The Superannuation area is a constantly changing environment with further proposed changes planned for 2020. Fund members should be aware of opportunities that are available to them, how the ATO target areas may impact them and future proposed changes.
Catch-up Concessional Contributions
Since 1 July 2018, members with a total super balance of less than $500,000 can use catch-up contributions to claim a tax deduction for any unused concessional contributions cap amount, for up to 5 years.
As an example, where a member has made a concessional contribution of $10,000 during the 2018/19 year, the catch-up contribution rules would allow the member to carry forward $15,000 ($25,000 2018/19 year concessional cap less $10,000 already contributed), for up to 5 years. This means, a total concessional contribution of $40,000 ($25,000 2019/20 concessional cap plus the $15,000 catch-up amount) can be made during the 2019/20 year, provided that the members’ total super balance on 30 June 2019 was less than $500,000. The amount you could claim would also depend on other concessional contributions being made for you, such as employer Superannuation Guarantee contributions.
Where the unused cap amount from the 2018/19 year is not deposited by 30 June 2020, you can carry it forward on a rolling 5 year basis. The unused amount of $15,000 in the above example can be carried forward up until the 2023/24 year, provided that the year you wish to contribute that amount, your total super balance is less than $500,000 as at the previous 30 June.
Carrying forward unused amounts allows a member to make additional contributions in later years when it may be more affordable or may increase the tax efficiency of those contributions where you move into a higher tax bracket.
Finishing Work Contributions
From 1 July 2019, a member who is aged between 65 and 74, is eligible to make super contributions on a one-off basis in the financial year after they have ceased work and their total super balance is less than $300,000 at the end of the previous financial year. This comes with no requirement to meet the work test in the financial year after you have ceased work.
As an example, if a member is 67 and ceased work during the 2019/20 year and had a total super balance of less than $300,000 on 1 July 2020, they would be eligible to make super contributions during the 2020/21 year of an amount up to the concessional and non-concessional contribution caps.
Investment Strategy and Diversification
In September 2019, the ATO sent letters directly to SMSF Trustees where their Fund held a high concentration of investments in a single asset. The rationale behind this move was concern that trustees hadn’t given due consideration to diversifying their fund’s investments and consequently, this could put their fund’s assets at risk. Lack of diversification or concentration risk can expose the SMSF and its members to unnecessary risk if a significant investment fails. The ATO requires the trustees to clearly document the reasoning behind the investment decisions in their Fund’s Investment Strategy. It is up to the SMSF’s auditor to be satisfied that the Investment Strategy complies with current legislation, otherwise a management letter will be issued to the Trustees or a contravention notice will be reported to the ATO.
ATO SMS Alert Service for Trustees
This new service will see the ATO sending text message alerts to all trustees of a Self-Managed Fund when changes are made to key details relating to the fund with the ATO. This new service applies from 3 February 2020 and will see text message or email alerts being sent out to trustees in situations where there are changes in the members, the financial institution account details or the authorised contact details, to name a few.
Transfer Balance Cap Indexation
The general transfer balance cap is currently set at $1.6 million. This is the limit on the total amount of superannuation that can be transferred into the retirement phase. The transfer balance cap of $1.6 million was set to be indexed from 1 July 2020 to $1.7 million if the All Groups CPI figure for the December quarter was 116.9 or higher. This figure wasn’t reached and it is now anticipated that the general transfer balance cap will be indexed on 1 July 2021.
Proposed Legislation Changes
If passed, there a couple of proposed changes that are set to apply from 1 July 2020 that would be beneficial for those members reaching age 65. One, is the change of the work test requirement from age 65 to 67. Under the proposal, members aged 65 and 66 would be able to make voluntary contributions without meeting the work test. Under current legislation, a member can make personal concessional and non-concessional contributions to super without restrictions prior to reaching age 65.
In light of this, there is also the proposal to extend the bring-forward arrangement. This arrangement currently applies to individuals aged less than 65 years and is proposed to be extended to those aged 65 and 66 from 1 July 2020. Under the bring-forward rules, a member meeting the age requirement can make three years’ worth of non-concessional contributions, thereby contributing up to $300,000 in a single year, with no further non-concessional contributions for the following two years, provided their total super balance is under $1.6 million at the end of the previous financial year.
If these proposals were passed they would allow those nearing retirement to improve their retirement savings regardless of their working arrangements.
If you would like to know more about Self Managed Superannuation, please contact our Super Team.