Superannuation – Pre 30 June Considerations

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As 30 June 2016 rapidly approaches, it is important to consider your options to maximise your superannuation and attend to any outstanding matters before year end.  This is particularly relevant given the proposed changes announced in the 2016/2017 Federal Budget on 3 May 2016, whereby optimising your superannuation is incredibly important.

The areas for consideration include:

  1. Maximising contributions
  2. Ensuring minimum pension payments are made
  3. Asset Valuations – Property and Unlisted Assets
  4. SuperStream
  5. Collectibles and Personal Use Assets
  6. Limited Recourse Borrowing Loan Repayments
  7. In-House Assets

1. Maximising Contributions

On 3 May 2016, the Federal Budget was handed down that contained proposed changes to the contribution caps. The following sections (a) and (b), outlines how the current law applies, with the proposed changes outlined in section (c).

(a) Concessional Contributions

The annual concessional contributions cap for the 2015/2016 year is $30,000 for individuals aged under 49, and $35,000 if you were aged 49 or over at 30 June 2015. Concessional contributions include:

  • Employer’s compulsory superannuation guarantee (9.5%);
  • Salary sacrificed contributions; and
  • Personal contributions claimed as a tax deduction in your personal tax return.

(b) Non-concessional contributions

The non-concessional contributions cap for the 2015/2016 year is $180,000.

Non-concessional contributions include any after-tax voluntary contributions made by members.

Where you were 64 or younger on 1 July 2015, you are able to bring forward up to two future years’ contributions. This “bring-forward” provision allows you to make a one-off non-concessional contribution of up to $540,000 in the 2015/2016 year. The bring-forward provision will automatically be triggered where you are 64 or younger and you contribute more than $180,000 in the financial year.

It is important to note that where you have previously triggered the bring-forward provision in the either the 2013/2014 or 2014/2015 year, this will limit the contributions that you can make in the 2015/2016 year. Accordingly, prior to making any contributions you should review the contributions that you have made in the prior period to ensure you do not exceed the non-concessional contributions cap. Where the bring-forward rule was triggered in the 2013/2014 year, your non-concessional cap is still $450,000 over the three year period.

(c) Proposed changes

Concessional Contributions

From 1 July 2017, the concessional contribution limit will be reduced to $25,000 for all taxpayers, regardless of their age.  This will be indexed in line with wages growth.

Non-Concessional Contributions

From 3 May 2016, a lifetime non-concessional contribution limit of $500,000 is proposed to apply to every taxpayer, rather than the limits outlined in section (b) above.  Contributions made after 1 July 2007 will count towards this lifetime limit. This means that where a member has made more than $500,000 in non-concessional contributions since 1 July 2007, they will be unable to make any further non-concessional contributions into superannuation.

Accordingly, from 3 May 2016, members may no longer have the ability to make non-concessional contributions up to $180,000 per year, or utilise the $540,000 every 3 years.  Please note, although the above changes are effective from 3 May 2016, this is still a proposal and the legislation has not been enacted.

Pre 30 June 2016 considerations:

In order to maximise your contributions to superannuation prior to 30 June 2016, consider the following:

  • Are you able to make concessional contributions up to your cap? This might include the ability to salary sacrifice an amount from your employer, or perhaps make a personal contribution and claim a deduction (please note, eligibility criteria apply to personal deductible contributions);
  • Do you have the capacity and available funds to make non-concessional contributions into superannuation?
  • Where any non-concessional contributions are to be made, should this be in accordance with the proposed lifetime cap of $500,000, or based on the current law?
  • Where you intend to make contributions electronically, ensure that you have left sufficient time for the contribution to be cleared into the fund’s bank account.  It is the time that the fund receives the contribution that is the relevant date for the fund, not the time that it leaves your bank account.

2. Ensuring Minimum Pension Payments are made

To satisfy the 2015/2016 annual pension requirements, all pension payments must be withdrawn from the fund and transferred to your personal bank account by 30 June 2016.

