By Monica Rule

There were many unexpected changes to superannuation announced by Federal Treasurer, Scott Morrison, in his budget speech on 3 May 2016.  Perhaps the biggest surprise for me is that there are no transitional or “grandfathering” arrangements for some of these big changes. In my thirty (30) years dealing with various laws (e.g. income tax, sales tax, child support and superannuation)  I have never seen a new measure introduced without some provision to allow people who have taken advantage of an old law to continue with the arrangement or at least to transition out of it.  Having measures apply retrospectively was also unheard of!

In summary, the changes to superannuation could affect the financial position of Self Managed Superannuation Fund (SMSF) investors in relation to: making concessional contributions; making non-concessional contributions; paying an additional fifteen per cent (15%) tax on concessional contributions; and, having a superannuation pension balance of more than $1.6 million.

Please remember that the proposed changes will need to be legislated after the upcoming election on 2 July 2016 and could change as legislation is passed or rejected by parliament.  As most of the proposed changes are to take effect from 1 July 2017, I think they are worth mentioning when considering end of financial year matters.  What follows are things to consider before 30 June 2016. Gold and Platinum members get access to exclusive commentary on how these matters are impacted by the proposed Federal Budget.

Things to consider before 30 June 2016

1. Valuation of your SMSF’s assets

It is a requirement under the superannuation law that the assets in your SMSF be valued each financial year.  This is so your accountant can record the market value of the assets in the SMSF’s 2015/2016 financial statements for income tax purposes and your SMSF auditor can verify that you have not contravened various provisions of the income tax and superannuation laws. The superannuation law does not require that you use a qualified independent valuer, as long as the valuation that you have arrived at is based on objective and supportive data. The Australian Taxation Office (ATO) has published two (2) documents on its website - “Valuation guidelines for SMSFs” and “Market valuation for tax purposes” that addresses how assets should be valued. 

2. Contributions into your SMSF

If you are intending to make contributions into your SMSF, you need to make sure the contributions are received by your SMSF on or before 30 June 2016 in order for it to be counted in the 2015/2016 financial year.  This is important if you are making contributions by electronic funds transfer (EFT) as some transactions may not be credited into your SMSF’s bank account until the next working day. 

3. Don’t exceed your contribution caps

You will need to ensure that you do not exceed the contributions caps.  If you are making a non-concessional contribution, check that the non-concessional contributions made during the previous three (3) financial years are reviewed so that the two (2) year bring forward provision has not been triggered in an earlier year. If it has it will affect the amount you can contribute in the current financial year.
The contribution caps for the current financial year (i.e. 1 July 2015 to 30 June 2016) are:

Contribution type	Age of the member	Contribution cap
Concessional contribution	Everyone	$30,000
Concessional contribution	Aged 49 or over on 30 June 2015	$35,000
Non-concessional contribution	Everyone	$180,000
Non-concessional contribution	Under 65 at any time in the 1st year	* $540,000 for 3 years

* Please remember that only people who are under aged sixty-five (65) at any time in the first year of contribution can bring forward two (2) years of non-concessional contributions and make three (3) years worth of non-concessional contributions (i.e. a total of $540,000) in one (1) year or over three (3) consecutive financial years.  If the two (2) year bring forward rule had been triggered prior to 1 July 2014, then the maximum non-concessional contributions a person can contribute is limited to $450,000 (i.e. pre 2014/2015 non-concessional contribution cap) over the three (3) consecutive years.

4. Employer contributions received by your SMSF

Employer Superannuation Guarantee (SG) contributions are treated as concessional contributions. Employers are required to make SG contributions by the 28th day of the month following the end of the quarter in which an employee’s salary was earned.  Therefore an employee’s SG contribution for the June 2015 quarter (i.e. last financial year) may have been received by your SMSF around 28 July 2015 (i.e. current financial year).  This means, you need to include the SG contribution received in July 2015 in your concessional contribution cap for the 2015/2016 financial year.

Also, if you are an employer and you wish to claim a tax deduction for SG contributions made for your employees for the June 2016 quarter in the 2015/2016 financial year, then you will need to make sure those contributions are received by your employees’ superannuation funds by 30 June 2016.  If they are received by your employees’ superannuation funds after 30 June 2016, you cannot claim the deduction in this financial year.  The minimum SG contribution percentage required to be provided by employers for eligible employees for the 2015/2016 financial year is 9.5%. 

5. Salary sacrifice contributions received by your SMSF

If you have a salary sacrifice arrangement (SSA) with your employer to sacrifice your pre-tax wages for superannuation contributions, those SSA contributions are treated as concessional contributions.  Therefore, check your records before contributing more concessional contributions into your SMSF to avoid exceeding your concessional contributions cap.

