Carry Forward Concessional Contributions – are you eligible?

2019/20 is the first financial year that you can take advantage of the new carried forward concessional contributions measure that commenced on the 1 July 2018.

To be eligible, your total super balance must be less than $500,000 at 30 June 2019.  If it is, then you may be able to make additional concessional contributions in the 2019/20 financial year.

What does this mean?

Essentially any unused contribution cap from the 2018/19 year can be carried forward to the current year.  As an example if a member only made a concessional contribution of $10,000 in the 2019 year, they can bring forward the remaining amount of the cap $15,000 ($25,000-$10,000) and add it to their 2019/20 cap.  This would mean that the concessional contribution cap for the 2019/20 increases to $40,000 ($25,000+$$15,000) for that member.

This option would be something to consider if you’re expecting a higher taxable income in the 2019/20 year as personal concessional contributions are tax deductible.  Going forward it would be possible to carry forward unused cap limits for 5 years (starting with the 2018/19 year).

Below is a table the ATO have provided to illustrate how the unused cap works:

Table 2: Unused concessional cap carry forward

Description 2017–18 2018–19 2019–20 2020–21 2021–22
General contributions cap $25,000 $25,000 $25,000 $25,000 $25,000
Total unused available cap accrued Not applicable $0 $22,000 $44,000 $69,000
Maximum cap available $25,000 $25,000 $47,000 $25,000 $94,000
Superannuation balance 30 June prior year Not applicable $480,000 $490,000 $505,000 $490,000
Concessional contributions nil $3,000 $3,000 nil nil
Unused concessional cap amount accrued in the relevant financial year $0 $22,000 $22,000 $25,000 $25,000

 

It can get confusing which is why you should seek professional advice before making contributions in excess of the annual cap.  Getting it wrong can cause excess concessional contribution issues.

If you would like more information on carried forward concessional contributions caps, please contact us.

Aston Accountants can provide you with SMSF Advice with regards to making contributions to super.  If you would like us to assess your personal situation and whether you can utilise the carry forward concessional contributions, please speak to us.

 

 

SMSFs and Related Party Transactions

SMSFs and related party transactions can work well, especially when Business Real Property is involved.  It’s an opportunity for your SMSF to invest in property and your business to pay lease income to your SMSF rather than someone else which helps you build up your own retirement savings.

But getting it right is the key! 

Here are some simple considerations when looking at Related Party Investments held within a SMSF:

1. Check the SMSF Investment Strategy – all dealings in the Fund should be done in connection with the Investment Strategy.  You may need to review and update your strategy.

 

2. Is the related party transaction allowed under SIS regulations?  It is so important as trustee to make sure investments within the SMSF are permitted and transacted in the correct manner.

 

3. While transferring listed shares is allowed and fairly easy to determine a current market value, other assets such as unlisted shares or units and property are more difficult.  These require some proof of how the market value was determined.

Basic conditions when dealing with property and related parties include:

– The SMSF must hold an eligible interest in real property

– The property must meet the business use test and therefore be used wholly and exclusively in one or more businesses carried on by an entity.

– All acquisitions must be made at market value – that may mean you need to pay for an independent valuation, especially where the property forms a significant proportion of the Fund’s assets.  Valuations are also required at least every three years for audit purposes.

 

4. So you are now the trustee, member and the lessee of the SMSF property.  It can be a great arrangement where the SMSF owns the property that your business leases.  But don’t get it wrong!  As soon as the property is leased by a related party you can expect an increase in queries by the auditor.

 

5. Related party income is looked at in detail, it must be received at arms length ie market value.  Either side of market value can cause the entire related party income being taxed at 47% in the Fund.  Audit Contraventions may also be reportable which will increase audit fees and put a spotlight over your Fund for the ATO.  So get a market rental appraisal and make sure your lease agreement is at commercial rates.

 

If you are looking at using an SMSF to transact with related parties talk to us first.  We will help you get it right the first time.  Getting it wrong can cause you an audit nightmare and possibly having to sell the investment.

