SMSFundamentals | Jun 07 2011
The Self Managed Superannuation Fund Professionals’Association of Australia (SPAA) is encouraging SMSF investors to plan ahead for financial year end to ensure their tax positions and contribution opportunities are maximised and penalties are avoided.
Peter Burgess, SPAA National Technical Director, said trustees should consult with advisers, such as a SPAA Specialist Adviser (SSA) to guide them through the process.
“Investors should prepare for tax-time by pro-actively compiling supporting documents for deductions and benefits, preferably in an order which is easier for their tax adviser to understand. Only with the right documentation can investors legitimately claim deductions and benefits,” Mr Burgess said.
Mr Burgess said SMSF trustees should also properly review documentation from previous years if it is relevant to a deduction or benefit this financial year. “An added complication this financial year is that superannuation investors, including SMSFs, may be eligible to begin a new two-year bring forward period for non-concessional superannuation contributions having completed their previous two year bring forward period at the end of last financial year. Trustees and their advisers should take care to properly identify the start and end dates of any bring forward periods to ensure their contribution eligibility is correctly assessed and to avoid excess contribution penalties,” Mr Burgess said.
The bring-forward period refers to non-concessional super contributions. You can make contributions of $150,000 a year or ‘bring forward’ two years of contributions if you were under age 65 at the commencement of the financial year in question.
Other compliance issues this financial year include SMSF trustees who exceeded the 5% limit on inhouse assets as at 30 June last year must ensure they have implemented their plan to reduce the fund’s holding of in-house assets below 5% by 30 June this year.
“Trustees should ensure they avoid any potential in-house asset breaches including ensuring any unpaid trust distributions from a related unit trust which were payable to the SMSF in the previous financial year, are received by the fund by no later than 30 June this year,” said Mr Burgess.
SMSFs in the pension phase
Members in the pension phase should ensure they have received the required minimum pension amount by 30 June, otherwise the investment income derived from the assets supporting that pension may no longer be exempt from tax.
If SMSF trustees are paying pension payments by cheque, care needs to be taken to ensure the cheque is cashed promptly and that there were sufficient funds in the SMSF bank account at the time the cheque was issued to honour the cheque.
CGT – removal of trading stock exception
A small number of super funds seek to treat shares as trading stock so as to deduct losses on their shares against income other than capital gains. However, in this year’s Federal Budget, the Government announced that the trading stock exception for complying super funds will be removed with effect from 7.30pm (AEST) 10 May 2011. Essentially this means gains or losses on specified assets (primarily shares, units in a trust and land) held by superannuation funds will always be subject to CGT. Transitional rules will apply to ensure assets held or accounted for as trading stock before the announcement are unaffected.
General superannuation tips for tax time
For investors in superannuation, regardless of the fund type, some general tips include:
• Make a non-concessional (after tax) contribution to superannuation up to the allowable cap before the end of the financial year as unused cap amounts are not carried over future financial years: The yearly cap is $150,000 or you can bring forward two years worth of contributions and make a $450,000 contribution as long as you were under 65 on July 1 of the financial year in question.
Potential trap: Watch out for excess contributions. Ensure that you have satisfied the work test if you are over age 65 at the time you make the contribution. The work test requires you to be gainfully employed for at least 40 hours over 30 consecutive days in the financial year in which the contribution is made.
• Make a tax deductible contribution to superannuation: Personal contributions made by individuals who satisfy the 10% rule are eligible to be claimed as a tax deduction. The maximum deduction that can be claimed is $25,000 if the taxpayer is under 50 or $50,000 if the taxpayer is 50 or older. The 10% rule requires that less than 10% of the total of the individual’s assessable income, reportable fringe benefits and reportable employer superannuation contributions for the financial year comes from employment- related activities.
Potential trap: Ensure you satisfy the 10% rule and that the deduction will not exceed your expected taxable income for the financial year.
• Take advantage of the Government co-contribution: Maximise your entitlement to the co-contribution by making a non-concessional (after tax) super contribution before the end of the financial year. Eligible personal contributions are matched dollar for dollar by the Government up to a maximum government co-contribution of $1000. For 2010/11, the maximum government co-contribution is payable for individuals on incomes at or below $31,920 and reduces by 3.33 cents or each dollar by which the individual’s total income for the year exceeds $31,920, cutting out completely once an individual’s total income reaches or exceeds $61,920.
Potential trap: To be eligible for the government co-contribution, 10% or more of a taxpayer’s total income for the financial year must be attributable to either or both of employment related activities or the carrying on of a business.
• Take advantage of the tax offset for spouse contributions: Taxpayers are entitled to a maximum $540 tax offset for superannuation contributions made on behalf of a low income or nonworking spouse. The maximum rebate is based on 18% of a maximum $3000 non-concessional contribution. The maximum rebate is reduced by $1 for each $1 that the total of the spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions exceeds $10,800, cutting out completely at $13,800.
Potential trap: If a taxpayer only had a spouse for part of the year (eg married during the year and was not in a de-facto relationship prior to the marriage) only contributions made after the marriage are eligible for the rebate. Also if you are legally married but live apart, the spouse definition does not apply to you.
Visit the SPAA website here.
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