As the financial year ends, it is time for SMSF trustees and superannuants to check that they have optimised their contribution strategies and made all necessary pension payments.
Contributions. The contribution limits remain the same as 2018, with every Australian able to make just $25,000 in concessional or pre-tax contributions (including salary sacrifice, super guarantee and personal contributions). For anyone earnings in excess of $18,200 (the tax-free threshold) concessional contributions, taxed at 15 per cent within your super fund, represents a great tax saving opportunity.
Australians are also eligible to contribute up to $100,000 in non-concessional of after-tax contributions that are not taxed upon entry to your super fund. For those nearing 65 years of age, the bring-forward rule, allowing you to contribute $300,000 in a single year, may be worth considering.
However, given the Coalition proposals to increase the age at which the work test must be met to 66 and 67 in future years, it may be best holding off on utilising the bring-forward rule until after the election, particularly if you are currently 64.
Pension Payments In return for the tax exemption provided on both the income and capitals of investments held in the pension phase of superannuation (now capped at $1.6m) you are required to draw a minimum amount of your balance each year. The minimum annual drawdown runs across the financial year and is applied to the value of your pension balance on 30 June 2018 for the current financial year as shown in the table below. It is imperative that the minimum is drawn, otherwise your fund may be deemed to be in accumulation phase and taxed applied at the normal rate of 15 per cent.
It’s important to note for those with balances over $1.6 million, that the minimum drawdowns will be lower following the introduction of this cap, and also that your balance can and will likely exceed $1.6m due to the application of earnings, meaning the minimum pension may be higher than the previous year.
Binding Nominations With most SMSF tax returns now completed and lodged, it’s an opportunity to make sure you have your estate planning strategy in place and to confirm that any binding nominations, which direct your superannuation benefits to your beneficiaries are up to date and valid.
Superannuation remains a non-estate asset and, as a result, its payment is controlled by the trustees of the super fund, with a binding death nomination the simplest way to have certainty that it will either be paid directly to your beneficiaries or to your estate. It’s important to ensure any nomination is witnessed by independent people.
Accounting Fees It’s also an opportune time to take stock of the fees you are paying for the completion of your tax return. Technology has greatly improved particularly in the SMSF sector, which the most anyone should be paying for a SMSF tax return being $2000 to $2500 per year. If you are paying more than this, it’s worth discussing with your accountant to work out if there is any way this service can be simplified and achieved at a lower cost.
Portfolio Adjustments As a non-strategic opportunity, we suggest investors look across their portfolios at this time of year and considering whether they should be making adjustments to their current portfolios. Our approach is the reverse of many, in that we generally recommend cutting back and taking profits on winners, and increasing the losers, where they offer substantial value.
This article was first published in the Wattle Partners newsletter, Unconventional Wisdom.