomes unable to renew their nomination due to loss of mental capacity.
The fund’s investment strategy should also be updated to cover this situation, as an SMSF investment strategy must be reviewed on a regular basis by the trustees.
For more information about reviewing trust deeds, see the following SuperGuide articles:
Although anti-detriment payments were banned for any super fund member deaths from 1 July 2017, super funds could still make payments to eligible dependants for members dying prior to this date.
SMSF trustees must remember that from 1 July 2019, no anti-detriment payment deductions are available, regardless of when the member died.
For more information, see SuperGuide article What is an anti-detriment payment?
A few more things to watch for in 2019/2020
In the pre-election tumult earlier this year, a number of significant proposals relating to the super system did not make it through the Parliament.
With the Coalition Government now returned to power, SMSF trustees need to be on the lookout for the following proposed reforms making it onto the statute books:
- Increase in the number of SMSF fund members from four to six.
- Allowing SMSFs with a “history of good record-keeping and compliance” to obtain an audit once every three years (instead of annually).
- Application of a 45% tax rate to income from arrangements involving SMSFs that incur expenses at non-commercial rates.
- Amendments permitting high-income earners with multiple employers to opt out of the Superannuation Guarantee regime to avoid breaching their $25,000 concessional contributions cap.
- Increase the age limit for the bring-forward rule to people aged 65 and 66 from 1 July 2020.
- Increase the age limit for making spouse contributions from 69 to 74.
- Reforms flowing from the recommendations of the Hayne Royal Commission and the Productivity Commission report.
- Amendments to the TSB definition to include certain loan recourse borrowing arrangements.
For more information, see SuperGuide articles: