While the worst of the pandemic is (hopefully) behind us, trustees still have difficult questions to ponder as they focus on how best to position their SMSF in 2020-21 financial year.
If there is anything in this blog that you are unsure about, we encourage you to contact me to discuss your specific circumstances in more detail.
Meeting new pension requirements
To help manage the economic impact of COVID-19, the Government has reduced the minimum drawdown requirements by half on common pensions, such as account-based pensions and market-linked pensions, for 2019-20 and 2020-21. This also occurred after the GFC in 2008, and you will need to consider and amend your pension strategies for 2020-2021 financial year.
This includes ensuring that the minimum pension has been paid for this financial year. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax free.
It is important to amend your pension strategies for 2020-21 to reflect the “new” minimum pension standards. Where you have been receiving regular pension payments, it’s likely you may want to withdraw more than the 50% of the required minimum payment for this year. Specialist SMSF advice should be sought to help you determine the most tax effective way to structure benefit payments, please get in contact with me to discuss this further.
Contribution changes
For 2021 financial year, you should review your contribution strategies to ensure you can contribute in the most effective way and ensure you are below the contribution caps.
Non-concessional (after-tax) contributions are limited to $100,000 for the 2021 financial year and concessional (before-tax) contributions are limited to $25,000. There are strategies might be available to increase the concessional and/or non-concessional contributions depending on the personal circumstances. Please feel free to contact me for more details.
SMSF trustees should be aware of the legislation that is slated to pass before the end of the financial year. If passed it will allow people aged between 65 and 66 to make voluntary contributions (previously restricted to people below 65) without meeting a work test. These older individuals will also be able to make up to three years of non-concessional superannuation contributions under the bring forward rule, so it will pay to get advice in order to maximise their contributions.
Investment strategy and property assessment
Your fund’s investment strategy is a key consideration on the cusp of 2020-21.
It is important to understand that an SMSF’s investment objectives and strategy are not set in stone, with the strategy needing to be reviewed at least once a year and signed off by an auditor.
Investment strategy should be tailored to individual fund circumstances and should not be a “standard” or templated document.
As per Reg 4.09 of SISR, the trustee must formulate, give effect, and regularly review the strategy. In the Investment strategy the SMSF trustee should include:
The risk vs return profile of the assets classes
– Diversification
– Liquidity needs
– Ability to discharge liabilities if they fall due
– Insurance needs of the members- The risk vs return profile of the assets classes;
– The risk vs return profile of the assets classes
– Diversification
– Liquidity needs
– Ability to discharge liabilities if they fall due
– Insurance needs of the members
- Diversification;
- Liquidity needs;
- Ability to discharge liabilities if they fall due;
- Insurance needs of the members.
ATO has made the point that the investment ranges of 0 to 100 per cent for each class of investment is not acceptable.
If trustees are not complied with the investment strategy requirements, the auditor may notify ATO regarding imposition of administrative penalties for breaches of super law.
Whilst I can not formulate the investment strategy for trustees, I can assist trustees with their investment strategy compliance requirements.
The risk vs return profile of the assets classes
– Diversification
– Liquidity needs
– Ability to discharge liabilities if they fall due
– Insurance needs of the members
ATO has made the point that the investment ranges of 0 to 100 per cent for each class of investment is not acceptable.
If trustees are not complied with the investment strategy requirements, the auditor may notify ATO regarding the imposition of administrative penalties for breaches of super law.
Whilst I can not formulate the investment strategy for trustees, I can definitely assist trustees with their investment strategy compliance requirements.
– The risk vs return profile of the assets classes
– Diversification
– Liquidity needs
– Ability to discharge liabilities if they fall due
– Insurance needs of the members
ATO has made the point that the investment ranges of 0 to 100 per cent for each class of investment is not acceptable.
If trustees are not complied with the investment strategy requirements, the auditor may notify ATO regarding the imposition of administrative penalties for breaches of super law.
Whilst I can not formulate the investment strategy for trustees, I can definitely assist trustees with their investment strategy compliance requirements.
Before any investment decision is implemented, particularly in a COVID-19 environment, you should examine the impact it will have on the overall portfolio to ensure you are investing in line with your strategy.
For those exposed to property, in some cases with a limited recourse borrowing arrangement (LRBA), there are new considerations. Many SMSF commercial properties (and, to a lesser extent, residential property) will not be receiving full rental payments under their lease agreements because of COVID-19, meaning less income.
All efforts should be focussed on negotiating with tenants and using the Government support packages to ensure they will be able to withstand the effects of COVID-19. This includes considering the property relief measures the ATO have implemented and the use of the National Cabinet’s Mandatory Rental Code to plan out rental income for this and next financial year.
$1.6 million transfer balance cap and total superannuation balance
The $1.6 million transfer balance cap applies to SMSF members who are receiving a pension. A $1.6 million transfer balance cap limits the amount of tax-free assets that can support a pension. Ensure you are aware of the consequences of excess transfer balances and avoid exceeding the cap.
Different total superannuation balance thresholds exist for SMSF. Ensure you are across your fund’s total superannuation balance which may be relevant for contributions, exempt pension income or transfer balance account reporting.
How can we help?
If you need assistance when making decisions about your fund in 2021, please feel free to give me a call so that we can discuss in more detail. We will be able to work together to ensure you are maximising your fund to reach your financial goals.