End of year tax house-keeping for SMSF trustees

As we reach the end of another tax year it is wise for SMSF trustees to start doing some house-keeping to limit the risk of being faced with penalty tax later on.

1. Check contributions made this year

  • A maximum of $25,000 limit applies for all members in the year to June 2013 on which tax deductions have been claimed either by employers or for those eligible.  Be especially careful of large bonus payments, large one-off contributions or payments that missed last year’s 30 June cut-off and were paid in July 2012 instead.
  • Anyone close to the limit or who has already exceeded should contact their employer and ask them to delay further payments until 1 July, as excess contributions under $10,000 can escape penalty tax.
  • Also non-concessional contribution limits have not been exceeded.  Currently members can contribute up to $150,000 per tax year.  For those under 65 a $450,000 limit can apply by bringing forward the next two years’ limits.

2. Check pension accounts have paid out the minimum for the year

  • Each pension account must pay out a minimum amount by the end of the tax year, based on the age of the member and the account balance at either the start of the tax year or the start of the pension if later.
  • The minimum rate that has to be paid out before the end of this tax year for members age 55 to 64 is 3%, for members 65 to 74 it is 3.75% and for those 75 to 79 it is 4.5%.

3. Review fund investments

  • Trustees must now review their fund’s investments on a 'regular basis' instead of 'at least annually'.  This means they should review their fund's investment strategy during each income year from 1 July 2012, to ensure that  it  continues  to  reflect  the  purpose and circumstances of the fund and its members.
  • Note reviews must occur on a ‘regular basis’ it should be evidenced by documenting decisions made in minutes of  meetings held during  the  income  year.
  • While most SMSFs have gradually been investing surplus cash back into growth investments since the GFC, those trustees not taking advice still remain heavily invested in cash, Australian shares and residential property according to recent research by CoreData.
  • By contrast, those taking advice tend to have more diversified portfolios with higher allocations to international shares and fixed income.
  • With the seasonal weakness typically experience between May and October, as outlined in our June Market Update, it may be time to seek advice on investing with a more broadly diversified portfolio than in the past.
  • From 1 July 2013 SMSFs must report all investments at market value so those not listed, like direct property, will need to be valued by 30 June 2014.

4. Review insurance for all fund members, including outside super

  • Trustees now also need to review the insurance provisions in place for their members, and document that review as part of the investment strategy review.
  • Insurance within SMSFs has been showing strong signs of growth since new rules were introduced in August 2012
  • Despite this growth, only 27% of SMSFs are currently estimated to have insurance in place for their members, according to the CoreDate research.
  • Some insurance is more tax efficient when held within super but other insurance is more tax effective outside. 
  • What trustees need to do now is consider the insurance in place for their members overall – whether inside or outside super - and consider its appropriateness.
  • Strong concerns continue about the chronic under-insurance of Australians in general but within SMSFs in particular.  In some cases this may be due to a deliberate decision to self-insure, but the fear is that in most cases the under-insurance is due to ignorance of the risks faced or apathy instead.

Please remember that as a client of our firm you are not alone.  We are here to help you keep control of your fund as a key block to building your long-term wealth as a  means to paying for your life goals.

We accordingly introduced in-house financial planning services at the start of the tax year to be even better equipped to help our clients achieve their goals in an uncertain world.

Our Partner – Wealth Consulting, Michael Rees-Evans CFP®, can be reached on our office number at top right of this page.   As an SMSF Specialist Advisor he is well placed to help.  Michael can also be reached by email at michael.rees-evans@lockwood.com.au.

Important note: this information is of a general nature and has been prepared without taking account of anyone’s financial situation, objectives or needs. Before making any investment decisions based on the contents you should obtain professional advice.

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