With the end of the financial year fast approaching, now is the perfect time to ensure everything is in place for your self-managed super fund (SMSF) before 30 June. The following are some superannuation strategies that you might want to know more about to get the best out of your SMSF.
Before the end of the financial year you should:
- Review if you have any income available to contribute to your fund; and
- Review your total contributions to ensure they are below the caps.
Non-concessional (after tax) contributions are limited to $100,000 for the 2020 financial year. Members under 65 years of age (or have turned 65 years of age during this 2019/20 financial year and passed the work test) have the option of contributing up to $300,000 under the bring forward rule.
However, please check your superannuation member balance at 1 July 2019 to determine if you are eligible to make any non-concessional contribution as no non-concessional contribution will be allowed if the member balance is at $1.6m and above.
Concessional (before tax) contributions are limited to $25,000. This is the first time you can use any “unused” concessional contribution limit from the previous 2018/19 financial year. For example, if you only made $10,000 concessional contribution in the 2018/19 financial year, you could contribute the “unused” remaining amount of $15,000 in this financial year. So, you can contribute a total of $40,000 concessional contribution in this financial year.
However, your superannuation member balance must be below $500,000 on 1 July 2019 to be eligible to contribute the “unused” amount.
Excess contribution tax
Anyone making large superannuation contributions should exercise extreme care to avoid excess contribution penalties. Making sure you do not exceed the contribution caps will save you both money and time dealing with excess contribution tax.
Contributions are included in a financial year if they are received by your fund during that year. This means that they must be in the SMSF’s bank account by 30 June.
Division 293 tax
Division 293 tax is an additional 15% tax on the concessional contributions. This will apply when an individual combined income and contributions are greater than $250,000.
Drawing superannuation pensions
If you are in pension phase, you need to ensure the minimum pension has been paid to you for this financial year. Where these requirements have not been met your fund will lose the tax-exempt status.
Please note, due to the COVID-19 pandemic, the Government has reduced the minimum annual payment required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities by 50% in the 2019–20 and the 2020–21 financial years.
If you meet the relevant work tests and earn less than $53,564, it is worth considering if you can take advantage of the Government super co-contribution.
SMSF fund expenses
For members in the accumulation phase, it is important that any expenses are actually incurred or paid before 30 June to be deductible in the current financial year.
Rebalancing accounts between spouses
The end of financial year is also the perfect opportunity to rebalance account balances between spouses, to ensure that super balances are as even as possible and the $1.6 million transfer balance cap is maximised for each member.
How can we help?
If you need assistance with any aspect of your end of year fund planning or reporting requirements, please feel free to contact us on (03) 9810 0700 to arrange a time to meet so that we can discuss your particular requirements and circumstances in more detail.
This article is intended for general discussion and is not intended to represent specific advice. Banks Group shall not be responsible for any entity that acts on any of the comments in this article without first obtaining specific advice from Banks Group.