2020 SELF MANAGED SUPERANNUATION NEWSLETTER
The latest Self Managed Superannuation update from Bush & Campbell, including:
Extension of lodgement and payment of SMSF 2019 taxation obligations.
In response to Covid19 the ATO have automatically extended the due date for the lodgement of 2019 SMSF tax returns and payment of 2019 taxation obligations to 30 June 2020. We believe this will be a one-off extension with tax returns and payment due in future years by the 15th May.
Pensions for 2020 – Reduction in the legislated minimum pension by 50% and reminder to pay before 30 June.
The Government is temporarily reducing superannuation minimum drawdown requirements for account-based pensions and transition to retirement pensions, by 50% for 2019-20 and 2020-21.
This measure will benefit retirees by reducing the need to sell investment assets to fund minimum drawdown requirements.
If you have already withdrawn the minimum pension amount in 2020, or amounts in excess of the minimum pension, you are not eligible to put the excess withdrawn amount back into super under these measures.
If you require the pension drawdowns (at their historic rates) to fund lifestyle and living costs, then existing pension drawdowns can be maintained.
This pension reduction measure will also be in place for next financial year. To calculate your new minimum pension for the current financial year, the minimum pension previously communicated to you at completion of your 2019 superannuation fund can be halved.
If a pension fund fails to physically pay sufficient pensions to meet its minimum obligations, the fund will not be entitled to the tax exemption (i.e. it will lose its tax free income status). Other than in specific circumstances, it is not acceptable for the fund to accrue any pension shortfall in its financial statements.
Lastly, electronic transfers need to clear the bank account on or before 30 June to be considered pensions for that year.
Covid19 measure -Temporary early release of superannuation
The Government is allowing individuals affected by the Coronavirus to access up to $10,000 of their superannuation in 2019-20, and a further $10,000 in 2020-21.
Individuals will not need to pay tax on amounts released, and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.
Eligibility
To apply for early release you must satisfy one or more of the following requirements:
You are unemployed; or
You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment, special benefit or farm household allowance; or
On or after 1 January 2020;
you were made redundant; or
your working hours were reduced by 20 per cent or more; or
if you are a sole trader – your business was suspended or there was a reduction in your turnover of 20 per cent or more.
Application
To apply for an early release of superannuation, the ATO must be contacted and draw down request submitted via the individuals MyGov account.
Timing
You will be able to apply for early release of your superannuation from mid-April 2020.
Integrity Measures
The ATO has stated it could take action if the draw down was used to fund a concessional superannuation contribution on behalf of the member to further reduce the members taxable income for the year.
Renting property from your own SMSF? Recent Changes in response to Coronavirus
In response to drastically changed trading condition for many business, the ATO recently announced that where a SMSF was renting property to a related tenant, rental concessions can be considered. These concessions can be either a reduction in rent for a period of time or a deferral of current rents until cash-flows for the tenant improve. The recently released Covid Tenancy Code of Conduct provides guidance on new leasing principles in place as a result of Coronavirus on commercial tenancy agreements.
This response is good news for business that have had their trading activities and revenue impacted by recent circumstances. Conversely many landlords (with property within SMSF or in other tax structures) have been adversely affected by these changes.
If your business leases property (commercial or primary production) from your SMSF and your business in suffering as a result of Covoid19, please contact Daniel Uden to discuss.
The following example has been provided by the ATO in response to a temporary reduction or deferral of rent between a related party SMSF landlord and tenant.
Question: My SMSF owns real property and wants to give my tenant – who is a related party – a reduction in rent because of the financial impacts of the COVID-19. Charging a related party a price that is less than market value is usually a contravention. Given the impacts of the COVID-19, will the ATO take action if I do this?
ATO Answer: Some landlords are giving their tenants a reduction in or waiver of rent because of the financial impacts of the COVID-19 and we understand that you may wish to do so as well. Our compliance approach for the 2019–20 and 2020–21 financial years is that we will not take action where a SMSF gives a tenant – who is also a related party – a temporary rent reduction during this period.
