As we approach the end of the 2018 financial year we would like to highlight that in the past year we have seen some of the most significant changes to superannuation in more than a decade. Self-managed super funds (SMSF) have not escaped the changes.

As always, we are here to assist you. If you have questions, or you would like to explore new opportunities for your SMSF, please don’t hesitate to contact us.

Things to consider:

Transfer balance account reporting

From 1 July 2017, new reporting obligations impacted trustees of SMSFs. Known as ‘events-based reporting’, trustees now have an obligation to report certain events to the Regulator. This will generally be confined to complying with the ‘transfer balance account reporting’ obligations, which requires trustees to provide certain information when a member of their fund commences drawing a pension, or commutes all or part of a previously reported pension.

Transfer balance cap

The transfer balance cap regime, that came into effect on 1 July 2017, restricts the amount that a member of a super fund can have in the pension phase. The current maximum is $1.6m.

Where a pension was being paid to a member before 1 July, and the account balance exceeded $1.6m, the excess had to be withdrawn from the fund or be rolled back to an accumulation account, generally by 30 June 2017.

A special concession was granted to members of SMSFs who would not reasonably know their account balance until the financial statements for the SMSF were prepared. To qualify for this concession, certain documentation had to be in place before 30 June 2017.

Capital gains tax relief

Where a member was receiving a pension from their SMSF paid under transition to retirement rules, or a part of a pension account balance had to be reduced to comply with the transfer balance cap requirements, the trustees of the SMSF may be eligible to apply for temporary capital gains tax relief, subject to certain conditions being met.

Where relief is to be sought, an irrevocable election must be made when the SMSF lodges its 2017 SMSF return.

Investment strategy

The trustees of each SMSF are required to make, regularly review, and invest in accordance with their fund’s investment strategy. Investment strategies should be formally reviewed yearly and more often if the circumstances of the fund change.

Insurance

As part of the investment strategy, trustees are required to consider insurance on the lives of members of the fund. A requirement to regularly review the insurance also applies. Decisions of the trustees should be recorded in writing.

Limited recourse borrowing arrangements

Borrowing money for investment purposes has been a popular strategy used by an increasing number of SMSFs. Borrowings must comply with strict requirements imposed by legislation and the Regulator.

Where money has been borrowed other than from a bank, the loan must be structured on commercial terms, as if the loan was provided by a bank. Many SMSFs borrow from a related party or a non-bank lender.

Limited recourse borrowing arrangements should be reviewed to ensure they reflect the current requirements of the Australian Taxation Office. Failure to comply may result in the SMSF being taxed at a rate of 45%.

Valued at current market value

Trustees of SMSFs are required to ensure the assets of their fund are valued at current market value. While this does not necessarily require a formal valuation to be undertaken by an independent registered valuer, the valuations must at least be provided by someone with the necessary skills and experience. This is particularly important for SMSFs investing in property. Assets should be valued at least annually.

In-house assets

SMSFs that invest in, or make loans to related entities, are investing in in-house assets. The maximum amount that a fund can have in in-house assets is 5% of the market value of the fund’s total assets.

It is advisable for SMSF trustees to review their investment in in-house assets, based on up-to-date valuations, before the end of the financial year so that corrective action can be taken if necessary.

Segregated or the proportional (unsegregated) method

SMSFs that have members in both the accumulation and pension phases of superannuation, have two options when it comes to determining the portion of the funds income that is tax exempt. Trustees may either use the segregated or the proportional (unsegregated) method. Where the proportional method is used, an actuarial certificate is required each year.

From 1 July 2017, trustees of SMSFs may no longer use the segregated method where the fund has both accumulation and pension interests and has at least one member with a total superannuation balance (all their superannuation funds combined) of more than $1.6m.

2017 SMSF return

As a consequence of the significant changes that have occurred in the past 12 months, the due date for lodgement of the 2017 SMSF return has been extended to 30 June 2018. This will apply for most SMSFs.

The points mentioned above are just a snapshot of some of the things trustees of SMSFs need to consider as we approach the end of the 2018 financial year.

Contact Us

If you have questions about any of the issues raised, or if you would like us to review any aspect of your SMSF, or simply check that everything is on track, please don’t hesitate to contact us on (03) 6344 3899 or send us a message below:

 


The information on this article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.

Whilst every care has been taken in the preparation of this article, BND Financial Pty Ltd (‘BND Financial Services’), its directors, authors, consultants, editors and any persons involved in the construction of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part of this article.

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