6. Claiming a tax deduction on your personal superannuation contributions made into your SMSF

You may be able to claim a tax deduction on your non-concessional contributions made into your SMSF.  First check the eligibility rules.  The deduction is normally restricted to self-employed people and people who either do not receive any superannuation support (e.g. retirees) or receive very limited superannuation support from their employer (i.e. 10% rule).  They must also be aged under seventy-five (75).  If you are seventy-five (75) years or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month in which you turned seventy-five (75). 

If you are eligible and intending to claim a tax deduction 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. The amount claimed as a deduction will then change the character of your original non-concessional contribution into a concessional contribution.  Don’t forget that the maximum amount of deduction you can claim is limited to your assessable income.  Therefore, you may not be able to claim the maximum concessional contribution limit of $30,000 or $35,000.

7. Contributions reserve strategy

If your SMSF maintains a contribution reserve account, you may be able to claim an additional tax deduction on personal contributions made into your SMSF.  For example, by making a further concessional contribution in the month of June 2016, you are able to claim the tax deduction on the concessional contribution in the current financial year 2015/2016 and the contribution is not counted towards the member’s concessional contributions cap until the following financial year (2016/2017).  This is because the contribution is allocated to a contributions reserve and then allocated to the member’s account in the following financial year (i.e. July 2016).  Taxation Determination 2013/22 provides guidance on this strategy. 

8. Spouse contributions into your SMSF

If you are intending to make non-concessional contributions for your spouse, you will need to make sure the contributions are received by your SMSF on or before 30 June 2016 in order for you to claim a tax offset on your contributions.  The maximum tax offset that you can claim is eighteen per cent (18%) of non-concessional contributions of up to $3,000 (i.e. $3,000 x 18% = $540 maximum claimable).  However, in order for you to be able to claim the maximum tax offset your spouse’s income must be $10,800 or less in a financial year.  The tax offset decreases as your spouse’s income exceeds $10,800 and cuts off when their income is $13,800 or more.  Your spouse must be under seventy (70) years of age.  If your spouse is aged sixty-five (65) to sixty-nine (69), they must be gainfully employed for at least forty (40) hours over thirty (30) consecutive days.  Your age and work status as the contributor does not matter, however, you will both need to be Australian residents for tax purposes and not be living separately and apart on a permanent basis at the time the contribution is made.

9. Contribution splitting in your SMSF

Concessional contributions that you have made into your SMSF can be split between you and your spouse.  The requirement is that your spouse must not have reached their preservation age or if they have reached their preservation age, they need to be aged under sixty-five (65) and not retired from the workforce.  The maximum amount that can be split for a financial year is eighty-five per cent (85%) of the amount of concessional contributions made into your SMSF in that financial year up to your concessional contribution cap.   You cannot split non-concessional contributions.  The 30 June date is important because if you are intending to do contribution splitting, 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 you have made into your SMSF during 2014/2015 financial year in the 2015/2016 financial year.  You can only split contributions you have made in the current financial year (i.e. 2015/2016) if your entire benefit is being withdrawn from your SMSF before 30 June 2016 as a rollover, transfer, lump sum benefit or a combination of these.  If you split your concessional contribution with your spouse, the full amount of the original concessional contribution, counts towards your concessional contribution cap.  In addition, you cannot claim the superannuation spouse contribution tax offset for a contribution split to your spouse’s superannuation account.

10. Your entitlement to the superannuation co-contribution

If you have made non-concessional contributions into your SMSF, the Government will match your contributions with a co-contribution of up to $500 per year if you are an eligible person.  To be eligible you must earn at least ten per cent (10%) of your income from business and/or employment, be a permanent resident of Australia and under seventy-one (71) years of age at the end of the financial year. The government will contribute fifty (50) cents for each $1 of your non-concessional contribution to a maximum of $1,000 made to your SMSF by 30 June 2016.  To receive the maximum co-contribution of $500, your total income must be less than $35,454. The co-contribution progressively reduces for income over $35,454 and cuts out altogether once your income is $50,454 or more.  The government will pay the co-contribution directly into your SMSF once you have lodged your personal income tax return.

