2018 Self Managed Superannuation Newsletter
The latest Self Managed Superannuation update from Bush & Campbell, including:
Extension of time for SMSF tax lodgement
In light of the changes to superannuation that occurred on 1 July 2017, the ATO has granted an extension for all self managed super funds to lodge their 2017 tax returns. This extension has been automatically granted by the ATO for all SMSF’s and extends the lodgement due date and tax payment (if applicable) from 15 May 2018 to 2 July 2018.
This extension was granted due to the complexity of changes introduced by the ATO which in certain situations affects SMSF’s irrespective of their superannuation asset balance. We appreciate your patience as we complete your SMSF under these new rules.
Re-Cap of contributions for the 2018 Financial Year
From 1 July 2017, the concessional contribution cap (eg deductible contribution) has reduced, for all individuals, to $25,000.
A benefit of the Government’s changes to superannuation is that from 1 July 2017, everyone who is eligible to make a concessional contribution can do so through a personal member contribution without needing to satisfy the 10% rule. Broadly, personal member contributions were previously limited to the self employed or those with large investment incomes. Under the old rules, employee’s needed to salary sacrifice to make their concessional contributions to superannuation. Now, provided the superannuation fund is notified through the appropriate form, these same individuals may be eligible for a personal deductible contribution.
Unfortunately the work test is still applicable for those over 65 looking to contribute to superannuation.
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 2018 financial year the maximum personal after tax contribution is $100,000, however, if you are under 65 years of age you can contribute up to $300,000 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 $100,000 in a financial year the bring forward rule is triggered. This allows you to make non-deductible contributions of up to $300,000 in total over a fixed three year period commencing in the year in which you contributed more than $100,000.
Important: Key to the Government’s changes on 1 July 2017 was that, for those individuals with a total superannuation balance (over all their super funds) in excess of $1.6m, non-concessional contributions will generally not be allowable. In addition the 3 year bring forward provisions may be effected if an individual’s superannuation balance is $1.3m or over. The specific workings of non-concessional contributions are technical in this regard and our office should be contacted for comment prior to considering such contributions.
Reminder to pay pensions before 30 June 2018
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 2017/2018 financial year are made prior to 30 June 2018.
If a pension 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 in your SMSF year end letter from Bush & Campbell. If you require additional detail on your minimum pension amount please contact Di McAlister.
Downsizer contributions from 1 July 2018 – what do they mean?
From 1 July 2018 the Coalition is introducing ‘downsizing’ provisions where, in the event you move from the family home, some of the proceeds from the home sale (up to a maximum of $600k for a couple) can be contributed to super. The key eligibility criteria for these provisions are as follows:
You are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit).
The amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018.
Your home was owned by you or your spouse for 10 years or more prior to the sale.
The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset.
You make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement.
These contributions are bound to be popular particularly when considering.
The size of the ‘new home’ is irrelevant for the purposes of accessing the downsizer contribution.
The downsizer contribution is available irrespective of a members superannuation balance (eg individuals can still access the downsizer contributions if their super balance is in excess of $1.6m)
Please contact our office if you have further questions with regard to the downsizer contributions.
Carried forward contributions available from 1 July 2018 – what do they mean?
The annual concessional (before-tax) contribution caps currently offer little flexibility for those who take time out of work, work part-time, or have ‘lumpy’ income and therefore have periods in which they make no or limited contributions to superannuation.
Women often have interrupted work patterns or work part-time, which contributes to lower, on average, superannuation account balances than men. Additionally, individuals may take time out of the workforce to undertake caring responsibilities, further studies, or due to physical or mental illness. Similarly, there is limited flexibility for those who find that they have greater disposable income later in life when some ongoing costs, such as mortgage repayments and school fees diminish. Allowing people to carry forward unused concessional cap amounts provides them with the opportunity to ‘catch-up’ if they have the capacity and choose to do so.
The Government will allow individuals with a total superannuation balance of less than $500,000 just before the beginning of a financial year before a catch up contribution is made, to make ‘catch-up’ superannuation contributions. People will be able to carry forward their unused concessional cap space from 1 July 2018 on a rolling basis for a period of five years. Amounts that have not been used after five years will expire.
Cassandra is a 46-year-old earning $100,000 per year. She has a superannuation balance of $400,000. In 2018-19, Cassandra has total concessional superannuation contributions of $10,000. In 2019-20, Cassandra has the ability to contribute $40,000 into superannuation of which $25,000 is the amount allowed under the annual concessional cap and $15,000 is her unused amount from 2018-19 which has been carried forward. Cassandra can claim a tax deduction in her personal tax return for the full amount of $40,000 in 2019/20 year. If Cassandra had a realised capital gain in the 2019/2020 year, this superannuation deduction would also reduce any capital gains tax payable in that year.