Failing to the meet the minimum pension requirements could lead to your fund losing the tax exemption with respect to the income and realised capital gains generated by the assets supporting the pension, and as a result the fund’s income will be subject to tax

30 June 2016 considerations:

  • Ensure you have paid the minimum pension amount prior to 30 June 2016.  In this regard, where you intend to pay electronically, ensure that you leave plenty of time to provide instructions to your bank or investment adviser if required to realise assets in order to pay out the pension in cash;
  • Individuals that have Transition to Retirement Pensions in place are subject to a 10% maximum drawdown of the pension balance at 30 June 2015 or the date the pension commenced.

3. Asset Valuations – Property and Unlisted Assets

Where a superannuation fund has unlisted assets (such as direct property, unlisted shares, and units in unlisted trusts), the fund Trustees are required to value their investments at market value as at 30 June.

June 2016 considerations:

  • Consideration should be given to whether a market appraisal/valuation is required to be obtained for the assets and whether or not the services of an independent valuer is required;
  • Where the fund holds property, additional consideration should be given to ensure the required lease payments are made prior to 30 June and the lease payments are based on a market rate. Where the market rate has changed, this may need to be reflected from 1 July 2016 and in accordance with the lease agreement.

4. SuperStream

The deadline for small employers (19 or fewer employees) to be SuperStream compliant is 30 June 2016, with all large employers already required to be SuperStream compliant.  Further, if you are a member of a Self-Managed Superannuation Fund (SMSF) and you receive employer contributions from an unrelated employer, you also need to be registered for SuperStream by 30 June 2016.

June 2016 considerations:

  • All employers should ensure that they are compliant with SuperStream; and
  • If you are a member of an SMSF and you are receiving contributions from an unrelated employer, you should ensure that your fund is registered for SuperStream.

5. Collectables and Personal Use Assets

New legislation came into effect from 1 July 2011 in relation to SMSFs investing in Collectables and Personal Use Assets (CPUA). The new rules applied immediately to any CPUA acquired from 1 July 2011. However, there was a transitional period for SMSFs that held CPUA on 30 June 2011, which ends on 1 July 2016.

To comply with the new rules, generally, the collectables will be unable to be leased or used by a related party, stored at a private residence of a related party and must be insured in the fund’s name.

June 2016 considerations:

  • If you hold CPUA in your SMSF you need to ensure you comply with the rules prior to 1 July 2016.

6. Limited Recourse Borrowing Loan Repayments

Where a superannuation fund has a limited recourse borrowing arrangement (LRBA) where the lender to the fund is a related party, the Trustee should ensure any obligations under the loan terms are complied with.  Further, in April 2016, the ATO released Practical Compliance Guideline 2016/5 (PCG 2016/5) in relation to borrowing arrangements entered into with related parties. Where an LRBA is structured in accordance with PCG 2016/5, the arrangement will be considered to be maintained on an arm’s length basis, and the ATO has indicated that it will not undertake any compliance action with respect to the relevant fund. The deadline to ensure that an LRBA complies with PCG 2016/5 is 31 January 2017.

June 2016 considerations:

  • Ensure that all interest and principal repayments have been made in accordance with the loan agreement;
  • Consider reviewing and updating LRBA loan terms and making appropriate principal and interest repayments prior to 31 January 2017.

7. In- House Assets

Where a superannuation fund has an investment or loan with a related party that is captured under the in-house asset rules, the Trustee needs to ensure the arrangement complies with the relevant provisions.

June 2016 considerations:

  • Where an SMSF has in-house assets that exceeded the allowable limit of 5% at 30 June 2015, the excess over 5% may be required to be disposed of prior to 30 June 2016;
  • Where an SMSF has in-house assets that exceeded the allowable limit of 5% from 1 July 2015, consideration should be given to reduce the IHA to less than 5% prior to 30 June 2016.

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The Next Steps

If you would like further details or assistance with respect to any of the above strategies, superannuation in general, or wish to have your position reviewed in light of the proposed Budget changes, please contact Jemma Sanderson at jsanderson@cooperpartners.com.au or 08 6311 6900.