Have you documented all your trustee decisions?
Ensure all SMSF documentation is in place to record decisions and actions taken during the year such as lump sum withdrawals, rent relief provided to your SMSF’s tenant, or strategies regarding temporary imbalances to your investment strategy.
Ensuring the administration and structure considerations of your SMSF are up-to-date is also important, so:
- check all your SMSF investments are held in the name of the trustee;
- review your bank account for the year and make sure your SMSF has paid any SMSF related expenses;
- double-check that your SMSF had not paid any personal expenses – correct these now if you discover any;
- ensure each trustee reviews their enduring power of attorney to ensure it is still relevant. Contact your lawyer if you need to arrange one or make amendments. Incapacity issues are an important structuring consideration for fund. Please review this article and contact us with any queries.
- review your estate planning and binding death nominations and make sure they are still applicable.
We’ve prepared an SMSF checklist to help you to confirm that your administration and obligations are covered.
Review contribution strategies
Maximise tax-deductible contributions (concessional contributions)
Making tax-deductible contributions can be a tax-effective way to build your superannuation. The concessional cap for the 2021 financial year is $25,000.
Concessional contributions include:
- your employer’s superannuation contribution (the compulsory 9.5%);
- any salary sacrificed contributions; and
- any personal contributions you claim as a tax deduction.
Ensure these are all taken into account when determining how much space you have left in your concessional cap.
Ask your employer if they offer salary sacrifice. If they do, it can be a great way to help grow your super tax-effectively because the contributions are made from your pre-tax pay – before you get a chance to spend it on other things.
Remember, salary sacrifice contributions count towards your concessional contribution cap, along with any superannuation guarantee contributions from your employer and personal deductible contributions.
Double-check your salary sacrifice arrangement’s timing so you know when your fund will receive amounts yet to be paid. Note, contributions are deemed to be made in the year the fund receives and processes them. Importantly, also check that your fund did not receive any of last financial year’s contributions in this financial year.
Personal super contributions
Most people (employees or self-employed) can make contributions to their super fund and claim a tax deduction in the current financial year. If you are an employee, making a personal contribution may save the hassle of arranging salary sacrificing with your payroll, and still result the same tax benefits.
The contribution is generally taxed at up to 15% in the fund (or up to 30% if you earn $250,000 or more). Depending on your circumstances, this is potentially a lower rate than your marginal tax rate, which could be up to 47% (including the Medicare Levy) – which could save you up to 32%.
To do this, you need to allow enough time to ensure your superannuation fund’s bank account has deposited and cleared the contribution by 30 June.
Important points to consider:
- To claim a tax deduction – you will need to complete and lodge a Notice of Intent to Claim the Deduction and have this notice acknowledged (in writing) before the date you lodge your tax return, or the end of the financial year following the year you made the contribution – whichever is earlier. The accepted ATO form is here. If the paperwork is not completed, you cannot claim the deduction!
- If your income has dropped during the year, and you have already completed the paperwork to make a personal contribution, you can normally vary it before the due dates by completing the variation section in the ATO form.
- Make sure your personal superannuation contributions don’t create a tax loss, as you will be unable to claim the deduction as a concessional contribution.
- If you are aged between 67 and 75, you must have passed the work test to be able to contribute to super. The work test is met by working a minimum of 40 hours paid employment in a 30-day consecutive period during the financial year.
Consider a “catch up” concessional contribution
While the concessional contribution cap is $25,000, you may be able to contribute more than that without penalty if you didn’t use the whole cap in 2018/19 or 2019/20 and are eligible to make ‘catch-up’ contributions.
To be eligible for this concession you need to ensure your Total Superannuation Balance (TSB) was less than $500,000 (across all funds) as at 1 July 2020.
This might be useful if you pay income tax at more than 32.5% and are wanting to build your super, if you have sold an asset this year and realised a capital gain, or have a spike in your income for any other reason.
TIP: Do your sums carefully to make sure you accurately calculate your unused cap balances!
Consider after-tax (non-concessional) contributions
Another way to invest more in your super is with some of your after-tax income or savings, by making a personal non-concessional contribution.
While these contributions don’t reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15% that’s paid in super on investment earnings. This tax rate may be lower than what you’d pay if you held the money in other investments outside super.
Note, the general non-concessional cap (NCC) for the 2021 financial year is $100,000. Eligibility to utilise the cap can depend on your total superannuation balance (TSB). Details regarding TSB thresholds are below.
Members aged over 67 will need to meet the work test to make an NCC. The work test is met by working a minimum of 40 hours paid employment in a 30-day consecutive period during the financial year.
