Superannuation, Tax

Greater tax benefit focus needed

SMSF tax minimisation

Advisers and accountants need to pay more attention to tax minimisation strategies for their SMSF clients.

Advisers and accountants need to put an increased emphasis on using all of the means allowable in gaining the best tax minimisation outcomes for their SMSF clients, a strategy expert has said.

“One of the biggest mistakes that I see a lot of accountants [and advisers] make is [they’re not implementing] enough tax minimisation [strategies] at the SMSF level,” LightYear Docs founder Grant Abbott told delegates at his firm’s recent Master Strategy Day 2021.

“If you can reduce that 15 per cent tax [applied to superannuation] down to 5 or 10 per cent, it actually has quite an impact.”

To illustrate his point, Abbott used an example where a person made too many concessional contributions in one financial year. In his scenario, the individual had an annual salary of $250,000 and chose to allocate $200,000 of this remuneration package to their SMSF.

According to Abbott, the situation would give rise to the ATO giving the trustees an offer to refund the excess concessional contributions as per subsection 292-467(1) of the Income Tax Assessment Act 1997.

This in turn would result in the trustee having to amend their personal income tax return, which when filed would have declared a yearly income of $50,000, to include the excess concessional contribution of $175,000, he said.

However, this refunded amount of $175,000 will receive a 15 per cent tax offset, meaning it will not be taxed at the person’s full marginal tax rate when it is included as assessable income in the individual’s amended return, he noted.

This is because the ATO has deemed the SMSF has already paid 15 per cent tax on the original $200,000 concessional contribution.

“This is why if we can reduce our tax liabilities in the fund, then effectively we’re going to be in a much better position,” Abbott said.

“So what are some of the strategies we can use to mitigate the tax inside the fund? [We can invest in an] ESIC (early-stage innovation company), which results in a 20 per cent tax offset, [take advantage of] franking credits and use instalment warrants.”

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