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SMSF Trustee Reminders – May 2019

In this article we go through some general reminders that SMSF trustees and members need to be aware of, and perhaps take action on before 30 June 2019.

We look at your contributions for the year, what a total superannuation balance (TSB) means, whether you can contribute to your superannuation account, what a work test is and how it affects you… and things to consider if you are turning 75.

Check your contributions

With only 6 weeks left of the 2019 financial year, it’s a good idea to review where your concessional contributions are up to.

The concessional cap for individuals for the 2019 financial year is $25,000.  This cap applies per person so if you have more than one superannuation fund you should check all of them.

Concessional contributions are contributions that are considered ‘taxable’.  Most commonly known as employer contributions, salary sacrificed contributions and contributions where you intend to claim a personal tax deduction.

If you have a salary sacrifice arrangement in place with your employer you should add up your total concessional contributions already paid to your superannuation fund from 1 July 2018 to present, to ensure you will not exceed your cap.

Amounts contributed over your annual cap are considered excess contributions and eventually will be taxed at your marginal tax rate plus interest.

Your Total Superannuation Balance (TSB)

Total Super Balance refers to the total amount an individual has in superannuation as at 30 June of the prior financial year ie currently for 30 June 2018.

The TSB is used to determine how often you need to report certain events to the ATO such as pension commencements and lump sums and most importantly whether you can make non concessional contributions (non-taxable contributions).

If you have a TSB of over $1.4m as at 30 June 2018 the amount you contribute to superannuation as non concessional contributions may be restricted.  You will have noticed we have been requesting the 30 June balances of any other superannuation funds you have outside of your SMSF.  This is due to the TSB applying not only to your SMSF balances, but all your superannuation balances.  It is important you consider any other super funds you have before making non concessional contributions.

Am I allowed to contribute to superannuation ?

Apart from having to consider your TSB before contributing to superannuation you also need to consider your age.  For individuals aged 65 and over at the time of contributing, you must meet a work test prior to making voluntary concessional or non concessional contributions.

So, what is this work test ?

Basically if you are aged 65-74 you must be working for a minimum of 40 hours in any 30 consecutive day period.  By working, the ATO mean you must be gainfully employed where you receive remuneration for your efforts. ie not volunteering.  Where you are employed and are paid per hours worked, the work test is usually quite easy to prove.  For those that are self employed with varying hours of work, this can become more difficult to show you have done the necessary hours.  We suggest keeping a timesheet or work diary to show the work test has been met.

If you are unsure whether you can meet the work test, check with us first!  As a trustee you should not be accepting contributions from members 65 and over (even yourself!) if the work test has not been met.

Are you approaching 75 years of age?

If you are approaching 75 years of age you might be planning how to celebrate this occasion.  And as much as we love a party, we’d hate for you to miss out on making your last contributions to superannuation.

For individuals turning 75 years old (that can meet the work test), contributions must be received no later than 28 days after the end of the month that individual turns 75 years old.

This may be the last opportunity to contribute to your superannuation fund. If you would like further information please contact us.

 

Superannuation Guarantee Amnesty

On 24 May 2018, the government announced the start of a Superannuation Guarantee Amnesty. The Amnesty will be available retrospectively from 24 May 2018 to 23 May 2019, subject to legislation passing.

The Amnesty gives employers a one-off opportunity to self-correct past super guarantee (SG) non-compliance without penalty. Catch-up payments made in the 12 month period will be tax-deductible.

To be eligible for the Amnesty and avoid harsher penalties the government requires employees to:

  • disclose their SG shortfall amount including nominal interest to us within the 12 month Amnesty period, and
  • not be subject to an audit of their SG for the relevant periods.

This won’t be final until the legislation is passed through Parliament however you can read more information about the government’s plan here.

Once the legislation is passed, we will be talking with clients that we believe may find this amnesty useful, or you are welcome to approach us for assistance.