Superannuation tax planning has taken on new significance for the year ended 30 June 2016. The proposed Budget changes that are set to restrict the level of superannuation tax concessions (mainly from 1 July 2017) mean that it is even more important to maximise the concessions for the 2015-16 and 2016-17 income years.
Regardless of any future changes, superannuation will continue to be a tax effective investment structure for most taxpayers. To this end, it is important to stay focused on making the most of the concessions that are still available until 30 June 2017.
Thomson Reuters Superannuation & Financial Services Bulletin (Issue 6, 24 June 2016) has set out a range of superannuation tax planning issues to consider before 30 June. Some of the key items include:
- Non-concessional $500k lifetime cap – taxpayers planning to make non-concessional contributions after 3 May 2016 need to first check their historical non-concessional contributions data back to 1 July 2007 (which will be counted against the $500,000 lifetime limit).
- Concessional contributions – the general cap is $30,000 for 2015-16 (or $35,000 for those aged 49 or over).
- Timing of contributions – contributions intended for the year ended 30 June 2016 must technically be “received” by the fund by 30 June. The ATO’s strict view is that a contribution by electronic funds transfer (EFT) or BPay is “made” when it is actually “received” and credited to the superannuation fund’s bank account.
- Splitting spouse contributions – can be a useful strategy to help equalise superannuation balances between a couple. Such a strategy will become increasing relevant to counter the $1.6m transfer balance cap for retirement accounts from 1 July 2017.
- Co-contribution – the government will match (at the rate of 50%) personal super contributions by individuals with total income at or below $35,454 for 2015-16 (phasing down up to $50,454).
- Refunding contributions – taxpayers need to be especially vigilant with electing to refund any excess concessional contributions within the time limits set out in a release authority issued by the Commissioner. Otherwise, excess concessional contributions that are not withdrawn from superannuation will be counted towards the taxpayer’s $500,000 lifetime non-concessional limit.
- Minimum pension payments – draw down a minimum of 4% of the account balance on 1 July of the financial year in which the payments are made, eg 5% (for age 65-74).
- Preservation age – has begun to phase in from age 55 to 60, starting with an increase to age 56 (up from age 55) since 1 July 2015 for those born after 30 June 1960.
- Trustee duties – review the fund’s investment strategy, consider whether to provide insurance for members and keep the SMSF’s money and assets separate from a trustee personally.
- Trustee penalties – the Tax Office has the power to issue administrative penalties (ranging from $900 to $10,800) for certain breaches by SMSF trustees.
- Market value for assets – trustees of SMSFs are required to value their assets at “market value” when preparing their accounts.
- SuperStream – SMSF trustees must have an electronic service address (ESA) to be able to receive data messages associated with employer contributions sent using SuperStream.
- Related-party borrowings – the Tax Office has extended until 31 January 2017 the deadline for SMSF trustees to ensure that any related-party limited recourse borrowing arrangements (LRBAs) are on terms consistent with an arm’s length dealing.
- Artwork and collectables – SMSFs must fully comply with the special rules for holding collectables and personal-use assets following the end of the transition period on 30 June 2016.