Building wealth tax effectively within your SMSF should be a priority and approaching the end of the financial year is the ideal time to review your strategy in context of your financial affairs as a whole.
Adjustments may be required to help you take advantage of the tax-efficient retirement savings environment, cost benefits and flexibility offered by an SMSF. Â These may include considerations around concessional as well as non-concessional contributions, the super catch-up provision and COVID-19 super relief measures that may apply. Here we outline three important matters to help you review your SMSF strategy and make any necessary adjustments before June 30.
#1 Concessional and non-concessional superannuation/SMSF contributions
The superannuation cap for concessional contributions is $25,000 for everyone, regardless of age. Concessional contributions include employer super contributions, salary sacrifice super contributions, personal tax-deductible contributions, and premiums paid into a fund for super-owned insurance policies.
The cap for non-concessional contributions is $100,000 and there are further restrictions if your superannuation balance is $1.4 M or more. Non-concessional contributions are those you make using after-tax money.
There are three key points for your consideration:
Match but don’t exceed your cap
High-income earners and those who have been making additional contributions to their SMSF need to review your contributions before 30 June this year and every end of financial year. If your current contribution strategy results in a breach of the contribution caps, you could face paying additional tax on these contributions.
Maintain your retirement savings
The reduction of the concessional contributions cap in 2017 has meant smaller amounts may now be contributed to super each year and this may have impacted your wealth accumulation plans for retirement. If so, it will be important for you to consider other options that allow you to continue financial preparation for your retirement.
It may be appropriate for you to make non-concessional (after-tax) contributions to your SMSF or take advantage of the superannuation catch-up provision (details below). Alternatively, you may decide to invest outside of the superannuation environment. While this may not be as tax effective as investing within super, it may nevertheless offer you a reliable retirement savings strategy.
Superannuation as a long-term savings strategy
In the past, many Australians have relied on making significant contributions to boost their super balance in the years approaching their retirement. This strategy is not possible given the cap of $25,000 and a different approach is required. One solution for a healthy super balance is to begin contributing earlier and up to the available cap level.
#2 The superannuation/SMSF catch-up provision
Since 2018/19 it has been possible to boost your superannuation by carrying forward unused superannuation concessional contributions cap amounts. The ‘catch-up measure‘ offers greater flexibility and may assist you to significantly boost your super savings.
If your total super balance on the June 30, 2020 was less than $500,000 and your concessional contributions total was less than the $25,000 annual cap, from 1 July 2021 you may be able to carry forward unused cap amounts for up to five years.
For those who are eligible, the benefits of carrying forward concessional contributions include the opportunity to build your wealth in retirement savings. Australians using non-superannuation assets may be able to use the additional concessional contributions to offset some of the tax liability on any realised capital gains.
The catch-up provision may also help you manage your tax obligations given that tax deductions may be available for concessional contributions made. Finally, catch-up may be useful if your income varies year to year, in which case you may elect to apply the catch-up measure in your higher income years.
#3 COVID-19 superannuation relief measures
The Government’s two COVID-19 economic stimulus packages delivered relief measures for members of superannuation funds, including SMSFs.
The measures included a temporary reduction in superannuation minimum drawdown rates, early release of superannuation (in some circumstances), a reduction in social security deeming rates, and rent relief for SMSF owned property tenants.
The latter was announced by the ATO for the 2019/20 and 2020/21 financial years, for commercial property owned by a SMSF. This may be relevant if you own your business premises within your SMSF and you have experienced a reduction in revenue as a result of COVID-19. Any reduction, deferral or waiver of rent must be done in compliance with arm’s length rules. SMSF trustees as landlords for commercial premises will need to ensure any lease alteration is valid and complies with the legislation and temporary COVID-19 relief measures.
It’s important for you to check your superannuation concessional and non-concessional contributions and caps well before June 30. This will enable you to ensure you don’t exceed your cap – which may carry penalties – or to top up your super this financial year.
The concessional contributions catch-up provision may also be relevant for you, in addition to the Government’s COVID-19 superannuation relief measures.
As always it is important to seek advice as superannuation laws and trustee compliance obligations can be complex.
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The information (including taxation) contained within this article is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Rosenfeld Kant strongly suggest that no person should act specifically on the basis of the information in this document but should obtain appropriate professional advice based on their own personal circumstances.Â
