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With the arrival of June and the end of the financial year approaching fast, it’s now time to start thinking about all the year-end matters for your SMSF, and have these seen to before the 30 June rush.
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.
Your TSB:
- Includes balances you have in both accumulation phase and retirement phase
- Is relevant for various super rules, mainly to do with contributions you are eligible to make
- Affects eligibility for carry-forward (catch-up) concessional contributions, spouse contributions and the government co-contribution.
If you plan to use any of your unused concessional contribution caps from prior years or make a non-concessional contribution into your super fund in the current 2024 financial year, it’s essential to check what your TSB was on 30 June 2023.
You can review your TSB by using the ATO online services through myGov. Simply sign in to your myGov account and select Super.
Contribution considerations
Contribution caps
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.
Timing
Contributions must be received into the SMSF bank account by 30 June to be included as current year contributions.
Some things 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.
- Check when your employer made the last quarter’s contributions for the 2023 financial year as they may not have been made until July 2023, and could therefore count towards the current 2024 financial year. This could reduce the amounts you can contribute this year, as employer contributions form part of your concessional contributions cap.
Acceptance rules
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 $1.9 million on 30 June 2023. 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.
Spouse contributions
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 (assessable income, reportable fringe benefits and reportable employer super contributions) is below $37,000 and tapers out for income above $40,000.
Your spouse must also be under age 75 and have a total super balance below $1.9 million as at 30 June 2023.
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.
Government co-contribution
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 $58,445 per year for the 2024 financial year and at least 10% of this needs to be from employment income.
Contribution splitting
You could consider splitting concessional contributions that were made for you in the prior financial year (2022–23) into your spouse’s super account this financial year (2023–24).
- 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 2024 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.
Downsizer contributions
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 is $300,000 ($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 10 years.
- This one-off contribution does not count towards the annual limits on contributions, and you are not limited by your total super balance.
Unexpected contributions
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, 2024–25. 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.
Pension payments
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.
- 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 3 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 2024–25 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 (TTR) into retirement
If any member receiving a transition-to-retirement income stream (TRIS) 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 TRIS in retirement phase.
If this is the 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, which is 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 2024–25 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 2025.
- 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!
In-house assets
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.
Investment strategy
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.
Final thoughts
It’s important that SMSF members and trustees be proactive in 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 evidence you can show, the more likely it is that your auditor and the ATO will be satisfied.
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