Current as of April 2016
The 2016 Federal Budget is less than one month away, with several potential policy changes including the possible end to Transition to Retirement Pension arrangements and reductions to the concessional and non-concessional contribution caps. Now is the time to review your SMSF and see what opportunities can be implemented.
We’ve pulled together the following checklist to help you:
- Contributions – What has been contributed to-date? What are my contribution caps?
As contributions are assessed on a cash basis, care must be taken not to exceed your contribution caps. If you were intending on making additional contributions to maximise your concessional and/or non-concessional contributions, then now is the time to do this.
- Concessional contributions:
- Aged 48 and under on 30 June 2015: $30,000
- Aged 49 or over on 30 June 2015: $35,000
- Non-concessional contributions:
- Aged less than 65 on 1 July 2015: $180,000 (or 3 year limit of up to $540,000)
- Aged 65 to less than 75: $180,000
- Aged 75 and over: non-concessional contributions cannot be made
Some tips and traps:
- Superannuation outside your SMSF – check if you or your employer has made contributions into these fund(s) as these contributions are included in the above annual caps
- Contributions must be received by your fund in cash prior to 30 June
- Work test for those aged 65 to 74 needs to be met prior to the contribution being made
- Consider commencing a Transition to Retirement Pension (TTR)
One possible change in the budget is the removal of the TTR and if implemented is unlikely to be made retrospective.
Hence, if you’re over 55, still working and would benefit from commencing a TTR, now is the time to commence it.
- Pension Payments – Review your minimum and maximum pension limits
Account Based Pensions (ABPs) have a minimum pension payment which must be paid each year and care must be taken to ensure this is met before the end of each financial year to ensure the pension remains concessionally taxed.
|Age||Percentage of account balance at 1 July 2015|
|65 – 74||5%|
|75 – 79||6%|
|80 – 84||7%|
|85 – 89||9%|
|90 – 94||11%|
|95 or more||14%|
Since there is no upper limit on how much can be withdrawn from an ABP, there are no issues in wanting to draw more to cover any “extra” payments.
Transition to Retirement Pensions (TTRs), the minimum pension percentage remains the same as the above percentages. However there is a maximum payment percentage of 10%. That means you cannot withdraw more than 10% of your TTR balance as at 1 July 2015.
- Collectables and Personal Use Assets – reminder on new rules from 1 July 2016
From 1 July 2016, all funds that own collectables and personal use assets such as artwork, coins, wine, recreational boats etc will be required to adhere to the following rules:
- Leasing – these items can only be leased to an unrelated party and at arm’s-length terms
- Usage – collectables and personal use assets may not be used by members or related parties
- Storage and display – the asset must not be stored or displayed in a private residence of a related party
- Insurance – all assets must be insured in the name of the fund within 7 days of purchase
- SuperStream Electronic Service Address – reminder for 1 July 2016
Members who are having their employer contributions paid into the SMSF must be registered for SuperStream and provide an Electronic Service Address (ESA) to their employer by 1 July 2016.
- Non Arm’s-Length Limited Recourse Borrowing Arrangements (LRBAs) Safe Harbour Guidelines Effective 1 July 2016
Funds which have existing LRBAs for property or listed securities and related party loans, should be reviewed immediately for non arm’s-length terms such as:
- an interest rate lower than 5.75% for the 2015/16 year;
- loan term greater than 15 years;
- repayments which are not monthly repayments of principal and interest;
- Loan to Market Value Ratio (LVR) exceeding 70%;
- do not have a registered mortgage in place; and
- does not have a written and executed loan agreement in place
Those loans do not meet the above safe harbour guidelines in the ATO’s Practical Compliance Guidelines PCG 2016/5 and will need to take one of the following corrective actions by 30 June 2016:
- Amend the loan terms so they are consistent with an arm’s length loan by 30 June 2016
- Bring the LRBA to an end by 30 June 2016; or
- Refinance to a commercial lender by 30 June 2016.
Failure to comply with the guidelines by 30 June 2016 may result in a significant tax bill.
These rules will also apply to SMSF trustees that are considering entering into a new LRBA which will not be financed by a bank.
If you have any queries on any of the above budget tips or any other superannuation, please do not hesitate to contact our office.
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation.