The beginning of 2016 is a good opportunity for SMSF trustees and advisers to ensure funds are in good shape and on the right track for the future.
There were straightforward yet frequently overlooked factors to check off, according to HLB Mann Judd director of wealth management Andrew Yee.
The first step was to check the fund was on track to maximise its contributions and to put in measures to salary sacrifice up to the maximum limit if the SMSF had not already done so, Yee said.
For those aged under 50, the maximum contributions limit is $30,000, while for those aged over 50, the maximum contributions limit is $35,000.
“This is an important consideration for those who are turning 50 in this financial year,” Yee said.
“As long as you turn 50 anytime during the financial year, you are eligible for the higher $35,000 cap – many people do not realise this and think the ability to make additional contributions only applies from their birthday.”
Furthermore, making contributions or planning to make contributions was a task often left to when the end of the financial year was approaching, yet it was one that should be reviewed and implemented during the year, he said.
He urged SMSF trustees not to leave it until the last minute as they could miss the cut off if payments were late or if there were any issues with electronic funds transfers, Bpay or processing cheques.
Another area to check was if trustees were drawing a pension from their SMSF to ensure they had drawn down the minimum required before 30 June, otherwise they risked losing the tax exemption on the SMSF’s earnings, he said.
“Many people leave it up until June and if it’s not done in a timely fashion, or worse is overlooked or you’ve underpaid the pension, it leaves the super fund open to an unexpected tax liability,” he said.
“It happens more often than you would think.”
For trustees in the transition-to-retirement phase, it was important to ensure they were on track to keeping the maximum pension they drew to under 10 per cent of the account balance.
“If you go over this amount, your fund will lose the tax exemption on its earnings and the pension received by you will be taxed as a normal income,” Yee said.
Another step for SMSF trustees to remember was that the magic age to draw money from their super fund was 60.
“Age 60 is when pensions or lump sums taken from super are tax-free in your hands,” he said.
“But age 60 does not mean you can now start drawing from your super as you still need to meet a condition of release, such as retirement, in order to do so.
“Not everyone is aware of this and often confuse the two issues.”
Finally, SMSF trustees and advisers should always ensure their planning was applicable for the rules and regulations that were in place now, and not act out of fear that the rules may change in the future, he said.
“It is important that the actions you are taking are the appropriate ones for your financial situation,” he added.
“Making financial decisions in an effort to second guess government changes to the superannuation system should be avoided.
“That said, if you are eligible to take advantage of a current super concession, such as a transition-to-retirement pension, and it makes financial sense to do so, why not start it now?”
