As we approach the end of this financial year, it presents an opportunity for trustees to re-examine their self-managed superannuation fund (SMSF) strategies for 2015-16 and beyond.

There are several popular tips and strategies, which you can re-visit before 30 June, which can maximise superannuation balances or available tax exemptions.

Maximising superannuation balance – available contribution strategies

Up to $30,000 ($35,000 for those over age 50) can be made as a concessionally taxed contribution from pre-tax salary. Ensuring these caps are fully utilised may be particularly important in light of the government’s proposed reduction in the concessional contributions cap to $25,000 from 1 July 2017.

Currently, up to $180,000 a year can be made as a non-concessional contribution from post-tax salary. In addition, if you are under the age of 65 it is also possible to use the bring-forward rule to make a maximum non-concessional contribution of $540,000. However, the government has proposed the introduction of a lifetime $500,000 cap on non-concessional contributions. Should the change be legislated as proposed, the cap will apply from 3 May 2016 and include all non-concessional contributions made since 1 July 2007.

It is therefore important that you know where you are in relation to this possible new cap so that any contributions made post 3 May 2016 are not above this potential cap. We understand that the ATO is able to provide details of individual’s total non-concessional contributions made since 1 July 2007 and we recommend that you make use of this service if you are in any doubt. Relevant contact details for the ATO are below:

• Individual phone requests – 13 10 20
• Written requests – GPO Box 9990 in any capital city
• Tax Practitioner phone requests – 13 72 86  (Fast Key Code 4 4)

Another popular option is to make contributions on behalf of your spouse, who is earning a low income or not working. This can assist in boosting their superannuation savings, and you may be entitled to a tax offset of up to $540.

A final contribution strategy to consider for those self-employed is claiming a tax deduction on superannuation contributions. This allows contributions to be treated as concessional contributions and be concessionally taxed at 15% instead of at your marginal tax rate. The ATO has expressed concern that members are incorrectly claiming this deduction so make sure a valid notice of intent is documented as received and acknowledged by the SMSF trustee.

Tax concessions and segregation – strategies for pension phase

Meeting the minimum pension standards

In order for an SMSF to be eligible to claim an exemption from tax on earnings in the annual return, it is very important to ensure that the minimum pension payments are made in form and effect, from all pension accounts before the end of the financial year. This means actually making a payment to the member – an accounting entry is not sufficient. Pensions that don’t make a minimum pension payment may not be eligible for the tax exemption on earnings. It should also be remembered that transition-to-retirement (TTR) pensions have a 10% maximum on payments.

Commencing pensions

Where appropriate, commencing pensions with any accumulation balances may reduce tax payable on earnings of the SMSF.

Any member who has met a condition of release can commence an account-based pension. Conditions of release include retiring after preservation age, leaving a job after age 60 and reaching age 65.

If a pension is commenced in June 2016, you do not need to make a pension payment in this year. The fund will be eligible to claim an exemption from tax on some fund earnings and the pension standards will be met even if no payment is made prior to 30 June. Whilst a pension commenced in June is unlikely to result in a significantly lower tax bill for the 2015-16 tax year, it can contribute to material tax savings in subsequent years, subject to the minimum pension payments being made.

Even if you have not met one of the conditions of release to commence a regular account-based pension, it may be possible to commence a TTR pension. To start a TTR pension, you only need to have met preservation age. Income earned on a TTR pension is still eligible for a tax exemption; however there is an additional withdrawal restriction. There is a 10% maximum withdrawal limit on the TTR pension account in any tax year.

Although this TTR strategy may be effective for 2016-17, a change to superannuation announced in the Federal Budget proposes to remove the tax exemption on income earned on TTR pensions from 1 July 2017.

Segregation

A segregation strategy can be used as part of a fund’s investment strategy to re-structure assets so that the earnings and capital values of an asset or pool of assets are not shared across all members but instead are allocated to specific members or accounts.  A side-effect of such asset allocations is that income earned on these particular assets may be fully taxable or tax exempt depending on how the segregation is structured.

For example, earnings received on assets segregated solely to an account-based pension may be claimed as exempt from tax in the annual return under the segregated method.  While potentially providing benefits for the fund, segregation can be very complicated and it is best practice for strategies to be documented in advance and align with the investment strategy of the fund.

If you do have any segregation strategies in place for 2015-16 it is important to make sure income is appropriately allocated between, and pension payments taken from, the correct accounts so that segregation is maintained. Due to the complexity involved with segregation we recommend seeking advice from an SMSF specialist before implementing any segregation strategies.

Remember, that to claim a tax exemption on SMSF earnings where members are in pension phase and assets are not fully segregated, an actuarial certificate must be obtained prior to lodging the tax return.

Examine your investments – don’t be caught out by collectables

One final issue to be aware of is the transition period for collectables and personal use assets held at 30 June 2011 expires on 1 July 2016. Assets such as artwork, coins, antiques or other collectables which have previously been exempt from Regulation 13.18AA of the Superannuation Industry (Supervision) Regulations 1994 will now have to conform to this regulation from 1 July 2016.

The specific rules relating to these assets include:

• being insured in the fund’s name;
• not being part of a lease arrangement with a related fund;
• not stored in the private residence of a related party; and
• not used or displayed in the premises of a related party.

If the rules contained within this regulation cannot be complied with, the assets must be disposed of by 1 July 2016.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute financial advice. Tax is only one consideration when making a financial decision. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.