A June checklist for SMSF trustees

NewsSMSF Insights

A June checklist for SMSF trustees

Written by John Maroney, CEO, SMSF Association

First published in The Australian Financial Review on 29 April 2019. Licensed by Copyright Agency. 

With just a few months until the end of the financial year, now’s the time to be organising your DIY super fund. Here’s what to do.

For SMSF trustees, the end of the financial year can be a busy time. Reviewing the investment portfolio and considering any changes to asset allocation in light of political and investment changes is a regular and timely process at this time of year.

There are also several important regulatory issues that need to be addressed to ensure their SMSF transitions to the new financial year and that everything that needs to be done this financial year is executed and properly documented. This will involve discussions with their accountant and financial adviser.

What do SMSF trustees need to ensure they sign off on before EOFY?

Getting the right amount of money in

Making sure members put in the maximum contributions each year is important. This is the time to review those pay slips and statements to check how much has been contributed in the financial year by employers as part of their superannuation guarantee obligations (9.5 per cent of salary) and any salary-sacrifice contributions.

The maximum that can be contributed as concessional (or pre-tax) contributions is $25,000 this financial year – these are the superannuation guarantee and salary-sacrifice contributions. If there is a shortfall, members can make up the difference and claim a tax deduction in their personal tax return later.

After-tax contributions can also be made by members (called non-concessional contributions) and these are limited to $100,000 a year. Up to three years’ worth of these contributions can be made in a single contribution (that is, up to $300,000) with special rules applying. In particular, these contributions are restricted if the members’ account balances already exceed certain levels.

If a member has sold assets, or a business or inherited under an estate, they may wish to consider putting some of this into superannuation in this way. Getting good advice as to how to do this and how the rules work is always worth it.

All these contributions must be received by the fund on or before June 30 to count for this financial year. This generally means that a cash contribution must be credited to the bank account of the fund by this deadline. If making a contribution by way of transfer of an asset (like shares or units in a managed fund), a properly executed transfer document must be completed and received by trustees before this date.

Asset contributions are a little trickier and getting advice on what to do is a good idea.

Getting the right amount of money out

Those members with a pension being paid from their fund or who started one during the year must ensure they have drawn out at least the minimum legally required pension payment for the financial year. These pension payments must be paid by the fund and received by the pension member before year-end to qualify as a pension payment for this financial year.

An important consideration with pension payments is that they can only be made using cash. Unlike contributions that can be a transfer of an asset to super, payments will only count towards these minimum pension percentages if made in cash.

SMSF trustees need to ensure that sufficient cash is always available to make these cash pension payments and that they don’t have to sell assets.

Failure to make the minimum pension payment in a financial year will mean that the pension will not exist for that year. This means that the tax benefits of paying a pension will be lost by the SMSF for that year.

Don’t forget

  • Just as receiving contributions and paying benefits before the year-end are important, expenses of the fund that are to be tax deductible this financial year must be actually paid before June 30. Payment after that will push the tax deduction into next year.
  • Do assets of the SMSF need to be revalued for the preparation of the year-end accounts? Large lumpy assets such as property should be revalued regularly, and close to June 30 is the best time to get those valuations.
  • How has the mix of asset types in your SMSF changed over the year? Adjusting the asset mix to suit your risk appetite is an ongoing responsibility for an SMSF trustee, but the sale and purchase of assets may best be undertaken before June 30, depending on the tax outcomes for the fund. A conversation with your tax adviser to assess the tax position of your SMSF can assist in getting the right tax outcomes for the year. Depending on the results of the federal election, SMSF trustees who rely on a significant refund of franking credits may wish to review their asset allocation if it is heavily weighted to Australian shares paying franked dividends.
  • If you have been putting off that conversation about what happens to your super when you pass away or you haven’t looked at your estate plans for a while, now is a great time to address this issue.