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Welcome to Twomey Talk where you can take advantage of the specialist knowledge of our team & learn their thoughts on various issues that may
impact YOU!

What to do when the ATO calls

The ATO, as the regulator of SMSFs and as part of their compliance programme will, without warning, call SMSF trustees to ensure they are doing the right thing and have good knowledge of their responsibilities. If this does happen there are a few rules of thumb to follow;

1. Be polite.
2. Be honest.
3. Don't panic.
4. Do what is requested.
5. Don't hesitate to contact us.

There are more than 500,000 SMSFs, so it is quite unlikely you will receive this call, but it might well happen. Keep in mind, if you'd like a refresher on your responsibilities Twomeys is here to help.

Proposed changes to TTRs

The 2016 budget also announced a proposal to alter the tax treatment of Transition to Retirement (TTR) Pensions. The proposal involves treating the fund earnings of a TTR the same as an accumulation account from 1 July 2017, which means that fund earnings will be taxed at 15%, instead of the current 0%.

Many people currently running a TTR are working full time and salary sacrificing income and replacing that with tax effective superannuation income and at the same time putting the fund into a tax free environment.

This proposal effectively re-aligns a transition to retirement pension back to its original objective, to enable a superannuation member who has met preservation age to reduce employment earnings and supplement this with a partial drawing from superannuation, by removing part of the tax arbitrage.
2016 budget changes to superannuation include a cap on account based pension balances of $1.6 million from 1 July 2017. This means that earnings on the amount over $1.6 million will be taxed at 15%.

Does this then mean it's not worthwhile having more than $1.6 million in your SMSF?

If you are a single retiree with $1.6 million in an account based pension earning 5%, the fund will earn $80,000 tax free.  To put this into perspective this is slightly higher than the Australian average full time adult ordinary time pre-tax earnings, tax free. 

If the fund has $2.5 million in assets and generates $125,000 in income, the tax will only be $6,750 which is an average tax rate of 5.4%.

Keep in mind, the $1.6 million limit is per person. Therefore, a couple can have $3.2 million generating tax free income. If the earnings rate is 5% this equates to $160,000 per annum, or in excess of $3,000 per week tax free.

At the beginning of each new financial year concessional-contribution caps are refreshed. July is a good time to review your salary sacrifice contributions to superannuation as you can control your cash flow for the entire year.

For the financial year 2017 the general concessional contribution cap is $30,000 however, for those who will be 50 or over during the year this cap is $35,000. When assessing your salary sacrifice contributions bear in mind included in your $30,000 or $35,000 cap are superannuation guarantee contributions which are slated to be 9.5% of your ordinary times earnings.

Non-concessional contribution or loan?

Based on the last federal budget proposals 2017 will be the first full financial year of the new $500,000 lifetime non-concessional contribution limit. If you are looking to purchase a large asset in your SMSF, this year might be the year to look into limited recourse borrowing arrangements (LRBAs).

Under an LRBA, rather than contributing the funds to purchase an asset you, as the member, can lend the money to the fund on commercial terms. Depending on your circumstances this type of arrangement can, for example, enable a member of an SMSF who has previously not made a non-concessional contribution to purchase a $1,000,000 property by contributing $500,000 and lending a further $500,000. As this is a per member contribution limit, a two member fund can double these figures.

A limited recourse borrowing arrangement is a simple concept with some relatively complex compliance requirements, it is vital that all your documents are properly prepared and executed.

Preparing for 2016 reporting

Now we have entered a new financial year, 2017, it is time to look back on what occurred last year. To ensure your accounts can be prepared and audited in a timely fashion gathering together and sending in the fund's transaction documents sooner rather than later is vital.
Some documents that are required are universal, such as bank statements and some documents will be specific to your super fund's investments. These will include;

• Term deposit end of year balances and interest earned statements.
• Share transactions, holding statements and dividends.
• Unit trust transaction statements, holding statements and tax statements.
• Property rental statements, invoices, lease agreements and valuations.
• Collectible asset valuations, proof of insurance and storage.
• Loan transaction statements and balances

In due course we will send you a reminder of the documents required.

June 30 SMSF Checklist

Now is the time to ensure your self-managed super fund strategies are in place for the end of the financial year.

1. Minimum pension payments due 30th
It is a requirement of the Superannuation Industry Act that you withdraw minimum pensions in order to meet your pension standards.

2. Value your SMSF assets by 30th
It is now mandatory to value assets annually, and the appropriate valuation method will depend specifically on the asset that is being valued.

3. Concessional contributions
$30,000 under 50, and $35,000 if you were over age 50 this year. Maximise contributions up to concessional contribution cap but do not exceed the concession limit. Check employer contributions on normal pay and bonuses, salary sacrifice and premiums for insurance in super, as they may be included in the limit.

