Andrew Yee

July is the perfect time for people to ensure superannuation arrangements are on track for the financial year ahead, and to ensure their fund is still well placed to meet their needs, says Andrew Yee, Director, Superannuation with HLB Mann Judd Sydney.

“There are a number of superannuation tactics that are best put in place at the beginning of the financial year, but that are frequently overlooked,” Mr Yee says.

Review salary sacrifice agreements

“July is a good time to review salary sacrifice agreements to ensure that salary sacrifice superannuation contributions are maximised for the 2018-19 financial year,” Mr Yee says.

“If you do not have an agreement in place, then this is a good time to consider establishing an agreement with your employer.”

Setting up a SMSF

For those who have been thinking about setting up an SMSF, the beginning of the financial year is a good time to do this.

“SMSF compliance costs are incurred on a fixed annual basis and apply regardless of how long the SMSF has been in operation. By setting up a fund at the beginning of the financial year, people are ensuring they are receiving the best value from the fixed annual compliance costs they are paying.”

Personal concessional contributions and notice requirement

It is important to make the most of the tax deductions available, Mr Yee says.

“From the 2017-2018 tax year, employees have been eligible to receive a tax deduction for after-tax contributions made to their super funds; however, it is a measure that many overlooked in its first year of operation. Especially where salary sacrifice is not offered by their employer.

“If you are planning to make additional super fund contributions and claim a tax deduction, then you need to ensure that you have notified your super fund in writing of your intention to claim a tax deduction and you should also ensure that you receive an acknowledgment of your intention from your super fund. Without the notice and acknowledgment, your claim for a tax deduction for your personal contributions will be invalid.

“It’s worth noting that the tax deduction only applies if total superannuation contributions from all sources, including superannuation guarantee, do not exceed $25,000.”

Consider a spouse super contribution

“July is a good time to review expected income levels of all family members,” Mr Yee says.

“An income tax offset of up to $540 for superannuation contributions for the benefit of a low-income or non-working spouse, earning under $13,800 who is under age 70, may be claimable.”

Plan pension drawdown

For those already drawing a superannuation pension, it is important to ensure they have put in place arrangements for their fund to pay the minimum pension during the financial year, Mr Yee says.

“The minimum pension for the year is based on a percentage of the fund member balance as at 1 July 2018, or, if you started your pension during the year, the fund member balance at commencement pro-rata for part year.”

The minimum pension percentage factor for the 2018-19 year is as follows:

“There is no maximum annual limit for retirement phase pensions, but for transition to retirement pensions, the maximum annual limit is 10 per cent.”

Contributions to superannuation from the sale of a home

“If you over age 65 and have sold your home after 1 July 2018, or planning to sell your home, consider making a downsizer contribution to superannuation,” Mr Yee says.

“Downsizers are able to contribute up to $300,000 per person, or $600,000 per couple. The home must be owned for more than 10 years and the sale proceeds needs to be contributed within 90 days of receipt. But no work test is required to make the contribution and also the $1.6 million cap on further non concessional contributions does not apply.”

Carry forward concessional contribution

“From 1 July 2018 you are able to carry forward unused concessional contributions over a five year rolling period. However, the catch up contribution can only start from the 2019-20 and future financial years and only if your total super benefits are less than $500,000 on 30 June of the prior year.”

Contribute the proceeds from the sale of a small business to superannuation

“If you have sold, or planning to sell your small business (or business asset) and you are eligible for the small business capital gains tax concessions, then you may be eligible to make a super contribution of up to $500,000 or $1.48 million, depending on how long the small business has been in operation,” Mr Yee says.

“Furthermore the contribution is not considered a non concessional contribution and therefore not subject to the same caps. This is a very complex area and professional advice should be sought before the contribution is made.”

Super investment choice

The new financial year is a good time to review super fund investment options – or investment strategy for those with an SMSF – to ensure it is still appropriate.

“It is important to regularly review investment choices, and the fees being charged by the fund, to ensure that they are in line with attitudes to risk and time in relation to retirement, and that the fees being charged are not too high.

