Self Managed Super Funds 2016/2017 Update
Reminder to pay pensions before 30 June 2017
If your superannuation fund is in pension or Transition to Retirement (TRIS) phase, it is crucial to ensure that the minimum pension payments for the 2016/2017 financial year are made prior to 30 June 2017.
If a fund fails to physically pay sufficient pensions to meet its minimum obligations, the fund will not be entitled to the tax exemption (i.e. it will lose its tax free income status). Other than in specific circumstances, it is not acceptable for the fund to accrue any pension shortfall in its financial statements.
Your minimum pension amount was provided on your SMSF year end letter from Bush & Campbell. If you require additional detail on your minimum pension amount please contact Di McAlister.
Concessional contributions for 2016/2017 year recap.
For anyone who was under 49 years of age on 30 June 2016 the maximum amount of concessional (tax deductible) contributions that can be made to superannuation in the 2017 financial year without penalty is $30,000. However, for anyone who is at least 49 years of age or older on 30 June 2016 the maximum amount is $35,000. This includes amounts your employer may make as compulsory super and salary sacrifice contributions as well as any personal deductible contributions you may have made if you qualify.
If you are self-employed, an investor or in receipt of a pension and receive less than 10% of your income, fringe benefits and other related payments as an employee you may be eligible for a tax deduction for personal contributions to superannuation. If you intend to claim a tax deduction make sure you are eligible to claim a deduction and seek advice if you are unsure.
If you are older than 65 you will need to meet a work test to contribute to superannuation. This means, in the financial year you intend to make a contribution, you need to be paid for working at least 40 hours during 30 consecutive days before the contribution is made.
Changes to superannuation from 1 July 2017
As you are aware there are a number of changes to superannuation occurring on 1 July 2017. While not exhaustive, some considerations and key changes include the following:
Decreased concessional contributions cap
From 1 July 2017, this concessional contribution cap will fall to $25,000 for everyone
From 1 July 2017, everyone who is eligible to make a contribution will be able to claim a tax deduction for personal superannuation contributions without needing to satisfy the 10% rule.
Unfortunately the work test will still be applicable for those over 65 looking to contribute to superannuation. Please see the contribution recap section of this newsletter for explanation of the work test.
Making after tax contributions to super
You can make after tax contributions to super which could come from your personal savings, transferring personal investments, an inheritance or from the sale of investments. For the 2017 financial year the maximum personal after tax contribution is $180,000, however, if you are under 65 years of age you can contribute up to $540,000 over a fixed three year period. This allows you to make substantial contributions to super and build up your retirement savings. If you are under 65 and make total after tax contributions of more than $180,000 in a financial year the bring forward rule is triggered. This allows you to make non-deductible contributions of up to $540,000 in total over a fixed three year period commencing in the year in which you contributed more than $180,000.
From 1 July 2017, this cap will fall to $100,000 per annum with a $300,000 three year bring forward. This also means if you triggered the bring forward rule before 2016/17 but the full $540,000 was not contributed, you will be limited to a transitional bring forward cap.
Those with a total superannuation balance of $1.6 million or more will not be able to make after tax contributions past 1 July 2017.
Transition to retirement income streams losing their tax-exempt earnings status
From 1 July 2017, superannuation fund members will lose the tax-exempt treatment of earnings on assets that support a transition to retirement pension (TRIS). Members will still be able to start new or maintain existing TRIS’s, but they now need to be considered with other SMSF and personal objectives.
Preparing for the $1.6 million transfer balance cap (TBC) and capital gains tax (CGT) relief
From 1 July 2017, a TBC of $1.6m will limit the total amount of superannuation assets a member can hold in the tax-free pension phase. However there is no restriction placed on subsequent earnings or capital growth on the assets supporting a member’s TBC. This means that if the starting balance of the TBC is $1.6m and investment earnings and asset growth increase the value of the TBC to $2m, the $2m is still in the tax free component of the super fund.
Assets over the $1.6m TBC that are currently in superannuation can remain within the super fund and do not need to be withdrawn. Rather, they will commuted (converted) to the member’s accumulation account within the super fund. This will be an accounting process performed when the work for 2017 is being completed. Bush & Campbell will be working with you during this process.
Generally, taxable income derived from accumulation assets are taxed at 15%, with a 10% rate applying to net capital gains on assets held for more than 12 months (after allowing for a 1/3 CGT discount).