4. Spouse contribution
Does your spouse have an assessable income plus reportable fringe benefits totalling less than $13,800? Consider making a spouse contribution.

5. Co-contribution
If you earn more than $35,454, your co-contribution entitlement reduces by 3.33 cents for every dollar you earn over $35,454, until it cuts out at $50,454 (for the 2015/2016 year). For example, if you earn $40,000 and you make an after-tax contribution of $1,000, the Government's maximum contribution of $500 is reduced by $152, which potentially gives you a co-contribution of $348.

6. Payments made on behalf of the fund
Check for amounts that may be a superannuation contribution such as expenses paid for on behalf of the fund, debt forgiveness or in-specie contributions, and insurance premiums for cover via super paid from outside the fund.

7. Do you meet the work test if over 65?
To continue to make contributions to super, you must pass the work test of at least 40 hours in not more than 30 consecutive days during the financial year. 

8. Notice of intent to claim a deduction
If you are planning to claim a tax deduction for personal concessional contributions, you must have a valid 'notice of intent to claim a tax deduction'. If you intend to start a pension, this notice must be made before the pension is commenced. Many trustees like to start the pension in June and avoid having to take a minimum pension but ensure you have claimed their tax deduction first.

9. Contributions splitting
Consider splitting contributions with your spouse, especially if one of the following applies:
o your family has one main income earner with a substantially higher balance
o if there is an age difference where you can get funds into pension phase earlier
o if you can improve eligibility for concession cards or pensions by retaining funds in superannuation in a younger spouse's name.

10. Review capital gains tax
Review any capital gains made during the year and over the term you have held the asset. Consider disposing of investments with unrealised losses to offset the gains made. If you are in pension phase, consider triggering some capital gains regularly to avoid building up an unrealised gain.

11. Review and update your investment strategy & insurance to members
Review your investment strategy and ensure all investments have been made in accordance with it, and the SMSF trust deed. Also, make sure the investment strategy has been updated to include consideration of insurances for members.

12. Double dipping…June contributions deductible this year but can be allocated across two years.
If you have a large taxable income this year (large bonus or property sale) and are expecting a lower taxable next year, consider a contribution allocation strategy to maximise deductions for the current financial year. 

13. In-house assets
For in-house asset investments ensure that the market value of these investments is less than 5 per cent of the value of the fund. The new SMSF penalty powers will make it easier for the ATO to apply fines for smaller misdemeanours, so ensure you comply.

14. Check ownership of all SMSF investments
Ensure all assets of funds are held in the name of the trustees on behalf of the fund. Carefully check any online accounts that may have been set up without checking the exact ownership details. You have to ensure all SMSF assets are kept separate from your other assets.

15. Review estate planning.
Review binding death benefit nominations (BDBN) to ensure they are valid and still in accordance with your wishes. Do you know what your deed says on the subject? 

16. Review any SMSF loans
Have you made all the payments on your internal or third party loans? Have you looked at options on prepaying interest or fixing the rates while low? Have you made sure all payments for limited recourse borrowing arrangements for the year were made through the SMSF trustee? If you bought a property using borrowing, has the holding trust been stamped by the state's Office of State Revenue?

Almost one-fifth of the Australian population had 'no idea' how much money they would need to fund their retirement, according to the latest industry data from Mortgage Choice.

The survey found more than 50 per cent of Australians did not give their retirement 'serious thought' until they were in their 50s. Australians should be looking to boost their savings pool years before they actually retire.

For those Australians who not only want to retire comfortably, but on their own terms, they need to start planning early.

Average SMSF hit $1,000,000

According to ATO statistics the average SMSF has hit the million dollar mark for the first time. 

SMSF exposure to borrowing for investment purpose growing strongly and war era parents passing wealth to baby boomers are impacting strongly on these balances.SMSFs are increasing their influence over domestic shares and property markets with individuals

 choosing to take control of their retirement savings.

New Calendar year check-up

The calendar ticking over to 2016 is a good time to ensure your SMSF is on the right track.

Have you made arrangements to maximise your concessional contributions, for people under 50 the maximum contribution is $30,000 whilst it is $35,000 for people who are over 50 or turn 50 before 30 June 2016. Concessional contributions are taxed at 15% in the fund which is generally less than your marginal tax rate.

If you are drawing a pension ensure you meet your minimum payment before 30 June 2016 to retain your tax free status. Many people leave this until the end of June, if that is your plan ensure it is not done too late or worse still, overlooked.

If you are in a transition to retirement plan make sure you don't draw more than the 10% maximum, doing so will lose the tax exemption on the fund's earnings and your drawings will be fully taxable to you.

 Importantly, only commit to transactions that are appropriate to your financial circumstances. Trying to second guess potential changes to superannuation can be detrimental in the long run.