8 May 2018
Because of superannuation law changes that took effect from July 1 last year, it’s more important than ever for self-managed super fund trustees to get their affairs in order before the end of this financial year. I suggest these are the six most important steps for you to get your super into shape by June 30.
- The capital-gains-tax relief
SMSFs that were affected by the $1.6 million transfer balance cap and have transferred assets from either the retirement pension account, and-or the transition-to-retirement income stream account, to the accumulation account of their members, may reset the cost base of the assets and make an irrevocable capital-gains-tax relief election when lodging their 2016-2017 tax return.
The Australian Taxation Office has allowed an extension to lodge the 2016-17 return by June 30 to claim the CGT relief.
SMSF asset valuations are very important as they affect how much money a member can have in their retirement pension account; whether a member can make further contributions; whether they have exceeded their in-house assets limit; and, whether the minimum pension payment has been made from their SMSF.An SMSF member is limited to the $1.6m transfer balance cap in their retirement pension account. Your total superannuation balance must have been less than $1.6m at June 30 last year in order to make non-concessional contributions for this financial year.
An SMSF member’s total super balance must be less than $500,000 at June 30 this year to be eligible to carry forward any unused concessional contributions accumulated from July 1, 2018. An SMSF also must not exceed the in-house assets limit of 5 per cent of the total value of assets in the SMSF.For an SMSF to be able to claim the tax exemption on investment earnings from retirement pension assets, the minimum pension account must be paid from the SMSF. An SMSF with a member in the retirement pension phase with a total super balance of $1.6m at June 30, 2017 must use the unsegregated assets method to calculate the tax exemption on earnings from pension assets in this financial year.
This is a key area to watch since the contribution limits changed last year. The contributions limits are $25,000 a year for concessional contributions and $100,000 a year or $300,000 over three consecutive years (using the bring-forward provisions) for non-concessional contributions.
SMSF members should check whether superannuation-guarantee contributions for the June 2017 quarter have been received by their SMSF in July 2017. If so, this contribution must be included in their concessional contribution cap for the 2017-18 financial year.Salary-sacrifice contributions are concessional contributions. Members should check their records before contributing more to avoid exceeding their concessional contributions cap. SMSF members need to ensure their contributions are received by their SMSF on or before June 30 this year in order to count towards the limit for the 2017-18 financial year, to avoid excess contributions tax, and to be able to claim the relevant tax deduction in the 2017-18 financial year.
- Spouse contributions
Spouse contributions must be received by an SMSF on or before 30 June for the member to claim the spouse-contribution tax offset. The maximum tax offset claimable is 18 per cent of non-concessional contributions of up to $3000. The spouse’s annual income must be $37,000 or less for the member to receive the full tax offset. The tax offset decreases as the spouse’s income exceeds $37,000 and cuts off when their income is $40,000 or more.
- Contribution splitting
The maximum amount that can be split for a financial year is 85 per cent of concessional contributions up to the concessional contributions cap. The split must be made in the financial year immediately after the one in which the contributions were made. This means a member can split concessional contributions made into their SMSF during the 2016-17 financial year in the 2017-18 financial year. Members can split contributions they have made in the current financial year only if their entire benefit is being withdrawn from their SMSF before June 30 this year as a rollover, lump-sum benefit or a combination of these.
- The first-home super scheme
SMSF members are now able to contribute $15,000 a year up to a total of $30,000 to their SMSF to fund a home deposit. These contributions, along with deemed earnings can be withdrawn for a deposit, with withdrawals taxed at a marginal tax rate plus the Medicare Levy with a 30 per cent tax offset. Any contributions made in the 2017-18 financial year will count towards what a person can take out from July 1 this year. The associated earnings will be calculated as though the contribution were made on July 1, 2017, even though it may have been made as late as next month.
It’s already mid-May: getting organised early will give you the peace of mind that your SMSF is operating lawfully and gives you the chance to take advantage of government incentives.
Monica Rule is an SMSF specialist and author.