Transitional CGT relief broadly enables the cost base of assets to be reset to their market value at 30 June 2017 when assets may need to be transferred from pension phase to accumulation phase to comply with the TBC. An election can be made on an asset by asset basis and must be completed in an approved form prior to the lodgement of the fund’s FY2017 tax return. Bush & Campbell will be recommending and facilitating which assets to apply the cost base reset.
It should be noted that there is no change to the ability of a member of a super fund, once they are retired or over 65, to withdraw their chosen amount from superannuation. These withdrawals will be permissible from both pension assets and accumulation assets. Additionally there has been no change to the tax-free nature of a superannuation member receiving a pension from their super fund tax-free if over 60 years old.
The changes from 1 July are quite complex, especially for those with assets above $1.6m in super. We will be working closely with you during the course of the next 12 months to educate and structure your super fund so that it both complies with the 1 July changes and arranged with the best possible tax and succession outcome considering the changes.
New legislation affecting superannuation advice.
As advised last year, the ability for accountants to recommend many superannuation strategies including starting a SMSF, commencing a pension, maximising contributions and borrowing in a SMSF, was removed by ASIC. As a result many accountants (myself included) have had to obtain a Financial Services License to continue to recommend these strategies.
You may have already received from us a Financial Services Guide (FSG), Statement of Advice (SOA) or Record of Advice (ROA). There will be instances where these documents are not required for your particular super fund. However for others, future advice of the nature above may need to take the form of a SOA or ROA. For this reason we have been completing many Foundation SOA’s so that future conversations and recommendations can occur under the new laws. We have been required to set up a new company called Bush & Campbell SMSF Advice Pty Ltd that, from time to time, will be providing these services to you under the new licensing regime. Where relevant, you will hear from us with regard to these Foundation Statement of Advices
New superannuation software
Many clients are now aware that we are changing to new SMSF software. This has been a staggered process and the transition to date (which has been completed by more than 50% of our super funds) has occurred as planned. We thank you for your assistance with the change. For those that are yet to hear from us, please read further.
We have been reviewing our Self Managed Superannuation Software to ensure the service we provide to our clients is performed as efficiently as possible. In addition to increased efficiency, the need for real-time superannuation balances will become increasingly important for many clients given the changes to Superannuation legislation from 1 July 2017.
With the matters above in mind we are transitioning to an upgraded software solution from our current software provider BGL. It is our intention to transfer from BGL Simple Fund to BGL 360 over the coming year. BGL 360 is a cloud based software solution whereby banks and share registries can communicate electronically with the superannuation software. The security protocols within BGL 360 are the same as those of the Big 4 banks. The benefits of the change are: -
- Real time tracking of pension payments, contributions and investment market values. This real time data allows us to advise on pension and contribution limits and superannuation strategies in a more timely manner and without much of the ‘paperwork’ previously required.
- No need to wait for 30 June financial statements to view performance of the super fund.
- An interface whereby SMSF trustees can choose to view their Super Fund’s investments and details of contributions, pensions and other matters in real time.
- Provide an efficient process where interest and dividend income, rent income and ASX corporate actions can be collected and appropriately accounted for in real time. This will lead, in time, to requiring less documentation from the SMSF trustee for audit and accounting purposes.
- Increase our ability to complete tax returns in a timelier manner allowing super funds with ATO refunds to receive their tax refunds faster. Super funds with tax to pay will still be able to make payment up to mid May of the year after the tax return is complete.
- Financial statements and tax returns will still need to be completed at 30 June annually.
- Banklink will be redundant for those super funds that have previously signed Banklink forms.
- Importantly, other than the attached paperwork, this change requires no additional input from you as trustee of the superannuation fund. In time we believe it will streamline the record keeping process you may be currently performing for us and audit purposes.
Valuation of land assets in super funds.
As you are aware the trustee of a super fund is required to consider the market value of the underlying assets in the super fund and have these values recorded in the funds financial statements. This is easy for listed shares and managed funds where the market value is readily available. However many super funds also have investments in property (or an investment in an entity that may hold property) where the market value is not readily available. In April 2017 the ATO released very useful information regarding the trustees obligations to value assets. The need to ensure property values are kept at market value becomes more important with the 1 July changes to superannuation; particularly for those nearing or above $1.6m in superannuation assets. As part of our tax process in 2017 and as we have in previous years, we will be discussing the carrying value of these property based assets prior to completion of the super funds financial statements. To read more about the ATO’s valuation guidelines click on this link https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/Valuation-guidelines-for-self-managed-super-funds/
Related party leases
As reported in 2016, there are a number of SMSF’s that now own either commercial or primary production property that is leased back to a related person (or business) of the super fund. As part of their audit process, the ATO is currently reviewing related party lease arrangements. The purpose of these reviews is to ensure transactions are in accordance with rental documentation and on commercial (arms-length) terms.
