HLB Mann Judd Sydney SMSF specialist Andrew Yee said in addition, SMSF members and trustees should assess whether they could take advantage of current opportunities, such as more generous transition-to-retirement rules, which might end this financial year.
“Any changes that are introduced by the government will be easier to manage and less costly to implement if the SMSF is up to date and in good shape,” Yee noted.
He said key points to look at during an SMSF health check included clients over 55 considering whether to start a pension from their SMSF this financial year as the rules could change from 1 July 2017.
“Under the current super rules, anyone who has reached preservation age can start a pension and draw up to a maximum of 10 per cent of their account balance each year, irrespective of whether they continue to work or not,” he said.
“It is a good strategy to reduce tax, but more importantly increase contributions to super whilst supplementing their reduced take-home pay with their pension withdrawal.
“The added bonus of this strategy is that earnings in the super fund paying the pension are exempt from tax.
“It is proposed to remove their tax exemption from 1 July 2017 for funds paying a transition-to-retirement pension, however, super funds already paying pensions to persons over 55 and retired, or to persons over 65, will continue to receive the tax exemption.”
In addition to ensuring SMSFs were maximising their contributions, trustees should also review current and future cash flows in the fund, he noted.
With proposed changes to super that severely restrict the amount of money that can be contributed to super, in particular the $500,000 lifetime non-concessional contributions cap backdated to 1 July 2007, SMSFs may need to restructure or change the asset mix of their fund in order to maintain cash flow, he said.
That might mean stopping or reducing pensions in their SMSF, especially as members might not be able to recontribute their pensions without exceeding their $500,000 cap, he added.
“This may be particularly problematic for SMSFs with lumpy assets such as property, or even worse where the SMSF has borrowed monies to acquire these assets and also need to make interest repayments,” he said.
“Trustees may be forced to sell such assets in order to meet pension liabilities or just stop the pension, which will then mean the SMSF will pay tax on the earnings of these assets.”
SMSFs must also plan for the $1.6 million pension cap, review the SMSF trust deed, consider converting to a corporate trustee, and review death benefit nominations and any collectable investments in the fund, he added.
He also said it might be worth considering moving life insurance policies inside the SMSF and also reviewing the viability of the fund to possibly wind it up.
“Due to the significant changes likely to come from 1 July 2017, the current financial year is shaping up to be a watershed year for super planning,” he said.
“Therefore SMSF trustees should consider seeking specialised advice so that they are prepared for whatever changes do take place.”