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With the arrival of June and the end of the financial year just around the corner, it is imperative that you now address all the year-end matters for your SMSF, and before the 30 June rush.
It is also a good opportunity to revisit all the changes to the superannuation rules that came in to play in 2023. This will assist in identifying any further opportunities that may now be available to you or your family members before 30 June arrives.
Changes from the START of the current year
The following were the key changes to super that came into effect in 2022–23:
- Super Guarantee (SG) increased from 10% to 10.5%. The $450 minimum monthly income threshold for SG eligibility was also removed.
- The work test requirements to make non-concessional contributions up to age 75 was removed from 1 July 2022. Note that the work test still needs to be met by those aged 67 or older for personal contributions for which you claim a tax deduction
- The removal of the work test also resulted in access to the three-year bring-forward rules for non-concessional contributions for those aged under 75 at any time in the financial year.
- The government continued with the halving of the annual minimum pension obligations for the current 2023 financial year.
- The age requirement to make a downsizer contribution was reduced to age 60 from 1 July 2022. It was then lowered further to age 55 from 1 January 2023.
- The limit on amounts that can be accessed under the First Home Super Saver Scheme was increased from $30,000 to $50,000 per eligible individual.
These changes that came into effect at the start of the current financial year may provide you with additional opportunities before 30 June this year.
Total super balance
Before we get into specific areas of your SMSF, it is important to first look at your total super balance (TSB). Remember that your TSB refers to ALL the balances you have within the overall super system, so in ALL the super funds that you may have.
- Includes balances you have in both accumulation phase and retirement phase
- Is relevant for various super rules, mainly contribution policies
- Also affects eligibility for carry-forward (catch-up) concessional contributions, spouse contributions and the government co-contribution.
If you plan to make a non-concessional contribution into your super account before the end of this financial year, it’s essential to check your TSB at the end of the previous financial year. So you need to check your TSB as at 30 June 2022 if you wish to make a non-concessional contribution in the 2023 financial year.
You can review your TSB by using the ATO online services through myGov. Simply sign in to your myGov account and then select Super.
There are limits (caps) imposed on the different types of contributions that can be made to super. Additional tax may be payable if you go above these limits.
- Concessional contributions: The cap is currently $27,500 per year unless you are eligible to use the carry-forward rule for unused concessional contributions.
- Non-concessional contributions: The cap is currently $110,000 per year unless you are eligible to use the bring-forward rule.
Contributions must be received into the SMSF bank account by 30 June to be included as current year contributions.
Some considerations to be aware of:
- Contributions made by electronic transfer between bank accounts take place when they are cleared in the SMSF bank account, so make sure that these transactions are carried out well before 30 June as processing time varies between banks.
- Contributions made by cheque or a promissory note are deemed as being made on the date that the cheque or promissory note is received by the fund trustee, so long as they are then deposited into the fund’s bank account/cashed within a few business days. Make sure to keep written evidence of this in a signed trustee resolution accepting the contribution on the date that the cheque or promissory note is received.
- Contributions that are made by way of an ‘in-specie’ contribution are made when the beneficial ownership or legal ownership of the asset transfers to the SMSF trustee. For instance, a member of an SMSF can transfer (contribute) listed shares that they personally own into their SMSF. The date that all parties to the transfer sign off on the paperwork, usually an off-market transfer form, can be used as the date for the contribution – being the beneficial ownership date. Keep a copy of the transfer form and create a trustee resolution to accept the contribution.
- Ask your employer when they will make their electronic contributions (such as salary sacrifice and super guarantee amounts) to your super fund, so you know whether they will hit your super account by 30 June. Employers are only required to make their SG contributions for the last quarter of 2022–23 by 28 July 2023 so don’t assume they will make the contribution this financial year.
- Check when your employer made the last quarter’s contributions for the 2022 financial year as they may have been made in July 2022, and count towards the current 2023 financial year. This could reduce the amounts that you can contribute this year.
Make sure the fund can accept certain contributions. For example:
- If a member is 67 or older, and they wish to claim a tax deduction for personal contributions that have been made, then they must meet the required work test of 40 hours (paid work) over any 30-day period during the year.
