Financial year-end planning for your SMSF

With the end of the financial year fast approaching, it provides an important time for SMSF trustees to turn their attention to a range of strategies leading up to 30 June.

The following list provides some ideas, issues, and strategies that can be used (or need to be addressed) with your self-managed super fund before the end of the financial year:

• Employer and self-employed contributions are 100% tax-deductible up to the age of 75.  Remember that somebody aged 65 and over at 1 July 2010 will be required to have met the ‘work test’ (i.e. must have worked 40 hours in a 30 day consecutive period);
• Ensure that you review you concessional contributions paid during the financial year to ensure that you don’t get caught with Excess Contributions Tax (ECT).  If you put in more than the allowable cap ($25k – under 50, $50k – 50 and over), you will pay the top marginal tax rate of 46.5%, including the Medicare levy;
• Also ensure that any non-concessional contributions to be paid are not going to be excessive (i.e. under 65 – $450,000 with bring forward rule, 65 and over – $150,000 p.a.).  Most importantly, don’t end up paying a 93% tax with excessive concessional contributions, where you have already reached the non-concessional contribution cap;
• Remember to include when calculating concessional and non-concessional contributions expenses paid personally on behalf of the fund – these amounts count towards the contribution caps!!
• Think about contributions that could be made into your SMSF by way in-specie transfer.  Members can make contributions of assets including shares, managed funds, and commercial property (including your own business premises) into super as a ‘off market transfer’.  You will need to appropriately consider the issues of tax (CGT), GST, and stamp duty;
• Make an after-tax contribution (non-concessional) into super to qualify for the government co-contribution.  If your income for the financial year is below $31,920, you’ll receive a $1 for $1 benefit up to $1,000 from the Federal Government.  Those whose income falls between this lower-income amount and $61,920 (upper threshold) will be entitled to a pro-rata co-contribution amount;
• Income streams from your SMSF, including account based pensions and transition to retirement income streams are tax-free for people aged 60 and over (that is, you do not need to declare the income in your tax return);
• Ensure that you have met your minimum pension payments for the financial year (whether full year or pro-rata).  The 50% reduced minimum levels have continued to apply for the 2010/11 financial year.  By not meeting the minimum pension will mean that the fund will not receive the 0% tax rate on income generated by assets supporting the pension (and all withdrawals will be treated as lump sums).
• It may be worthwhile for somebody under the age of 60 (who has retired) to take their pension amounts as lump sum.
• Splitting contributions with your spouse is a strategy that looks like coming back into vogue – refer to proposed changes to allow those over 50 years of age with balances of less than $500k to continue to make $50,000 concessional contributions each year.  This means that it may be worthwhile to split concessional contributions with non-working spouses to keep the primary breadwinner’s account balance under the threshold to maximise the opportunity to keep contributing into super at $50k p.a.
• Spouse contributions can provide the person making the contribution (on behalf of their spouse) to be entitled to a tax offset of up to $540 (18% tax offset on first $3k), where the spouse receiving the contribution has assessable income plus reportable fringe benefits totalling less than $10,800.
• Consider optimising the fund’s overall capital gains tax position – look to utilise any capital losses through realising capital gains (or conversely realise capital losses where the fund has capital gains for the financial year);
• It is important to remember that you cannot prepay interest on a limited recourse borrowing within a SMSF, as the pre-payment rules only allow apportionment over the period to which the interest relates (i.e. only deductible in the relevant year).
• Obtain valuations for assets such as property, artwork, collectibles and other fund assets that should be valued to their market value at 30 June.  This is not only best-practice for SMSFs, but is important for matters including the in-house asset rules.
• Ensure that any existing death benefit nominations remain valid.  It provides a timely message to review any potential changes to your total estate plan, including Wills and Powers of Attorney; and finally
• Ensure the you (as trustee) have sufficiently documented (i.e. minutes) the fund’s activities in the past year and have reviewed the fund’s investment strategy.