If you are under 65 years of age at any time in the 2021 financial year, you may be able to bring forward three years of NCC, depending on your TSB. This enables up to $300,000 of NCC to be made in one year.
The bring-forward rule is automatically triggered if you make an NCC of more than $100,000 in one year. The total NCCs for the current year and for the next two years must be within the contribution cap of $300,000 total.
On 1 July 2018, a new type of personal contribution became available. It enables eligible members to contribute up to $300,000 to superannuation from the sale of their family home. This is regardless of their TSB.
Members must be 65 years or older at the time of contribution and have owned the home for a minimum of ten years, and the proceeds need to be contributed to superannuation within 90 days of settlement.
This personal contribution will not impact concessional or NCC caps and is a once-only opportunity per member.
Note, the home does not have to be your family home at the time of sale. Also, it does not have to have been the family home for the entire ten years – increasing the pool of properties that may be eligible for the contribution.
If your spouse is not working or earns a low income, you may want to consider making an after-tax contribution into their super account. This strategy could potentially benefit you both: your spouse’s super account gets a boost and you may qualify for a tax offset of up to $540.
You may be able to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less pa (including their assessable income, reportable fringe benefits and reportable employer super contributions). Your spouse must be under 70 to be eligible and met the work test if aged 65 to 69.
A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,000 and $40,000 pa.
Split your concessional contributions with your spouse
You can allocate up to 85% of your 2021 FY concessional contributions before 30 June to your spouse’s super if your spouse hasn’t met retirement age. This is an effective way of building super for your spouse and managing your TSB, which is relevant for the strategies outlined below.
You will need to check with your fund that it offers contribution splitting and find out their process. It usually involves an election to enable one split per financial year using the ATO form.
If you earn less than $54,837 in the 2021 financial year, and at least 10% is from your job or a business, you may want to consider making an after-tax super contribution. If you do, the Government may make a ‘co-contribution’ of up to $500 into your super account.
The maximum co-contribution is available if you contribute $1,000 and earn $39,837 pa or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $39,837 and $54,837 pa.
Be aware that earnings include assessable income, reportable fringe benefits and reportable employer super contributions. Other conditions also apply – contact us if you need help.
Condition of release
Once you’ve put any money into your super fund, you won’t be able to access it until you reach preservation age and/or meet other ‘conditions of release’.
If you have met a condition of release during the year, consider whether commencing a pension could be beneficial. A condition of release includes reaching:
- 65 years of age;
- 60 years of age and retiring from a position of gainful employment;
- 58 years of aged and retiring from gainful employment with the intention of working no more than 10 hours per week in the future.
Note: there are also some rules that allow access for financial, health or compassionate grounds. For more information, visit the ATO website.
Drawing superannuation pensions
If you are in pension/retirement phase, you need to ensure the minimum pension has been paid to you in cash for this financial year.
As a response to COVID-19 the government announced temporary reduction to the minimum draw down rates by 50%. Contact your fund ensure you have taken at least your new minimum.
Note changes from 1 July 2021
On 1 July 2021, many of the superannuation thresholds and caps will change. The compulsory superannuation employer contribution will also increase from 9.5% to 10%. It may be beneficial for some to hold off on making contributions, triggering the bring forward rule or commencing a pension until the new rule are effective. The changes are complex and the implications wide and varied and as such we recommend you speak to a Bentleys adviser before you take any action prior to 30 June 2021 in relation to your superannuation.
Total Superannuation Balance (TSB) key thresholds
Many superannuation contribution strategies depend on your Total Superannuation Balance (TSB) at 30 June of the previous year.
Your TSB is a total of ALL superannuation balances held in ALL your superannuation funds.
Some of the key thresholds are:
|Threshold||Who is impacted
|$500,000||Members can make catch up contributions if they haven’t fully utilised their personal concessional caps in prior years while their TSB is less than $500,000. The first year catch up contributions could be made was in the 2020 financial year.
|$1,000,000||If any member of an SMSF has a balance in excess of this, the fund is required to prepare a Transfer Balance Account Report (TBAR) quarterly where an event that affects the TBC occurs for any member of the SMSF during that quarter.
|$1,400,000||Having a balance below this threshold allows a member (under 65 as at 1 July each year) to apply the three year bring forward rule for NCC.
|$1,500,000||Having a balance below this threshold allows a member (under 65 as at 1 July each year) to apply the two year bring forward rule for NCC.
|$1,600,000||Having a balance below this threshold allows a member to make up to $100,000 NCCs.
At or above a balance of $1.6M, members are no longer eligible to make NCC, claim spouse contributions or be eligible for government co-contributions.
Need help? Contact your Bentleys advisor – we’re here to help you get where you want to be.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.