- If the member is making non-concessional contributions, their total super balance needs to be less than $1.7 million on 30 June 2022. If not, any non-concessional contribution could create an excess contribution issue.
- If contributions have been made and accepted when they should not have been, the super rules require these amounts be returned to the contributor within 30 days of becoming aware of the issue. The return of these contributions must still occur even if the 30 days have passed. Make sure this issue has been addressed before 30 June.
You can make contributions for your spouse and, in some cases, you could be eligible for a tax offset if your spouse’s income is below $40,000.
The full offset of $540 is available for a $3,000 contribution where your spouse’s income* is below $37,000 and tapers out for income above $40,000*. (*Includes assessable income, reportable fringe benefits and reportable employer super contributions.)
Your spouse must also be under age 75 and have a total super balance below $1.7 million as at 30 June of the prior financial year to qualify.
Any spouse contribution that you make is assessed against your spouse’s non-concessional contributions cap, not your own.
Tax deduction for contributions
If you are looking to claim a tax deduction for any personal contributions you have made, you need to inform the fund’s trustee in writing using the appropriate form.
- You need to lodge this form with the fund’s trustee BEFORE you access any benefits from the fund (commence a pension or take a lump sum)
- The trustee of the fund also needs to acknowledge that they have received this notice.
Where you make a non-concessional (after tax) contribution of at least $1,000, you may be eligible for a government co-contribution of up to $500.
You need to have earnings (assessable income, reportable fringe benefits and reportable employer super contributions) of no more than $57,016 per year for the 2023 financial year and at least 10% of this needs to be from employment income.
You could consider splitting concessional contributions that were made for you in the prior financial year (2021–22) into your spouse’s super account this financial year (2022–23).
- The splitting rules allow for up to 85% of concessional contributions made last financial year to be reallocated (split) to your spouse.
- This is a great way to even out member account balances or could even provide a benefit to social security recipients by reallocating amounts to a younger spouse.
There are administrative requirements to meet for this, so please review the ATO information.
Unallocated contributions account
Contributions reserving allows you to bring forward one year’s concessional contributions cap, effectively doubling your concessional contributions cap in a single year.
- Contributions made to your SMSF in June can be first placed into a contributions reserve account.
- These contributions are assessed as being made in June 2023 for tax (deduction) purposes, allowing a claim for two years’ concessional contributions as a tax deduction in the year they are received.
- These contributions are then allocated to your member account by 28 July of the following financial year at the latest. This is when they get assessed against your contribution cap.
If you are aged 55* or older and have sold your main residence in the current financial year, you may be able to make a downsizer contribution.
- The maximum contribution allowed is $300,000 per individual ($600,00 for a couple).
- Downsizer contributions allow you and your partner to each make contributions into your super accounts if one or both of you owned your home for a minimum of ten years.
- This one-off contribution does not count towards the annual limits on contributions, and you are not limited by your total super balance.
Make sure that all the SMSF’s expenses for the year have been paid from the fund’s own bank account.
- Where a fund expense has been paid by a fund member personally, then the amount will be treated as a contribution and counts towards the member’s contribution limits.
- The most common examples include where the SMSF’s accounting or audit fee has been paid for personally by a fund member.
Contributions for next year
You should sit down with your employer now and discuss any required salary-sacrifice arrangement for next financial year, 2023–24. This should be completed and in place before the new financial year starts.
- Salary sacrifice is an arrangement where part of your before-tax salary is paid into your super account rather than being paid to you as take-home pay.
- These arrangements can be a tax-effective way to boost your super account.
- To be valid, a salary-sacrifice arrangement needs to be set up before the start of the new financial year, so ensure you have the arrangement fully documented before 30 June.
Where you have SMSF members taking pensions, make sure the required pension payments for the year have been made by 30 June. Payments must have been physically made by 30 June as in most cases you can’t accrue a pension payment.
- The government’s temporary measure for a 50% reduction to the standard minimum pension required for account-based pensions (including transition-to-retirement pensions and market-linked pensions) continued for the 2022–23 financial year. Note that at this stage, this will not continue into the 2023-24 financial year and the minimum pension requirement will revert to normal.
