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2018 in review: The new(ish) SMSF rules you should have down pat

Nov 27, 2018, 12:58 PM

By Mark Ellem

Mark Ellem SuperConcepts SMSF expert

As 2018 draws to a close, it’s time to take stock and review the SMSF changes that you should, by now, have bedded down.

Event-based reporting

For the SMSF sector, the first major deadline for event-based reporting passed on 1 July 2018. This was the deadline for SMSFs with members receiving retirement phase pensions to report the 30 June 2017 value of those pensions to the ATO.

Since then, the next deadline has come and gone, being 28 October 2018 for SMSFs who are quarterly reporters and who had a reportable event occur during the period 1 July 2017 to 30 September 2018. If your SMSF has no reportable transfer balance account (TBA) events for any members during a reporting period, there’s no requirement to lodge a transfer balance account report (TBAR), even a nil TBAR.

The ATO has been issuing excess TBA determinations to individuals, who according to their records, have a pension balance in excess of the transfer balance cap (TBC). If you receive an excess determination, please contact your fund’s tax agent, accountant or adviser so that it can be reviewed and the appropriate course of action determined. The determination could be the result of incorrect reporting or the late or delayed reporting of events that would reduce your TBA balance. It could also be the result of an insufficient amount being commuted from your pension balance on or before 30 June 2017 to comply with the TBC. Either way, action may be required to remove the excessive amount.

Catch-up concessional contributions – year 1 of banking the unused portion

The 2018/19 financial year was the first year where the unused amount of an individual’s concessional contribution cap can be carried forward for a maximum period of five years. Next financial year, 2019/20, will be the first year that the carried-forward unused concessional contribution cap can be utilised, provided the individual’s total super balance (TSB) at 30 June 2019 is less than $500,000.

You can read more about the catch-up concessional contribution cap measure in our article Catch-up contribution measure brings new opportunity. It should also be noted that it is the Labor party’s policy to remove this measure, if they are elected to office.

Downsizer contributions

The new downsizer contribution measure commenced on 1 July 2018, allowing older Australians to contribute the proceeds from the sale of their family home to superannuation without many of the contribution restrictions applying. There is an eligibility criteria to be met, however, the application of the new measure is wider than originally expected. You can read more about the eligibility criteria and the scenarios that can apply in our article Contributing property proceeds to super.

Pension strategies to minimise fund tax and optimise your transfer balance account

With the introduction of the TBC, those affected were required to either move part of their pension back to the accumulation phase or remove it from super altogether. Given an SMSF may be required to pay tax on investment earnings derived from assets held in the accumulation phase, those who moved their excess pension balance to the accumulation phase may wish to consider strategies to minimise this tax. Besides the use of franking credits, you could look at the manner in which fund withdrawals are made as a way of maximising the fund’s claim for tax-exempt pension income. 

Those who have not been affected by the $1.6m TBC might consider maximising their TBA balance via the treatment of pension payments. Creating TBA ‘gap space’ can provide further opportunities for later transfers to retirement phase pensions, including where an income stream is received as a consequence of the death of a spouse.

For details of both strategies you can watch our videos on the topic Pension strategies in the wake of super reforms – Parts 1 & 2. You can also read our article How to navigate pension payments.

Ability to claim for personal super contributions

The 2017/18 financial year was the first year that a much larger group of people were able to claim a tax deduction for personal concessional contributions.

This is due to the removal of the so called “10%” rule – which previously limited tax deductions to people who were wholly or predominantly self-employed (i.e. those who derived no more than 10% of their income from salaried/waged work).

Since 1 July 2017, the rules are much simpler for claiming a tax deduction on personal super contributions. Either:

  • you are under age 65, or
  • you are over age 65 but under age 75 and have satisfied the work test (40 hours of gainful employment in 30 consecutive days) prior to making the contributions.

If you plan to claim a tax deduction you’ll need to formally notify your SMSF with a signed and completed “Notice of intent to claim or vary a deduction for personal super contributions”.

This needs to be done before you lodge your personal tax return for the year, or no later than the end of the next financial year. Also remember the notice needs to be lodged before any part of the contribution is withdrawn or used to start a pension.

Estate planning

Any estate plan should be regularly reviewed so that it meets a member’s changing needs and wishes. The introduction of the super reforms was a trigger for SMSF members to review the appropriateness of their estate plan, particularly where they were affected by the $1.6m TBC. Superannuation benefits that were previously subject to a reversionary pension nomination, may now be part of an accumulation account, which is not subject to the reversionary pension direction. Even where an SMSF member is not affected by the $1.6m TBC, their estate plan could still be affected. For example, a couple with combined TBA balances of more than $1.6m could have an estate plan which is now out of date because of the restricted amount that can be retained in the retirement phase.

You can view a video on this topic – "Mark Ellem discusses the impacts of the new pension cap on estate planning".

Trust deed update

With the recent changes to the superannuation rules, it’s important to ensure your SMSF trust deed incorporates all the latest changes and supports the latest SMSF strategies. For a discussion on why keeping your trust deed is important, please read our article Why it’s important to keep a trust deed current.