Is your super sorted for the End of the Financial Year?
With the end of the financial year fast approaching, now is the perfect time to make some final checks and ensure everything is in order for your personal super and SMSF – before 30 June.
Our Superannuation Checklist for the EOFY outlines some important matters that you might want to know more about.
If there is anything in this paper that you are unsure about, we encourage you to get in touch.
We can discuss your specific circumstances in more detail and help guide you through the EOFY process.
Superannuation Checklist – Contributions
We will begin our Superannuation Checklist with everything you need to know about contributions.
From 1 July 2020, if you were under the age of 67 you were able to make voluntary contributions without meeting a work test. This was previously restricted to people below age 65. In addition, if 2020- 21 is the first year that you no longer satisfy the work test, you may still be able to make voluntary contributions under the work test exemption if you had a total superannuation balance (TSB) of less than $300,000 on 30 June 2020.
Therefore, it is important to review your contribution strategies before 30 June 2021, to make sure you maximise your contribution opportunities whilst ensuring you are below your contribution caps.
Employers and individuals need to make sure any last minute super is paid ASAP and before 30 June to ensure it is received and processed by the super fund before 30 June 2021 to ensure tax deductibility in the 2021 tax return.
Non-concessional (after-tax) contributions are limited to $100,000 for the 2021 financial year and only available if your TSB was less than $1.6m on 30 June 2020.
If you were under 67 at any time during the 2020-21 financial year, you can potentially contribute up to three times the non-concessional cap (or $300 000) at once. The maximum bring forward non-concessional contribution amount you can make will depend on your TSB on 30 June 2020.
Concessional (before-tax) contributions are limited to $25,000 for the 2021 year. You may also be eligible, subject to your TSB being under $500,000 at 30 June 2020, to make larger concessional contributions if you have any unused concessional contribution cap from the 2019 & 2020 financial years.
Where you have made personal contributions and intend to claim a tax deduction in 2020-21, it is important that you reconcile all employer contributions and salary sacrificed amounts to superannuation to make sure you do not breach the annual concessional contributions cap.
It is also important to ensure that the relevant notice requirements are met so that you can claim a deduction.
Super changes from 1 July 2021
The Superannuation Guarantee Charge paid by employers increases from 9.5% to 10% from 1 July 2021 and the annual contribution limits will increase on 1 July 2021 to $27,500 for concessional contributions and $110,000 for non-concessional contributions.
The Government also announced in the latest Federal Budget that the work test will be removed altogether to allow voluntary non-concessional contributions and salary sacrificed contributions to be made up to the age of 75. If passed, these changes are expected to be available from 1 July 2022.
These changes mean that employers need to update their payroll systems and review their employee salary packages ASAP and employees seeking to maximise their Super contributions will also need to review and update their salary packages accordingly.
SMSF EOFY issues
SMSF trustees are required to value the fund’s assets at their market value as at 30 June each year in the annual financial accounts. Although it can be a straightforward process to value assets when it comes to term deposits or listed shares and managed funds, it can be quite difficult to ascertain the value of real estate or private companies and units trusts.
When valuing SMSF assets, you must comply with the ATO valuation guidelines for SMSFs. Contact us if you have any questions or require assistance.
For the 2020-21 financial year, getting the value of the fund’s assets correct is important in assessing the impact of COVID-19 on your superannuation benefits. It is even more important for SMSFs relying on the ATO’s in-house asset COVID-19 relief.
These SMSFs will have till 30 June 2022 to ensure that in-house asset levels are reduced to less than the allowable 5% limit.
For those SMSFs that took advantage of the property relief measures the ATO implemented to reduce rent in 2020-21, any form of rental relief must end by 30 June 2021. From 1 July 2021, COVID-19 will not be a valid reason for any rental relief and SMSF trustees will need to ensure that all rent is at an arm’s length rate.
For those SMSFs with a limited recourse borrowing arrangement (LRBA), there are additional considerations. Where your SMSF was provided with COVID-19 loan repayment relief to assist in meeting loan repayment obligations, this relief should cease by 30 June 2021. From 1 July 2021, any LRBA should revert to the original terms of the loan to ensure that the arm’s length requirements continue to be met.
Where the COVID-19 loan relief has resulted in a variation to the original term of the LRBA, provided that interest continues to accrue on the loan and you repay any deferred principal and interest repayments in accordance with the varied terms, the LRBA will be considered to be consistent with an arm’s length dealing.
Meeting new pension requirements
To help manage the economic impact of COVID-19, the Government reduced the minimum drawdown requirements by half on account-based pensions and market-linked pensions for 2020-21. The Government recently announced the 50% reduced minimum pension drawdown requirements will be extended for 2021-22.
Whether or not you have taken advantage of this reduction, it is important that you reconcile all pension payments received to ensure you do not underpay the minimum pension payment required by 30 June 2021. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investment income instead of being tax free.
All pension withdrawals for 2020-21 must be paid in cash by 30 June 2021 and cannot be accrued or
adjusted using a journal entry so it is important to attend to this as soon as possible.
For example, if you are making pension payments via an electronic transfer, you need to ensure that online transfers show the money coming out of the fund’s bank account by no later than 30 June.
$1.6 million transfer balance cap and total superannuation balance
Ensuring that member’s benefits are shown at market value is important in calculating each member’s TSB and in determining whether a member will exceed their transfer balance cap (TBC).
The $1.6 million TBC applies to SMSF members who are receiving a pension and limits the amount of tax-free assets that can support a pension.
To track the relevant events against your personal TBC, SMSFs are required to lodge with the ATO a transfer balance account report (TBAR). The TBAR is separate to an SMSF’s annual return and TBAR lodgment obligations, depend on members’ TSBs.
With the general TBC set to index to $1.7million on 1 July 2021 it is more important than ever to ensure that all your TBAR lodgments are up to date and that you seek help in correctly calculating your entitlement to any proportional indexation of the TBC.
How can we help?
We hope you have found our Superannuation Checklist helpful.
If you have any questions, require assistance or would like further clarification with any aspect of your end of year superannuation matters, please give us a call.
We can arrange a time to meet and discuss your particular requirements in more detail.
The information in this article is general information only and is not intended to be a recommendation. It is current only at the time of writing and the rules change frequently. We strongly recommend you seek advice from your financial adviser as to whether this information is current and appropriate to your needs, financial situation and investment objectives before making any decisions.
Whilst every care has been taken in the preparation of this article, the Everalls Group, its directors, authors, consultants, editors and any persons involved in preparation of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part.