- If pension payments are made by cheque, then the date of the cheque can be used as the payment date so long as the cheque is promptly deposited (within three days) and cleared. If this is the case, you should also have a trustee resolution drawn up and kept on file with a copy of the cheque showing that the trustees met the pension payment required and that it was paid in time.
- For members with a transition-to-retirement income stream, make sure the maximum pension limit of 10% is adhered to.
- Pension payments must be made using cash payments from the fund, they cannot be made as in-specie transfers of assets.
- If a pension was commenced on 1 June or later in the current financial year, there is no need to make a pension payment this financial year from that pension.
Pension payments for next financial year
It’s also important to start thinking and planning pension payments for the 2023–24 financial year. Putting the required paperwork in place before 1 July is always a good idea!
Keep in mind:
- Member requests for the next financial year should be made in writing to the trustees, nominating the amount of pension payments for the year.
- A trustee resolution in writing to accept and follow this request should be made.
Moving from transition-to-retirement (TRIS) into retirement
If any member receiving a transition-to-retirement income stream has met a further condition of release (retirement after age 60 or turning 65) during the current financial year, then their existing TRIS may have become a standard account-based pension.
In this case:
- The balance of the pension at that time would then be assessed against the member’s transfer balance cap.
This assessment will automatically occur where the member turns 65, hence why it’s important that any existing TRIS is restructured where necessary to fall within with the transfer balance cap limits. This may require some members to reduce the balance of their pensions.
- If the member retired from gainful employment during the year, then this assessment will occur when the member informs the fund trustees of the event in writing.
- Your SMSF will need to report this event to the ATO using the transfer balance account report (TBAR).
Lump sum payments
Where eligible, a member may access a lump sum from their SMSF, but make sure the required paperwork is in place.
- The member should first make a written request for the required lump sum amount and identify from which of their member accounts the payment is to come from.
- The SMSF trustee should then set out a trustee resolution to accept the lump sum request.
- Both of these should occur before the payment is made.
Lump sum payments for next financial year
Start thinking and planning for the level of lump sum payments that may be required for the 2023–24 financial year.
- If the member only wants to access the minimum pension payments required for the year, have this set out in their pension requests for 2024.
- The member can then have a written lump sum request in place for payments required above the minimum pension payment amount.
- Putting the required paperwork in place before 1 July is always a good idea!
The in-house assets test applies to a transaction or investment that an SMSF has with related parties. For instance, a loan to a related company would be an in-house asset, as would an investment the SMSF has in a related business.
- Make sure that the total value of the SMSF’s in-house assets on 30 June are less than the 5% limit. If they exceed the limit, you will need to dispose of (sell) one or more of these assets BEFORE 30 June to comply.
- Make sure that no transactions took place during the current financial year that resulted in the level of in-house assets exceeding the 5% limit.
It is important that all SMSF trustees understand the in-house asset rules.
Trustees are required to review their SMSF’s investment strategy to ensure it is still relevant for all fund members.
All activities and investments of the SMSF should be in accordance with the current investment strategy.
- If needed, update the fund’s investment strategy, and put in place the required changes. Document these changes in the investment strategy and then have a trustee resolution to adopt these changes.
- If no changes are required, it would be a good idea to set out in a trustee resolution that a review has taken place and that no changes are required.
Review and rectify issues from last year’s audit
It’s important to review the management letter that was given to you as part of the SMSF audit process from last financial year. The management letter may have identified certain issues that require your attention or action.
- Make sure that all issues raised requiring action have been addressed before 30 June this year.
- Consider any other recommendations made by the auditor and document any trustee action or decisions on these matters.
Other fund record keeping
Maintaining up-to-date and accurate records is a great way to reduce stress when it comes to meeting the annual lodgement requirements for your SMSF.
- Having access to fund bank statements, insurance premium notices, asset purchases or sales, dividend notices, rental property statements, term deposit notices, expenses and receipts will save you time in the end.
- Make sure that trustee resolutions exist for all key trustee decisions made throughout the financial year.
It is important that SMSF members and trustees be proactive with all matters regarding their fund.
Having documentation including member requests and trustee resolutions (minutes) in place at the time of fund events is considered the new minimum standard, rather than putting documents in place after the event.
The more proactive you are and the more evidence you can show, the more likely it is that your auditor and the ATO will be satisfied.