Labor’s franking credit proposal – what is means for SMSF’s
You may have noticed significant media coverage recently regarding the Australian Labor Party’s proposed policy to stop SMSFs from receiving tax refunds (or cash backs) for the franking credits they receive in conjunction with the dividends paid from Australian companies they own.
First of all, what are franking credits and how do they benefit SMSFs?
Under the Australian tax system companies pay 30 per cent tax on their profits. When these profits are then passed on to their shareholders in the form of dividends, the company also hands the shareholders a credit for the tax the company has already paid (the “franking credit”). The individual shareholder then pays tax on the profit they received from the company less the credit for the tax the company has already paid. The franking credit ensures that the company profits are taxed at a shareholder’s marginal tax rate.
For SMSFs in retirement phase which generally have a zero tax rate, this means they can receive a full refund of the tax already paid by the company on their behalf.
SMSFs who have members in accumulation phase benefit from franking credits reducing the tax they pay on their SMSF’s earnings and may receive partial refunds of their franking credits depending on the fund’s overall tax liability.
The ALP, if elected, will change the law so that individuals and SMSFs (and other low tax paying entities) will no longer be able to receive a net tax refund for the franking credits they receive. This will affect all SMSFs that have received tax refunds as a result of these franking credits in recent years.
This will have a significant impact on the retirement income of many SMSF members in retirement. For example, an SMSF with $500,000 in retirement phase with 40 per cent of assets held in Australian shares could lose around $4,300 per year in tax refunds from their franking credits.
Regardless of the appropriateness of the existing law, past and future retirement strategies now count on surplus credits to generate additional income within superannuation to aide longevity of capital throughout retirement. Retirees no longer enjoy the higher cash rates of the past. Inflation and longevity - that is, how long funds will last - are the two key areas of concern for retirees. Cash rates now barely keep up with inflation if at all. Added to this the fact Australia is an ageing population, any assistance to ensure self funded retirement capital lasts longer and can generate sufficient returns can only benefit our economy as it means fewer retirees relying on the Government age pension
We have been discussing these proposed changes with the Institute of Chartered Accountants, the SMSF Association and members of Parliament. If you are concerned by the franking credit policy and want to ensure your voice as an SMSF trustee is heard in Canberra you can consider joining the SMSF Association as an SMSF trustee member to support their advocacy for SMSFs. (http://trustees.smsfassociation.com/).
Recap of the 1 July 2017 changes and what they mean for pensions and TRIS’
Transition to retirement income streams losing their tax-exempt earnings status
From 1 July 2017, superannuation fund members 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.
The $1.6 million transfer balance cap (TBC)
From 1 July 2017, a maximum TBC of $1.6m has been introduced that limits the total amount of superannuation assets a member can hold in the tax-free pension phase to $1.6m. 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.
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).
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 (provided that amount is in excess of the ATO’s statutory amount). 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.
We have been working closely with our clients that are affected by these changes. As these changes are quite complex questions may still exist, in which case please contact our office.
The Bush & Campbell SMSF Team
Daniel Uden - Director
Daniel commenced at Bush & Campbell 20 years ago and heads our SMSF team. Daniel has been working with our superannuation client base over the last 7 years. Daniel is a Chartered Accountant, Registered Company Auditor and holds a Professional Certificate in Self Managed Superannuation Funds. Daniel is also licensed to provide advice, as an Authorised Representative of Aura Wealth 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 coordinating 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 – Director and head of SMSF Audit 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 is an accountant with prior experience in KPMG in Canberra, 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 16 years experience in the industry and is responsible for overseeing our administration team including compliance matters for our superannuation funds.
Sharon Ferguson – Director
Sharon Ferguson is the Director of Bush & Campbell Financial Services. Commencing with Bush and Campbell in 2001, she has over 18 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.
Material contained in this newsletter is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such.
This newsletter contains general information only. You should therefore consider whether information contained in this presentation is appropriate to you having regard to these factors before acting on it. As the rules associated with the super and tax regime are complex and subject to change and as the opportunities and effects differ based on your personal circumstances, you should seek personalised advice from a financial adviser and your accountant before making any financial decision in relation to super, tax or other matters discussed in this newsletter.