Pre 30th June: Planning – Tips and Traps.

The end of financial year is fast approaching and there are a few issues we would like to bring  to your attention so that you can best assist your clients. 

Contributions

Timing of Contributions

Tip 1: Leaving contributions to the last minute may mean the contribution does not make it into the 2015 financial year!

Please be aware that contributions need to be received by the SMSF on or before 30 June 2015 to be recognised. Therefore, when the contribution is made through electronic transfer or bank cheque close to the deadline, clients need to be aware there is a risk that the amount will not credit into the SMSF’s bank account in time. This may result in the contribution not being recognised in the year it was intended. (Refer ATO Tax Ruling 2010/1). There are a couple of limited circumstances where the contribution may still be recognised however it is best practice for the contribution to be physically received into the Fund’s account before 30 June to eliminate any risk that it be disregarded. Members should always allow for processing delays.

Non Concessional Contribution Cap

Tip 2: Check whether the member has triggered the ‘bring forward’ rule in a prior year, before making final contributions in the 2015 year!

The cap for the non-concessional contribution increased to $180,000 (or $540,000 on a three year bring-forward basis) for the 2015 financial year. However, you should be aware if the member of the SMSF has already triggered the three year bring forward provision before 2015 financial year, the previous cap still applies until the end of the third year ($150,000 per year or $450,000 on a three year basis). Eg. If you have begun the non-concessional contribution in 2013 for 3 years you may not exceed the $180,000 before the 2016 financial year.

Pensions

Tip 3: Review the pension payments made during the financial year and then ensure any final or top up payments are made well in advance of 30 June.

The SMSF is entitled to claim exempt current pension income (ECPI), based on any assets supporting an income stream. To ensure that the SMSF is entitled to claim the ECPI the minimum draw down from the income stream must be satisfied. For an account based pension this is based on a percentage of the member’s balance as at 1 July.

In general, the pension payment can only be recognised when it has been debited out of the bank account, in the same way a contribution must clear the account per the ruling above. If the pension is paid via a cheque then it may be considered “paid” when in the hands of the member and promptly presented.  Again though, it would be best practice to have the cheque clear the SMSF’s account before year end to eliminate any risk of non-payment.

The following table shows the minimum draw down for the 2015 financial year.

Minimum Requirements:

Age of member:                                               Minimum draw down (of opening balance):

Under 65                                                           4%
65-74                                                                 5%
75-79                                                                 6%
80-84                                                                 7%
85-89                                                                 9%
90-94                                                                 11%
95 or more                                                         14%

Valuations

Regulation 8.02B of the Superannuation Industry (Supervision) Regulations 1994 (SISR) requires all assets of the SMSF to be reported in the financial statements at current market value.

There are various methods to arrive at a market valuation. All methods rely on ensuring that all relevant documentation is available to substantiate the market valuation chosen. This is required to be done on a yearly basis to ensure the SMSF is in compliance with Regulation 8.02B.

Fund governance

Investment Strategy

Please ensure that the Fund has a current Investment Strategy that considers risk, liquidity, diversity and the ability to meet liabilities such as taxation and benefit payments when they fall due. It is also required that the Investment Strategy considers whether the Fund should hold insurance on behalf of its members. Please ensure that the Investment Strategy is signed by the trustees or on behalf of a corporate trustee.

Trust Deed

It is essential that the Fund’s Trust Deed allows the Fund to be conducted in the ways determined by the Trustees or that the trustees conduct their Fund in accordance with the Trust Deed. The Deed should be periodically reviewed accordingly. Please ensure that the Deed, including any amendments, has been properly executed and retained with the Fund’s documentation.

Minutes

All decisions made by the Trustees should be reflected in properly prepared minutes of the meetings  at which the decisions were made. This includes the annual review of the Investment Strategy, transactions relating to the Fund’s assets and investments, decisions to pay pensions and benefits as well as the annual adoption of the Fund’s financial statements. Please ensure that minutes truly reflect the decisions of the Trustees and are signed and dated accordingly.   

Support

Baumgartner Super is here to support you. This is our pleasure.

If you have any questions or would like to make any comments, please contact us on 1300 047 673.