“Anyone who is unhappy with their fund’s performance should consider professional advice to assist in switching funds or, if you have a large enough fund balance, to consider whether a SMSF is an appropriate option.”

Insurance through super

“Most funds offer life and income protection insurance as an automatic default. It is worth considering the costs of these insurances against the cost of insurance outside of super, and also ensuring that the amount insured for is appropriate for needs,” Mr Yee says.

Estate planning

Life circumstances can change from year to year, and it is important to ensure that beneficiaries’ nominations for the super fund are up to date.

“July is a good time to take stock of super fund nominations, to ensure they fit with broader estate planning plans.

“It is important to be aware that regardless of beneficiary nomination, the super fund trustee can pay any death benefit to dependants or an estate, at their discretion. A binding death benefit nomination should be considered, to ensure that any death benefit is paid out according to your instructions,” Mr Yee says.

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Andrew Yee

Trustees and advisers of self managed superannuation funds (SMSFs) should ensure the have checked off five key factors to make certain their SMSF starts 2016 on the right track, says Andrew Yee, director of Wealth Management at HLB Mann Judd Sydney.

“There are some straightforward, but frequently overlooked, steps to take to ensure your SMSF is in good shape for the New Year,” Mr Yee says.

“First up, is to check that you are on track to maximise your contributions to the fund and to put in place measures to salary sacrifice up to the maximum limit, if you haven’t already done so.”

For those aged under 50 the maximum contributions limit is $30,000. For those aged over 50 it is $35,000.

“This is an important consideration for those who are turning 50 in this financial year,” Mr Yee says.

“As long as you turn 50 anytime during the financial year, you are eligible for the higher $35,000 cap. Many people do not realise this, and think the ability to make additional contributions only applies from their birthday.”

Making contributions or planning to make contributions is a task that is often left until the end of financial year approaches, yet it is one that should be reviewed and implemented during the year. Mr Yee urges SMSF trustees not to leave it until the last minute.

“Super contributions are only allocated in the year they are received by the fund. If you leave it too close to 30 June, you might miss the cut off if payments are late or if there are any issues with EFT or BPay or delays in processing cheques.”

Secondly, he says, if you are drawing a pension from your SMSF, you need to ensure you have drawn down the minimum required before June 30, otherwise you risk losing the tax exemptions on the SMSF’s earnings.

“It is an important consideration. Many people leave it up until June, and if it is not done in a timely fashion, or worse is overlooked, or you have underpaid the pension, it leaves the super fund open to an unexpected tax liability. It happens more often than you would think.”

The minimum amount that must be drawn as a pension depends on your age. For example, those aged between 55 and 64 years, it is 4 per cent of the account balance. If you are aged 65 to 74, it is 5 per cent and from 75 to 79, it 6 per cent.

“Again, if you have a birthday during the financial year, and are turning 55, 65 or 75, it is important not to be caught out, and to be across the minimum pension drawdowns that apply for your age,” Mr Yee says.

For those in the transition to retirement phase, it is important to ensure you are on track to keeping the maximum pension you draw to under 10 per cent of the account balance.

“If you go over this amount, your fund will lose the tax exemption on its earnings and the pension received by you will be taxed as normal income,” Mr Yee says.

A fourth key point for SMSF trustees to remember that the magic age to draw money from your super fund is 60.

“Age 60 is when pensions or lump sums taken from super are tax free in your hands. But age 60 does not mean you can now start drawing from your super as you still need to meet a condition of release, such as retirement in order to do so. Not everyone is aware of this and often confuse the two issues.”

Finally, he says, always ensure your planning is applicable for the rules and regulations that are in place now, and not act out of fear that the rules may change in the future.

“It is important that the actions you are taking are the appropriate ones for your financial situation. Making financial decisions in an effort to second guess government changes to the superannuation system should be avoided.

“That said, if you are eligible to take advantage of a current super concession such as a transition to retirement pension, and it makes financial sense to do so, why not start it now?” Mr Yee says.

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