As a result it is very important that if your SMSF has any related party transactions (such as rent), they are conducted in accordance with the drafted documentation. If reviews of your affairs indicate that additional payments (or withdrawals) need to occur for the 2016/2017 year we strongly recommend that these matters be attended to prior to 30 June 2017.
If you have any questions in relation to related party matters please contact Daniel Uden.
The Bush & Campbell SMSF Team
Daniel Uden - Director
Daniel commenced at Bush & Campbell 19 years ago and heads our SMSF team. Daniel has been working with our superannuation client base over the last 6 years. Daniel is a Chartered Accountant, Registered Company Auditor and holds a Professional Certificate in Self Managed Superannuation Funds. Daniel also licensed to provide advice, as an Authorised Representative of Accountable Financial Solutions Pty Ltd, with regard to superannuation and SMSF recommendations. Daniel is looking forward to working with our existing and new clients to continue to develop positive financial strategy outcomes for self managed superannuation.
Di McAlister – SMSF Manager
Di McAlister commenced employment with Bush & Campbell in 1978. After working with local real estate firms specialising in property management and accounting she returned to Bush & Campbell in November 2001 to take up a position in our self managed super fund team. Di has been co-ordinating the superannuation team since and has a deep understanding of the transactions and day-to-day activities and obligations of super fund trustees.
Julie Zappala – SMSF Accountant
Julie Zappala started as a trainee with Bush & Campbell in February 1987. After time with KPMG in Albury and in commerce she returned to the Bush & Campbell in 2002 and took up a full-time position in the self managed super fund team shortly thereafter. She has been working as an integral SMSF accountant in the team ever since.
Geoff Watson – Auditor
Geoff Watson is a Director of Bush & Campbell who commenced his employment with the firm more than 45 years ago. Geoff is a qualified SMSF Auditor who is responsible for auditing a number of our SMSF’s.
David Rosetta – Auditor and Technical
David Rosetta is a Chartered Accountant, Registered Company Auditor and SMSF Auditor. David is part of our technical SMSF team and assists the SMSF audit department with their technical queries.
Samara Harris - Auditor
Samara Harris recently commenced work with Bush & Campbell. An accountant with prior experience in KPMG in Sydney, Samara works part time with Bush & Campbell and assists Geoff in the auditing of SMSF’s.
Liz Leman - Administration
With a background in office management in professional services firms, Liz commenced work with Bush & Campbell in 2016. Liz is our SMSF administration assistant who is responsible for all the administration functions that occur within the SMSF team.
Leanne Mathew - Administration
Leanne Mathew is Bush & Campbell’s Administration Supervisor and has been with the firm since February 2013. Leanne has had 15 years experience in the industry and is responsible for overseeing our administration team including compliance matters for our superannuation funds.
Sharon Ferguson – Financial Planner
Sharon Ferguson is the Director of Bush & Campbell Financial Services. Commencing with Bush and Campbell in 2001, she has over 17 years financial planning experience. Sharon is an expert in providing total financial solutions to assist individuals, business owners and families to better manage their wealth and financial needs. Sharon specialises in investment advice including direct share portfolio management, superannuation, retirement planning, insurance and in more recent years, Aged Care. Sharon is now a sought after professional in the region of aged care financial advice, explaining and managing the maze of nursing home information.
Ann Thompson – Financial Planner
Financial Planner Ann Thompson has over ten years experience in the financial services industry. Ann's focus on getting to know her clients enables her to develop with them a personalised strategy to ensure they each achieve their goals throughout their lifetime. With specialised knowledge in the areas of life insurance and self managed superannuation funds, Ann can advise in all aspects of financial planning including strategic advice, investment advice, superannuation, retirement planning and personal insurance. Along with a genuine commitment to exemplary customer service, Ann enjoys mentoring team members and developing systems to continually enhance the customer experience.