11. Your entitlement to the low income superannuation contribution (LISC)

If your income is under $37,000 and you and/or your employer have made concessional contributions into your SMSF, you will be entitled to a refund of the fifteen per cent (15%) contribution tax up to $500 paid by your SMSF on your concessional contributions. To be eligible, at least ten per cent (10%) of your income must be from business and/or employment and you must not hold a temporary residence visa.  To receive the refund, you need to make sure that the concessional contributions are received by your SMSF by 30 June 2016. The refund will be paid directly into your SMSF by the ATO.  The low income superannuation contribution (LISC) rebate is available until 30 June 2017.

12. Check whether you are entitled to any CGT small business retirement exemptions

There are four (4) capital gains tax (CGT) concessions available to small business owners on the sale or replacement of certain assets associated with their business. The four (4) concessions are referred to as: (1) 15 year exemption; (2) 50% active asset reduction; (3) retirement exemption; and, (4) rollover exemption.  Speak to your accountant as to whether you qualify for one or more of these and if so ensure that you comply with the legislative requirements by 30 June 2016 in order to claim the exemptions.

13.  Minimum pension payments from your SMSF

If you are accessing an account based pension from your SMSF, then you need to make sure that the minimum amount required to be paid under the superannuation law is paid from your SMSF by 30 June 2016, in order for your SMSF to receive tax exemptions. The minimum amount is determined by your age and the percentage value of your pension account balance at either the commencement date of the pension or 1 July each year. See the table below for your percentage value.

Age	Percentage factor
Under 65	4%
65 to 74	5%
75 to 79	6%
80 to 84	7%
85 to 89	9%
90 to 94	11%
95 or more	14%

There is no maximum pension payment amount required unless you are accessing your pension under the “Transition To Retirement” (TTR) ground.  If so, the maximum amount that you can withdraw/receive from your SMSF is ten per cent (10%) of your pension account balance.  If you exceed the maximum limit under TTR, then your SMSF will not be entitled to tax exemptions.  The minimum pension payment requirement also applies to you if you are accessing a pension under TTR.  You need to make sure that your pension meets both the minimum and maximum requirements under TTR in order for your SMSF to claim the tax exemption on earnings from assets that are supporting the transition to retirement pension.

14. Review the investment strategy and the trust deed of your SMSF

The superannuation law requires that the investment strategy of your SMSF is regularly reviewed.  Make sure you have documented something (perhaps in the trustees’ minutes) that the investment strategy has been reviewed. You should also document your decision as to whether the SMSF should hold any insurance for the members of your SMSF as part of your investment strategy.  You should also review your SMSF’s Trust Deed to ensure that changes in the superannuation law are considered and changes are made to the Trust Deed, if necessary, to reflect these. Your trust deed also needs to allow for the implementation of superannuation strategies.  Many superannuation strategies (e.g. limited recourse borrowings, contribution reserves, re-contributions, anti-detriment payments) can only be implemented if your trust deed and investment strategy allow for them.

15. Is your death benefit nomination still valid?

Although a binding death benefit nomination (BDBN) is not compulsory for SMSFs, you may choose to have one.  If you do choose to have one, then trustees of your SMSF must follow the instructions in your SMSF’s trust deed on how to implement a BDBN.  For a nomination to be binding, it must be paid to dependants or to a legal personal representative.  This means only dependants and a legal personal representative can be nominated.  So if you have divorced, remarried or have children during the financial year, make sure you update your nomination to reflect your new wishes and circumstances.  Normally a binding nomination has to be renewed every three (3) years or it will lapse.  As binding nominations are not compulsory in an SMSF, SMSFs are able to offer non-lapsing or lapsing binding nominations, depending on the SMSF’s trust deed.  If no binding nomination is made, then the trustees of your SMSF will use their discretion to distribute your superannuation benefits on your death.  A non-binding nomination enables you to advise the trustees of your SMSF of how you wish your superannuation benefits to be distributed. However, because it is not binding it is used as a guide for the trustees to consider but the final decision is at the trustee’s discretion.

2016 Federal Budget Notes (Gold and Platinum Members Only)

Additional Bonus content For Gold & Platinum members: Often information on the Australian Taxation Office’s (ATO) website is hard to locate. In order for you to meet the 30 June deadline, I have attached the relevant links to ATO publications.  The links will provide additional information as well as any relevant forms that you need to use.   Happy end of financial year to everyone!

Monica Rule is the 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
• Investment Strategy for Self Managed Super 15/16
• Commercial Lease
• Product Disclosure Statement (General)
• Product Disclosure Statement (Pension Only)
• Pension Pack for Self Managed Super

Related Webinars:

• Webinar Recording - How does the 2016 Budget affect SMSF Trustees?
• Webinar Recording - Accountant Road Rules for Super
• Webinar Recording - Pitfalls that SMSF Trustees should avoid