Essentials SMSF Planning Tips Pre 30 June 2015
The Australian Tax Office make changes every year and we have provided you with the most recent updates. The following SMSF planning tips and information will assist you with your tax return for the 2015 financial year.
Exceeding contribution limits
Exceeding contribution limits will in most cases result in additional taxes and charges.
Please see contribution caps for year ended 30 June 2015 as a reference.
| Contribution Type | Age at 30 June 2014 | Contribution Cap |
| Concessional | Aged 48 or under | $ 30,000 |
| Concessional | Aged 49 or over ₁ | $ 35,000 |
| Non-concessional | Everyone ₁,₂ | $ 180,000 |
- If 65 or over at time of making the contribution the member needs to pass the work test.
- Three year bring forward cap of $540,000 can apply
If you go over the deductable cap from 1st July 2013, the excess contributions will be included in your assessable income and taxed at your marginal tax rate (plus an interest charge) rather than at the top marginal tax rate.
Action!
- Review whether members over 65 meet the work test requirement before they make contribution
- Advise members of the CC and NCC contribution cap limits leading up to 30 June
- Check if any contribution can be classified as exempt, ie CGT
Pension Payment
If you are currently operating a SMSF in a pension mode (an account based pension – ABP), please ensure those pensions that are paid by 30th June 2015. Any funds which in a pension mode is required to pay a pension by 30th June 2015. The amount payable depends on the opening balance and is based according to age. Please refer to the table below.
| Age | Percentage of account balance |
| 2013-14 onwards | |
| Under 65 | 4 % |
| 65-74 | 5 % |
| 75-79 | 6 % |
| 80-84 | 7 % |
| 85-59 | 9 % |
| 90-94 | 11 % |
| 95 or more | 14 % |
Please note that any amount paid as a pension must leave the fund in cash prior to the end of financial year.
Age is defined as the age at
- 1st July in the financial year in which the payment is made
- The commencement day if that is the year in which the pension or annuity commences
‘Account balance’ means one of the following:
- The pension account balance on 1st July 2014 in the financial year in which the payment is made
- If the pension commenced during the financial year – the balance on the commencement date
Super Co-Contribution
You will be eligible for the super co-contribution if you can answer yes to all of the following:
- you made one or more eligible personal super contributions to your super account during the financial year
- you pass the two income tests
- your total income for the financial year is less than higher income threshold ($49,488 for 2014-15)
- 10% or more of your total income comes from eligible employment-related activities or carrying on a business, or a combination of both
- you were less than 71 years old at the end of the financial year
- you did not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
- you lodged your tax return for the relevant financial year.
| If your personal super contribution is: | ||||
| $1,000 | $800 | $500 | $200 | |
| And your income is: | Your super co-contribution will be | |||
| $34,488 or less | $500 | $400 | $250 | $100 |
| $36,516 | $400 | $400 | $250 | $100 |
| $39,516 | $300 | $300 | $250 | $100 |
| $42,516 | $200 | $200 | $200 | $200 |
| $45,516 | $100 | $100 | $100 | $100 |
| $49,488 or more | $0 | $0 | $0 | $0 |
Superannuation Administrative Penalties
Starting from 1st July 2014, a trustee (individual or corporate) of a SMSF or a director of a corporate trustee of a SMSF will be liable to administrative penalties if they contravene provisions of the SIS Act. The penalties range from 5 penalties units (currently $850) for such breaches as failure to appoint an investment manager of a SMSF in writing, failure to comply with an educational direction before the end of the period specified etc to 60 penalty units (currently $10,200) for breaches related to borrowing and lending by SMSFs and non-compliances by SMSFs with the in-house asset rules.
If a trustee of a SMSF is a company, which is liable to an administrative penalty, the directors of such trustee at the time it becomes liable to the penalty are jointly liable to pay the amount of the penalty.
For example, if a SMSF corporate trustee with two directors breaches the in-house asset rules, the penalty of $10,200 in imposed on such corporate trustee. Even though the two directors are jointly and severally liable to pay this penalty, its total amount remains the same.
However, if a SMSF has two individual trustees and they fail to ensure compliance with the in-house asset rules, the penalty of $10,200 is imposed on each individual trustee resulting in the total penalty of $20,400 being imposed.
Please note that such contraventions as breaches with respect to borrowing and lending by SMSFs or failure to comply with the in-house asset rules, which occurred before 1st July 2014 and continued after that date, can result in penalties imposed from 1st July 2014.
Consider your current SMSF structure as to whether you need to change your individual trustees to a corporate trustee to reduce the amount of liability in case of administrative penalties being imposed.
In-House Asset
Ruling
Subsection 71(1) provides a basic definition of the term ‘in-house asset’ of a superannuation fund.
Basic definition of ‘in-house asset’
‘In-house asset’ is defined in subsection 71(1) as:
an asset of the fund that is a loan to, or an investment in, a related party of the fund, an investment in a related trust of the fund, or an asset of the fund subject to a lease or lease arrangement between a trustee of the fund and a related party of the fund, …
This part of the definition contains many terms which are defined in the SISA and require further consideration.
From the year ended 30 June 2001 onwards section 82 limits the market value of in-house assets that may be held by an SMSF at the end of each financial year to 5% of the market value of the total assets. In the event that this limit is exceeded, section 82 provides procedures which must be followed by the trustees of the SMSF to reduce the level of in-house assets within 12 months. In addition, section 83 prohibits the acquisition of an in-house asset if the 5% limit on in-house assets is exceeded or if the acquisition will cause the 5% limit to be exceeded. Section 84 imposes civil penalties on trustees where these requirements are not met in addition to the potential for the SMSF to be given a notice of non-compliance.
So you should consider your fund’s investment strategy and determine whether the investment is appropriate and that any acceptable loans are on commercial terms.
If you still decide to go ahead and lend money from your SMSF, the ATO advise that:
“you should:
o what the security for the loan o what is the repayment period o when repayments will be paid o the amount of the repayments o the interest rate
|
The ATO benchmark rate, 5.95%, for the 2014-2015 financial year should be considered as interest rate and should be included in the loan agreement.