The SMSF community has gone into a little bit of meltdown since the passing of the Superannuation (Excess Transfer Balance Tax) Bill 2016 and Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 late last year.
Due to the fact there has been so much significant change to the sector arising from these pieces of legislation, and so little time before they come into effect, it was only natural to expect all concerned to find out as much as they could about the new rules and how they would be applied to enable a proper transition.
In my first editorial of the year I myself stressed there was urgency for every trustee to understand what they needed to do to accommodate the new legislation.
But having now had some time to digest what some of the new rules are and the effect they’ll have, it has allowed a bit of thought as to what needs to be done first.
In conversations with advisers the reality is that the newly imposed parameters on balances will not affect every SMSF trustee right away.
Sure, over time the new laws have the potential to have greater effect especially for those who will be approaching retirement in the future.
But even for SMSF trustees currently in retirement who don’t have upwards of $1.6 million the immediate action necessary, needed before 1 July, would be minimal if any.
With this perspective in mind it leaves one main issue that requires immediate action and that is to maximise contributions before 1 July.
This is one element that cannot be addressed once the lower contributions caps are introduced.
Once again not everyone has the spare cash readily available to implement an accelerated contribution strategy over the next two and a half months. But if they are in a fortunate enough position to be able to put more dollars into their SMSFs trustees need to do so now.
Specifically the one area that can provide the greatest advantage for trustees is to maximise their non-concessional contributions before the end of the financial year. At best this could mean tipping in another $540,000 into their SMSF before any qualification limits are applied let alone lowered caps.
The magnitude of this opportunity was probably best communicated by two different industry contacts of mine. The first labelled the last chance to get more cash into super before 1 July as the biggest opportunity since treasurer Peter Costello facilitated a once-in-a-lifetime offer for people to make a $1 million retirement savings contribution back in 2007.
The second contact, as has been reported in the pages of this newsletter, actually endorsed the practice of borrowing money to allow trustees to maximise their contributions before the rules encompassing more generous caps ran out.
This may not seem significant on the surface but at any other time, including back in 2007, most practitioners have been loath to even suggest people contemplate such a strategy.
Of course to contextualise the conversation this strategy was only recommended if it was guaranteed the necessary sum of money to pay back the loan for super contributions would be available to the individual in the immediate future.
Nevertheless these two opinions certainly indicate what a lucrative opportunity this is for SMSF members and seeing it is the first advantageous course of action to expire, and soon, individuals who can and are willing to implement it must make it a priority.