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END OF FINANCIAL YEAR CHECK UP

By Amy Tickle

After a turbulent few months closing out the 2020 financial year we’ve put together some superannuation end of year essentials for you to consider before the 30 June deadline.

CONTRIBUTIONS AND CAPS

While your cashflow and business income may have been affected by COVID-19, there may still be plenty of opportunities to top up your superannuation balance before 30 June. Before you do though make sure that you meet the relevant eligibility criteria for the contribution type, and don’t forget to stick to your contribution caps.

Aged based Considerations

Before you start making any contributions to super you should make sure your age does not restrict how much you can put in or what type of contributions you can make.

Age 65 and under – there are no conditions on making contributions up to the relevant caps.
Age 65 to 74 – you must meet the work test before making any contributions to super unless the work test exemption applies, as detailed below.
Age 75 and above – you can only receive employer mandated contributions, i.e. those mandated by law or an industrial agreement.

The Work Test

The work test requires anyone over age 65 but under age 75 to work a minimum of 40 hours in a 30 day period before making any personal contributions in a financial year.

Work Test Exemption

The ATO introduced a work test exemption (WTE) to assist with making contributions in the year after an individual retires where they are aged 65 – 74 at 1 July of the relevant financial year. To qualify for the WTE you must meet the following criteria:

  • Satisfy the work test in the year immediately preceding the year in which you are making the contribution;
  • Have a Total Superannuation Balance (TSB) of less than $300,000 at the end of the previous financial year; and
  • Have not previously utilised the WTE in a prior financial year.

Contribution Caps

The FY2020 contribution caps regardless of an individual’s age are:

Concessional Contributions Cap $25,000.00
Non-Concessional Contributions Cap $100,000.00

Concessional Contributions

Concessional contributions are made up of employer contributions, including salary sacrifice amounts, and personal contributions you claim a deduction for in your individual tax return.

The concessional contribution cap is $25,000 per individual for FY2020. However, if your TSB at 30 June 2019 was under $500,000 you may be eligible to make catch up concessional contributions . Don’t forget you can only make concessional contributions if you have taxable income in your personal tax return to offset this amount against.

If you put in more than your concessional contribution cap the excess amount will count towards your non-concessional contribution cap. You will also be charged additional tax on any excess above your cap, however the ATO will recognise you have already paid 15% tax on the contribution when your SMSF tax return is processed. An excess concessional contributions charge is also levied and a determination will be issued by the ATO advising what actions you can take.

Non-Concessional and Bring-Forward Contributions

The non-concessional contribution cap is $100,000 with individuals under the age of 65 being able to contribute up to three years of bring forward contributions. You must also meet the TSB requirements to determine how much you are able to contribute in the financial year.

TSB at 30 June 2019 Contribution and Bring Forward Available
< $1.4 million 3 years ($300,000.00)
$1.4 to < $1.5 million 2 years ($200,000.00)
$1.5 to < $1.6 million 1 year ($100,000.00)
$1.6 million and over Nil

Excess non-concessional contributions are taxed at 47% unless they are elected to be released from super. If released, the excess, plus any associated earnings calculated by the ATO, will be taxed at the individual’s marginal tax rate.

If you are concerned about breaching your contribution caps, or would like to ensure you are making the most of them, contact your Lead Partners Private Wealth Adviser for assistance.

PENSIONS AND WITHDRAWALS

If you currently hold a pension member account within your superannuation fund it is important to ensure you withdrawal at least the minimum pension amount. Failure to withdraw at least the minimum will result in your super fund losing its tax-exempt status on income.

Minimum Pension Requirements

The ATO have reduced the minimum pension requirements for FY2020 and FY2021 to 50% of the normal rate. The minimum pension rate depends on your account balance and age at 1 July of each financial year for account based pensions and transition to retirement pensions as stated below. If you have a market linked pension please contact your adviser or SMSF administrator to confirm your minimum pension requirements.

Age at 1 July Minimum withdrawal Reduced Minimum for FY2020 and FY2021
Under age 65 4% 2%
65-74 5% 2.5%
75-79 6% 3%
80-84 7% 3.5%
85-89 9% 4.5%
90-94 11% 5.5%
95 and over 14% 7%

The maximum allowable pension withdrawal for a transition to retirement pension is 10% of the member balance at 1 July. Any income relating to these accounts is no longer exempt from tax unless the pension is in retirement phase, i.e. the individual has met a full condition of release. A full condition of release includes but is not limited to obtaining age 65, permanently retiring after reaching preservation age, ending an employment arrangement after reaching age 60 or being permanently incapacitated.

Please note if you have already withdrawn more than the 50% reduced minimum pension amount you are unable to put the excess back into your super fund.

Pension Amounts Withdrawn under age 60

If you withdraw pension amounts whilst under the age of 60 the taxable proportion is reportable on your individual tax return and there is a tax offset of 15% claimable. It is important to consider withholding tax in the super fund to reduce the amount of personal tax that may be payable.

MARKET VALUATION OF ASSETS

The ATO are focusing heavily on the valuation of assets within a self managed superannuation fund (SMSF), particularly with regards to property, and unlisted shares and unit trust holdings. They are targeting SMSF auditors meaning you may need additional documentation this year to meet your auditor requirements if you hold either of these investment types in your SMSF.

Real Estate Property Valuations

Whether it is held directly or through a unit trust, a property owned by your SMSF is required by legislation to be valued every three years by either a professional valuer, real estate agent or experienced property manager. This does not need to be a paid valuation, rather it can simply be an estimate on real estate letterhead. You also may need a valuation sooner if significant work has been done to the investment property, e.g. a bedroom added to a house.

Unlisted Unit Trusts and Shares

If your SMSF invests in unlisted unit trusts or shares you may be required to provide substantiating evidence of the value of the underlying assets. This may mean providing 30 June bank statements to confirm bank balances, underlying investment holding confirmations and / or property valuations as detailed above. If we believe you’ll require additional information for audit we will advise when completing your FY2020 financial statements.

INVESTMENT STRATEGY REVIEWS

While reviewing your investment strategy is a regular part of our annual compliance and administration service for your SMSF, you may want to start thinking about whether you need to consider amending this documentation. There are many instances which may result in the need for a revised investment strategy, including:

    • When a new member joins or departs the SMSF;
    • An investment outside the scope of the current strategy is considered for purchase;
    • When a member commences a pension. This is to ensure the fund has sufficient liquidity to meet pension minimum requirements prior to 30 June each year; and
    • Market fluctuations and changes moving investments outside the specified ranges.

It is important to remember that your investment strategy should be reviewed at least annually and this review should be documented, such as when preparing the annual trustee meeting minutes.

If you think your investment strategy may need reviewing or amending get in touch with our dedicated team for assistance.

If you would like any further information on the above, please contact our office.

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