Contributing to Super and the Work Test

If you are aged 65 and above and under 74, you will generally need to meet the work test prior to contributing to superannuation.  The work test is basically gainful employment of 40 hours in a consecutive 30 day period.  The work test must be met during the financial year and prior to making the contribution.

This often proved unfair where you have retired at the end of the financial year and received termination payments which fell in the next financial year. While there was now cash available to contribute to super, you may not have met the work test due to your retirement the previous financial year.

But here’s the good news – since 1 July 2019 you can access an exemption to the work test.

To be eligible:

  • you must be 65 years and over but under 75 years of age
  • you met the work test in the previous financial year
  • your total super balance (TSB) is less than $300,000 on the 30th of June of the previous financial year

The exemption will apply only once per individual and will be available for the financial year following when the work test was met.

For example, if a 66 year old met the work test in the 2019 financial year but does not meet the work test in the 2020 year they can still access this exemption up to 30 June 2020.

Usual contribution rules and cap limits will still apply to making contributions.

If you are over 65 and interested in making additional contributions to superannuation, talk to us!

Want to minimise tax when selling your business?

Are you a business owner who is considering selling your business, but is unsure what the tax implications are?

When it comes to selling your business, there are many decisions to make, and sometimes these decisions may impact your tax liabilities on sale. It is therefore wise to speak to an expert about the road ahead before starting the journey of selling.

If a business is sold without having extensive analysis of its tax implications, you may end up having to pay up to 47% tax on the profit. However with proper consultation well before the sale, you may be able to reduce the income tax liability down (sometimes to nil!). The difference can be enormous when the profit is huge.

For example: a business sale with profit of $3m, with 47% tax, your share to keep is $1.59m, however with a 0% tax, you get to keep $3m. That’s a difference of $1.41m!

Below are some concessions you may be able to use to minimise your tax.

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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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