Continuing the trend of recent years of having minimal tinkering with the superannuation laws is resoundingly a good thing for SMSF trustees who can get on with the business of keeping their fund in good order and making sure their investments are helping achieve their savings goals for retirement.
One positive for the SMSF sector in 2015 that has helped create this stability was that David Murray’s Financial System Inquiry gave the SMSF sector largely a clean bill of health meaning that the Government had no cause to re-jig rules for SMSFs. However, one area Murray’s report did focus on was to recommend a ban on limited recourse borrowing arrangements (LRBAs), a strategy used by some but not many SMSFs.
When the Government handed down its response to the FSI in October we were pleased to see that the SMSF sector’s representations to Government had been listened to, especially in regards to the Government’s rejection of the FSI’s recommendation to ban LRBAs.
While there aren’t any significant changes for SMSFs on the immediate horizon, the same cannot be said for the broader superannuation sector with the Government progressing other changes on fund choice and investment option disclosure, which is good for superannuation but does not affect SMSF trustees.
Although we don’t expect any significant changes in the year ahead, the Government is currently working on its Tax White Paper which it is likely to take to the 2016 election.
With superannuation tax concessions a constant source of debate and speculation in recent times, we thought that the Tax White Paper would prove to be a real battle of ideas on superannuation tax arrangements. However, as the political pressure increased around these issues early in 2015, it seemed the Abbott Government’s appetite for changes to superannuation taxes diminished and many superannuation issues were taken off the table. But with a new PM and Treasurer at the helm since September, it is clear that changes to superannuation taxes are back on the table, with high income earners or people with high superannuation balances a focus for the Government.
While many proposals are thrown around in the media, whether they be an increased tax on superannuation earnings for those with high account balances, less generous and more progressive taxation of concessional contributions or clamping down on after-tax contributions, we are yet to know what direction the Government will take to the 2016 election.
Maximising tax concessions now
So while we can all try to gaze into our crystal balls to guess where superannuation taxes might head beyond the 2016 election. What can we do in the meantime?
The most important thing is to take advantage of the superannuation tax concessions that are available now and make sure our investment strategies are on track to deliver the retirement outcomes we all want, whether they be five, 10 or 25 years away.
On the tax side there a number of ways we can maximise the current concessions to grow our superannuation savings.
Firstly, the beginning of a new year is a good time to consider whether you are able to make any more concessional contributions to your SMSF. The benefit of concessional contributions is that they are taxed at the flat rate of 15% rather than your marginal income tax rate. Concessional contributions includes amounts your employer may make as salary sacrifice contributions, compulsory Superannuation Guarantee contributions or those you make as personal deductible contributions, if you qualify. Currently the superannuation contribution caps allow the following:
• A $30,000 contribution cap for those aged under 49 on 30 June 2015; and
• A $35,000 contribution cap for those aged 49 or older on 30 June 2015.
The concessional cap amounts are likely to stay the same in the 2015-16 year, unless there are any surprises in the 2016 May Budget, so planning ahead for 2015-16 income year contributions might be sensible in case any tax changes are made after the 2016 election.
Maximising after tax or “non-concessional contributions” might also be a sensible consideration prior to any Tax White Paper led changes.
You can make after tax contributions to super that could come from your personal savings, transferring personal investments, an inheritance or from the sale of investments. This financial year the maximum personal after tax contribution is $180,000; however, if you are under 65 you can contribute up to $540,000 over a fixed three year period. This allows you to make substantial contributions to super and build up your retirement savings. The way it works is that if you are under 65 and make total after tax contributions of more than $180,000 in a financial year the bring forward rule is triggered. This allows you to make post-tax contributions of up to $540,000 in total over a fixed three year period commencing in the year in which you contributed more than $180,000.
However, if you triggered the bring-forward rule in 2013-14 you will be limited to $450,000 of bring forward contributions as the post-tax contribution limit was $150,000 in 2013-14.
If you are older than 65 you will need to meet a work test to contribute to super in most cases. You need to work for at least 40 hours during 30 consecutive days at any time during this financial year to make contributions to super. It is sensible to satisfy this test before you make the relevant contribution to your super fund.
Some other ways to maximise contributions to your SMSF are through the Government co-contribution and the spouse contribution rules.
If your adjusted income is less than $50,454 in 2015-16 you can take advantage of the Government co-contribution. You can do this by making after-tax super contributions before the end of the financial year. For every dollar of contributions that are eligible, the Government contributes 50 cents to your superannuation up to a maximum government co-contribution of $500. For 2015/16, the maximum government co-contribution is payable for individuals on incomes at or below $35,454 and reduces by 3.33 cents for each dollar above this, cutting out completely once total adjusted income for the year exceeds $50,454.
The spouse contribution allows an after-tax contribution to be made on behalf of a spouse earning less than $13,800 with an entitlement for a tax offset to be received. A maximum $540 tax offset can be gained for a contribution of $3000 or more for a spouse earning $10,800 or less. The tax offset phases out until the $13,800 mark.
Take stocks of your SMSF investment strategy
Besides looking at how to maximise contributions under the current tax concessions, the beginning of 2016 is a good time to evaluate whether your SMSF investments and SMSF investment strategy are still suitable to achieve your long term goals.
2015 was a volatile year for investment markets, with the most experienced investor tested by the swings of global markets and low-yield environment. 2016 may prove to be just as testing with a domestic economy transitioning through the end of the mining boom and global markets siting on the edge of their collective seat waiting for the US Federal Reserve to make its long awaited move on interest rates.
The key to coping with such volatile markets is for SMSFs to have a written, long term investment strategy that not only gives you peace of mind when markets are turbulent, but reminds you that superannuation is all about the long term. This can help you avoid panicking in reaction to falling markets but also see opportunities to take advantage of devalued assets. Recent Commonwealth Bank research showed that SMSFs were active investors in the late-August 2015 stock market falls, buying more stocks than they were selling. Having the guidance of well thought-out investment strategy is essential in such times whether you are sitting tight through the turbulence or looking for good buys for your portfolio.
Will the ATO be interested in you
Finally, it’s always prudent to know what the SMSF regulator – the Australian Taxation Office (ATO)– will be looking for in 2016.
The ATO have declared that the following issues are on their radar for SMSFs:
• Individuals who enter the sector with poor personal taxation lodgement histories and no or limited income
;
• SMSFs with overdue annual returns
• Breaches reported in auditor contravention reports that have not been rectified ;
• SMSFs that have significant changes in assets and income, outside the previous pattern of the fund and without obvious reason •Possible non-commercial related-party investments or transactions; and
• Non-compliance with pension rules
• Inappropriately claimed tax deductions when a fund is in pension phase.
If you are worried about possibly falling foul of the ATO in any of these areas, the best approach is to seek professional help and approach the ATO to resolve the issue rather than to wait for them to come to you.
Best of luck with your SMSF in 2016!
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
