By Guest contributor, Mark Ellem, Executive Manager, SMSF Technical Services at SuperConcepts
With the clock ticking on the current financial year, now’s the time to make sure your superannuation affairs are in order for 30 June 2018
Don’t leave contributions to the last minute
It’s vitally important to ensure that any contributions for 2017/18 are received by the fund no later than 30 June 2018, which is a Saturday. If contributions are made by internet banking, be aware of the service conditions that apply, the date the transaction will be processed and importantly, when the deposit will show in the fund’s bank account. Where an electronic contribution is made on 30 June 2018, generally, the deposit will not appear in the fund’s bank account until the following day, which is the next financial year (and some banks may not process until the next business day).
Where an electronic deposit appears in the fund’s bank account post 30 June 2018, it cannot be recorded as a contribution in the 2017/18 financial year. The ATO’s tax ruling, TR 2010/1, is clear when it comes to electronic contributions: “A contribution is made when the funds are credited to the superannuation provider’s bank account.” Paperwork indicating that the contribution was instigated on or before 30 June 2018 won’t be sufficient to show that it belongs to the 2017/18 financial year, if on the fund’s bank statement the date of receipt is 1 July 2018 or later.
It is, however, interesting to note that if a contribution is made by way of personal cheque, the ATO considers the contribution is made when the personal cheque is received by the fund, provided the cheque is promptly banked and honoured. This would allow for a contribution to be made on 30 June 2018 by personal cheque, received by the fund on the same day, but not banked until 2 July 2018 and still recorded as a contribution in the 2017/18 income year.
However, the best course of action is to ensure all intended contributions for 2017/18 are made in plenty of time before 30 June 2018.
Can the SMSF accept the contribution?
The age of the member will determine the circumstances that a super fund can accept a contribution either from or on behalf of them. There are no restrictions on acceptance of contributions for people under 65. However, between 65 and 74, a fund can only accept a contribution if the member meets what is commonly referred to as the ‘work test’ (40 hours paid employment over any 30 day consecutive period during the financial year). It is understood that the work test should be satisfied prior to the contribution being accepted by the fund. Once a member has turned 75, or more precisely, 28 days after the end of the month they turn 75, the fund can only accept employer-mandated contributions (the compulsory 9.5%).
Use the correct contribution caps
The concessional contribution cap for everyone, no matter their age, is $25,000 for 2017/18. Those with salary sacrifice arrangements in place need to ensure they don’t breach this lower concessional cap and should review/revise their arrangement accordingly.
Also, those employees who cannot salary sacrifice to super are able to make personal contributions and claim as a tax deduction. The restriction, known as the ‘10% test’, was removed from 1 July 2017. There are specific notice requirements in place and again, you need to ensure that the total of personal deductible and employer contributions does not exceed the $25,000 limit for 2017/18.
Non concessional contributions
The non concessional cap for 2017/18 is $100,000. However, for anyone who has a ‘total super balance’ of at least $1.6m as at 30 June 2017, their non concessional cap is reduced to zero.
For those under age 65 during 2017/18, the ‘bring forward’ rule can be used, where eligible, for non concessional contributions. However, this also depends on the member’s total super balance at 30 June 2017, per the table below:
|Total super balance on 30 June 2017
|NCC cap for the first year
|Bring forward period
|Less than $1.4m
|$1.4m to less than $1.5m
|$1.5m to less than $1.6m
|No bring forward available
It’s also important to note that where the bring forward rule is not fully utilised in year one, that any non concessional contributions made in any remaining year of the bring forward period are subject to the $1.6m total super balance test. For anyone who triggered the bring forward rule in either the 2015/16 or 2016/17 financial years, there will be a transitional bring forward contribution cap that applies, which should be confirmed.
Ensure that the required amount of pension is paid by 30 June 2018 for:
- Account based pensions
- Transition to retirement pensions (also, not more than the 10% maximum)
- Market linked pensions
- Defined benefit pensions
As with contributions, ensure that electronic pension payments show as coming out of the fund’s bank account by no later than 30 June 2018 to be counted in the 2017/18 income year.
For most SMSFs, the type of pension being paid to a member is an account based pension. For these, minimum payments are based on age at the start of the year (or age when commencing a pension during the year), and are as follows:
|Minimum pension %
|Under age 65
Also, where the pension is a transition to retirement pension (TTR), ensure that they do not exceed the 10% maximum limit. Unlike the minimum pension, where a TTR starts part way through the income year, the 10% maximum pension payment is not required to be pro rated. For example, a TTR that commences on 5 June 2018 with $400,000 will have a minimum required pension for 2017/18 of nil (as the pension commenced on or after 1 June in the financial year), however, the maximum pension allowed will be $40,000, with no requirement to pro rata.
It’s also worth noting that this 10% maximum limit for a TTR must take into account any PAYG withholding in relation to a pension paid to a person under age 60.
Exceeding this 10% maximum limit for a TTR will result in all payments being treated as lump sum benefit payments and not pension payments. As a TTR usually consists of ‘preserved’ monies, any payments treated as lump sum benefit payments will be in breach of the preservation rules. The member may be treated by the ATO as illegally accessing preserved benefits, which will result in all of the payments from the TTR being taxed at the member’s personal marginal tax rate, regardless of tax components, age and with no 15% tax offset.
Pension payment must be cash
According to the regulator a pension payment must be a cash payment and cannot be made in kind (also known as an ‘in-specie’ payment). An ‘in-specie’ payment can be effected from a pension by way of partial commutation, however, since 1 July 2017, partial commutations do not count towards satisfying the minimum pension payment requirement. Consequently, this means that at least the minimum pension has to be paid in cash. Note, if the member is under age 60, the fund will also require the cash to satisfy any PAYG withholding requirements.
Don’t forget PAYG withholding for benefit payments to members under age 60
Where a pension is paid to a member under age 60, the fund is required to abide by the PAYG withholding (PAYGW) requirements in relation to the taxable component. Any PAYGW remitted to the ATO as part of the June 2018 activity statement will count as a payment in the 2017/18 financial year and towards the 2017/18 minimum pension payment and, for a TTR, the 10% maximum pension allowed. The fund will also be required to issue the relevant PAYG summary statement to the member by the relevant due date.
PAYGW and reporting also applies, from 1 July 2017, to any pension that is a ‘capped defined benefit income stream’, regardless of the age of the member. The SMSF will also be required to issue a PAYG summary statement to the member, regardless of whether there has been any actual amount withheld and sent to the ATO.
Lump sum benefit payments to members under age 60 at the time of the payment are also subject to the PAYGW rules and whilst there is a $200,000 low rate cap for 2017/18, there is still the requirement for the fund to register as a PAYG withholder and issue the relevant PAYG summary statement after 30 June.
Market valuation of assets
Although this is a simple process for assets that have a quoted market price, like listed stocks and managed funds, if the SMSF has assets that are not on market, such as real estate and collectables, it’s a good idea to line up the relevant assessors, where needed, early. External valuations may not be required every year, however, superannuation law requires the SMSF trustee(s) to turn their mind to and determine market value for each year’s annual financial statements.
So, just a few things to keep in mind as we bound along to the end of yet another financial year.
A special thanks to author Mark Ellem and SuperConcepts for allowing this note to be republished on The WIRE. Please visit their website www.superconcepts.com.au for more information on SMSF software, services, news and insights.