By Monica Rule

With the superannuation law changes taking effect from 1 July 2017 it’s more important than ever for SMSF trustees to get their affairs in order at the end of this financial year. Here are some of the top ten things SMSF trustees can do to face the challenges of the new laws and the new financial year.

1. Valuations.  From 1 July 2017, an SMSF member accessing a retirement pension can only have up to $1.6 million worth of assets in their retirement pension account. The limit applies to the total value of all their pensions and not per superannuation fund. If an SMSF member also has a lifetime pension or a market linked pension then they will need to take into account the Special Value of those pensions to determine if they have exceeded the $1.6 million transfer balance cap. An SMSF member’s total superannuation balance as at 30 June 2017 is taken into account for their eligibility to make non-concessional contributions from 1 July 2017. In valuing an SMSF’s assets, please refer to ATO publication “Valuation guidelines for SMSFs”. 

2. Contributions.  As contributions limits are being reduced from 1 July 2017 to $25,000 per annum for concessional contributions and $100,000 per annum or $300,000 using the bring forward provisions for non-concessional contributions, SMSF members need to ensure their contributions are received by their SMSF on or before 30 June 2017 in order to use the higher limits available under the current law. Making the contribution a day late would mean the contribution will be measured against the new reduced limits which may mean a member has made a contribution in excess of the new entitlement. SMSF members under the age of 65 need to check non-concessional contributions made during a three financial year period to see if the two year bring forward provision has been triggered. If it has, it may affect the amount they can contribute in the current financial year and from 1 July 2017.

3. Employer contributions. Trustees should check whether Superannuation Guarantee contributions for the June 2016 quarter have been received by the SMSF in July 2016. If so, this contribution should be included in the concessional contribution cap for the 2016/2017 financial year.

4. Salary sacrificed contributions. Salary sacrifice contributions are concessional contributions.  Trustees should check their records before contributing more to avoid exceeding the concessional contributions cap.

5. Tax deductions on personal superannuation contributions. Under the current law, the tax deduction is claimable by self-employed people, retirees and people who receive less than 10% of their income from work performed as an employee. If you are eligible to claim a tax deduction then you will need to lodge a “Notice of intention to claim a tax deduction” with your SMSF trustee before you lodge your personal income tax return. Your SMSF trustee must also provide you with an acknowledgement of your intention to claim the deduction. By claiming the tax deduction, your non-concessional contributions will be reclassified as concessional contributions, counted towards your concessional contributions cap and your SMSF will pay the 15% tax on the concessional contribution. 

6. Spouse contributions. Spouse contributions must be received by the SMSF on or before 30 June 2017 in order for members to claim a tax offset on their contributions. The maximum tax offset claimable is 18% of non-concessional contributions of up to $3,000. The spouse’s annual income must be $10,800 or less for a member to receive the full tax offset. The tax offset decreases as the spouse’s income exceeds $10,800 and cuts off when their income is $13,800 or more. From 1 July 2017, the income threshold for spouses will increase from $10,800 to $37,000 and the cut off threshold will also increase from $13,800 to $40,000. Also, from 1 July 2017, the low income spouse’s total superannuation balance must not equal or exceed the $1.6 million transfer balance cap immediately before the start of the financial year in which the contribution was made; and, their total non-concessional contributions received by their SMSF in the financial year must not exceed the $100,000 annual limit.

7. Contribution splitting. The maximum amount that can be split for a financial year is 85% of concessional contributions up to your concessional contributions cap. You must make the split in the financial year immediately after the one in which your contributions were made. This means you can split concessional contributions made into your SMSF during the 2015/2016 financial year in the 2016/2017 financial year. You can only split contributions you have made in the current financial year if your entire benefit is being withdrawn from your SMSF before 30 June 2017 as a rollover, transfer, lump sum benefit or a combination of these. Due to the $1.6 million limit on retirement pensions and the eligibility to make further non-concessional contributions from 1 July 2017, contribution splitting can be used as a method to reduce a member’s superannuation balance and top up their spouse’s lower balance superannuation account.

8. Superannuation co-contributions. To be eligible for the co-contribution, an SMSF member must earn at least 10% of their income from business and/or employment, be a permanent resident of Australia, and under 71 years of age at the end of the financial year. The government will contribute 50 cents for each $1 of their non-concessional contribution to a maximum of $1,000 made to their SMSF by 30 June 2017. To receive the maximum co-contribution of $500, the member’s total income must be less than $36,021. The co-contribution progressively reduces for income over $36,021 and cuts out altogether once the member’s income is $51,021 or more. From 1 July 2017, a member will only be eligible for the co-contributions if their total superannuation balance at 30 June of the previous financial year is less than $1.6 million and they have not exceeded their non-concessional contributions limit in the financial year.

9. Low income superannuation contributions.  If a member’s income is under $37,000 and either they or their employer has made concessional contributions into their SMSF by 30 June 2017, they will be entitled to a refund of the 15% contribution tax up to $500 paid by their SMSF on the concessional contributions. To be eligible, at least 10% of the member’s income must be from business and/or employment and they must not hold a temporary residence visa. The low income superannuation contributions tax offset will remain available from 1 July 2017.

10. Minimum pension payments. Trustees must ensure that the minimum pension amount is paid from their SMSF by 30 June 2017 in order for their SMSF to receive the tax exemption. If you are accessing a Transition to Retirement Income Stream (TRIS), then you must ensure you do not exceed the maximum limit also. From 1 July 2017, the tax exemption on earnings from assets supporting a TRIS will cease. The earnings from these assets will be taxed at a maximum of 15%. In addition, from 1 July 2017, partial commutation of a retirement pension will be treated as a lump sum and will not count towards a member’s annual pension payment. A TRIS can not be commuted unless it contains an unrestricted non-preserved benefit (UNPB). In which case, only the UNPB can be commuted and treated as a lump sum.

Additional bonus content for Gold and Platinum members.  Often information on the ATO’s website is hard to locate. For you convenience, in order for you to meet the 30 June deadline, Monica has provided the relevant links to ATO publications.

Monica Rule is an SMSF Specialist and author of the book The Self Managed Super Handbook -  www.monicarule.com.au

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. The statements and opinions are the expression of the author, not Law Central, and have not been checked for their accuracy, completeness or changes in the law. Law Central recommends you seek professional advice before taking any action based on the content of this Bulletin.

Related documents:

• Self Managed Superannuation Fund Deed
• SMSF - Deed Update
• SMSF Kerbside Assessment
• SMSF Full Valuation
• Investment Strategy for Self Managed Super 16/17

Related webinars:

• Understanding the 2017 Super Changes