By Monica Rule

Due to the superannuation law changes that took effect from 1 July 2017, it’s more important than ever for SMSF trustees to get their affairs in order before the end of this financial year. Let’s go through some of the key things that need considering.

1. The Capital Gain 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 (CGT) relief election when lodging their 2016/2017 tax return.  The ATO has allowed an extension to lodge the 2016/2017 return by 30 June 2018 in order to claim the CGT relief.  If the SMSF tax return is not lodged by this date, it will miss out on claiming the temporary transitional CGT relief.

2. Transfer Balance Account Reporting.  The transfer balance account reporting enables the Tax Office to record and keep track of an SMSF member’s transfer balance cap and total superannuation balances.  An SMSF must report events that affect a member’s transfer balance.  SMSF members with pre-existing retirement pensions (i.e. pensions paid prior to 1 July 2017) must report to the ATO on or before 1 July 2018.  Where all members of an SMSF have a total superannuation balance of less than $1 million, then the SMSF can report on an annual basis at the same time as when its annual tax return is due.  Where any members of an SMSF have a total superannuation balance of $1 million or more, then the SMSF must report within 28 days after the end of the quarter in which the event occurs.  If an SMSF member exceeds their transfer balance cap, they must report the following events sooner: a voluntary commutation of their pension in response to an excess transfer balance determination must be reported within 10 business days after the end of the month in which the commutation occurs; and, responses to commutation authorities must be reported within 60 days of the date the commutation authority was issued. A failure to lodge penalty (calculated at one penalty unit of $210 for each 28-day period) may be imposed for non-compliance with the reporting requirements.

3. Valuation.  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, the method to use to calculate the tax exemption on pension income. 

   • An SMSF member is limited to the transfer balance cap of $1.6 million in their retirement pension account at the commencement of their pension.  Any amount transferred to a retirement pension in excess of this limit will be subject to an excess transfer balance tax.  From 2018/2019, the tax rate is 15% for the first breach, and increases to 30% for second and subsequent breaches.

   • An SMSF member’s total superannuation balance must be less than $1.6 million at 30 June of the previous year in order to make non-concessional contributions in the current financial year. A failure to have a current valuation could see members make non-concessional contributions that they are not entitled to make in the 2018/2019 year.  Exceeding the contributions limits may mean the contribution needs to be removed or extra tax paid. 

   • An SMSF member’s total superannuation balance must be less than $500,000 at 30 June 2018 in order to be eligible to carry forward any unused concessional contributions accumulated from 1 July 2018.

   • An SMSF must not exceed the in-house assets limit of 5% of the total value of its assets.  A valuation could affect the SMSF’s in-house assets limit.  For example, if a new valuation shows the value of SMSF’s in-house assets exceeds 5% of the total value of its assets, then the SMSF will need to rectify the situation or it will be found to be in non-compliance with the law.

   • An SMSF with a member in the retirement pension phase with a total superannuation balance in excess of $1.6 million at 30 June 2017 must use the unsegregated assets method to calculate the tax exemption on earnings from pension assets in the 2017/2018 financial year.  

4. Contributions.  The contributions limits are $25,000 per annum for concessional contributions and $100,000 per annum or $300,000 over three consecutive years (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 2018 in order to count towards the limit for the 2017/2018 financial year, to avoid excess contributions tax, and to be able to claim the relevant tax deduction in the 2017/2018 financial year.

5. Employer 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 2017/2018 financial year. Exceeding the concessional contributions cap may result in excess contributions tax being imposed on the excess contributions.

6. Salary sacrifice contributions. Salary sacrifice contributions are concessional contributions.  Members should check their records before contributing more to avoid exceeding their concessional contributions cap.

7. Spouse contributions. Spouse contributions must be received by an SMSF on or before 30 June 2018 in order for the member to claim the spouse contribution tax offset.  The maximum tax offset claimable is 18% of non-concessional contributions of up to $3,000. 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. 

8. Contribution splitting. The maximum amount that can be split for a financial year is 85% 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 2016/2017 financial year in the 2017/2018 financial year.  Members can only split contributions they have made in the current financial year if their entire benefit is being withdrawn from their SMSF before 30 June 2018 as a rollover, 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 lower balance spouse’s superannuation account.

9. Superannuation co-contribution. 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 dollar of their non-concessional contribution to a maximum of $1,000 made to their SMSF by 30 June 2018.  To receive the maximum co-contribution of $500, the member’s total income must be less than $36,813. The co-contribution progressively reduces for income over $36,813 and cuts out altogether once the member’s income is $51,813 or more.  A member will only be eligible for the co-contributions if their total superannuation balance was less than $1.6 million at 30 June 2017 and they have not exceeded their non-concessional contributions limit in the current financial year.

10. Low income superannuation contribution.  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 2018, 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.

11. Minimum pension payments. Trustees must ensure that the minimum pension amount is paid from their SMSF by 30 June 2018 in order for the SMSF to receive the tax exemption.  The asset valuation will determine the minimum pension payment required to be made in the following year.  If the minimum pension payment is not made, the SMSF will lose the tax exemption on earnings from pension assets.  This would mean the investment income from the assets supporting the pension would be taxed at 15%. If a member is accessing a Transition to Retirement Income Stream, then they must ensure they also do not exceed the maximum pension limit.  

12. The First Home Super Saver Scheme.  From 1 July 2018, SMSF members are able to withdraw concessional and non-concessional contributions of up to $15,000 per year to a lifetime maximum of $30,000 from their SMSF to purchase or construct their first home.  The contributions along with deemed earnings can be withdrawn from 1 July 2018.  The withdrawals will be taxed at the member’s marginal tax rate plus the Medicare Levy with a 30% tax offset.  Any contributions made in the 2017/2018 financial year will count towards what a person can take out from 1 July 2018.  The associated earnings will be calculated as if the contribution was made on 1 July 2017 even though it may have been made as late as June 2018.  

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

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

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 - Update Rules
• Investment Strategy for Self Managed Super 17/18
• Commercial Lease
• Pension Pack for Self Managed Super

Related webinars:

• Webinar Recording - Time to Address the SMSF Sleeper - Estate Planning within the fund
• Webinar Recording - SMSFs And Related Party Loans
• Webinar Recording - Understanding The 2017 Superannuation Changes