End of Financial Year Considerations for Self-Managed Super Funds
Do you have a Self-Managed Super Fund (SMSF)? Below are some things that you should consider.
Contributions Timing - To be a contribution for 2020-21, the SMSF must have received the contribution by no later than Wednesday, 30 June 2021. In most cases, a contribution is made by an electronic transfer of funds to the SMSF’s bank account. Using this common contribution method, for the contribution to be recorded as received in the 2020-21 income year, it must show on the SMSF’s bank transactions as a deposit no later than 30 June 2021. Even where the contributor can show that the contribution was made no later than 30 June 2021, if the SMSF bank transactions shows the contribution received after 30 June 2021, it is most likely to be regarded as a contribution in the following 2021-22 income year.
Federal Budget Update – ‘work test’: The Government has proposed that the work test will no longer be required to be met by individuals aged 67 to 74 for voluntary contributions like non-concessional contributions and salary sacrifice contributions. However, individuals aged 67 to74 still need to meet the work test requirements in order to make any personal deductible contributions. This measure is expected to apply from 1 July 2022.
Caps Once it is confirmed that the SMSF trustee can accept the contribution, the contribution cap consequences need to be determined. Since 1 July 2017, several contribution caps are dependent upon the member’s prior 30 June Total Superannuation Balance (TSB), for example, the non-concessional cap and application of the catch-up concessional contribution cap rules. Consequently, for any contribution strategies in 2020-21 (or any other income year), the contribution cap being utilised may require knowing the member’s prior 30 June TSB. A member’s TSB includes all superannuation across all superannuation funds, not just the member’s SMSF entitlements.
Pensions – reduced minimums for 2020-21 As a consequence of the financial effects of the COVID-19 pandemic, the Federal Government amended the minimum pension standards to effectively halve the relevant minimum pension percentage for account based pensions. The 50% reduction in the minimum pension also applies to Transition to Retirement Income Streams (TRIS). Like the timing issues with contributions, pensions are considered paid when the relevant amount has left the SMSF’s bank account.
Temporary reduction in superannuation minimum drawdown rates extended - The Government has announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year to 30 June 2022. The minimum will again be a 50% reduction.
Investment Strategy – Trustees need to review their Investment Strategy at least yearly to ensure that their SMSF investments comply with their strategy bands/ranges. Most SMSF investment strategies set a minimum, maximum and a target range. So long as your investments sit within the minimum and maximum ranges, the trustees have met their minimum requirement under SIS regulations.
Year end market values - SMSF assets are required to be valued at market value on the year-end financial statements to correctly disclose the fund’s assets. This requires SMSF trustees to turn their mind to the market value of fund assets, particularly those assets that do not have a ready-made market, for example, property, and unlisted investments. SMSF trustees with assets for which their market value is not publicly quoted or obtainable, need to arrange for independent written market appraisals at least every 3 years or more frequently if the values have substantially changed.
Leases – If your SMSF has leases for property or equipment, these should be up to date and in particular with regard to any related party transactions e.g. a super fund owned property leased to a business of the connected family members.
If you have any queries, please contact your accountant or financial advisor.