Re-Cap of contributions for the 2020 Financial Year including carry forward contributions.
Concessional Contributions
The concessional contribution cap (eg deductible contribution) for 2020 (and 2021) remains unchanged at $25,000. However you may be eligible to contribute additional concessional amounts to superannuation if you are eligible under the carry forward concessional contribution cap rules which are explained further below.
A benefit of the Government’s 2017 changes to superannuation is that everyone who is eligible to make a concessional contribution can do so through a personal member contribution without needing to satisfy the 10% rule. Broadly, personal member contributions were previously limited to the self employed or those with large investment incomes. Under the old rules, employee’s needed to salary sacrifice to make their concessional contributions to superannuation. Now, provided the superannuation fund is notified through the appropriate form, these same individuals may be eligible for a personal deductible contribution.
Unfortunately the work test is still applicable for those over 65 looking to contribute to superannuation.
Non-concessional contributions
You can make after tax contributions to super which could come from your personal savings, transferring personal investments, an inheritance or from the sale of investments. For the 2020 financial year (and 2021) the maximum personal after tax contribution is $100,000, however, if you are under 65 years of age you can contribute up to $300,000 over a fixed three year period. This allows you to make substantial contributions to super and build up your retirement savings. If you are under 65 and make total after tax contributions of more than $100,000 in a financial year the bring forward rule is triggered. This allows you to make non-deductible contributions of up to $300,000 in total over a fixed three year period commencing in the year in which you contributed more than $100,000.
Important: Key to the Government’s 2017 changes was that, for those individuals with a total superannuation balance (over all their super funds) in excess of $1.6m on the proceeding 1 July, non-concessional contributions will generally not be allowable. In addition the 3 year bring forward provisions may be effected if an individual’s superannuation balance is $1.3m or over. The specific workings of non-concessional contributions are technical in this regard and our office should be contacted for comment prior to considering such contributions.
Electronic transfers need to clear the bank account on or before 30 June to be considered deposited.
Carry forward concessional contributions – what do they mean?
Historically, the annual concessional (before-tax) contribution caps offered little flexibility for those who take time out of work, work part-time, or have ‘lumpy’ income and therefore have periods in which they make no or limited contributions to superannuation.
Women often have interrupted work patterns or work part-time, which contributes to lower, on average, superannuation account balances than men. Additionally, individuals may take time out of the workforce to undertake caring responsibilities, further studies, or due to physical or mental illness. Similarly, there was limited flexibility for those who find that they have greater disposable income later in life when some ongoing costs, such as mortgage repayments and school fees diminish. Allowing people to carry forward unused concessional cap amounts provides them with the opportunity to ‘catch-up’ if they have the capacity and choose to do so.
From 1 July 2019, the Government has allowed individuals with a total superannuation balance of less than $500,000 (just before the beginning of a financial year before a catch up contribution is made), to make ‘catch-up’ superannuation contributions. Individuals will be able to carry forward their unused concessional cap space from the 2019 financial year on a rolling basis for a period of five years. Amounts that have not been used after five years will expire.
Broadly, this means that, if an individual has not maximised their $25,000 concessional cap in the 2019 year, they can carry the unused amount (e.g. $25,000 less the actual concessional contributions made by the individual or their employer during the year) to the following (19/20) year. In addition, if there was any unused component of the 2020 contribution cap, this can also be carried over to the 20/21 year. Then, if eligible to make contributions in the 20/21 year, they can contribute, and claim as a tax deduction in their personal returns, $25,000 plus the carry forward amount from the prior years.
Example –
Cassandra is a 46-year-old earning $100,000 per year. She has a superannuation balance of $400,000. In 2018-19, Cassandra had total concessional superannuation contributions of $10,000 (inclusive of her employers SGC contribution). In 2019-20, Cassandra has the ability to contribute $40,000 into superannuation of which $25,000 is the amount allowed under the annual concessional cap and $15,000 is her unused amount from 2018-19 which has been carried forward. Cassandra can claim a tax deduction in her personal tax return for the full amount of $40,000 in 2019/20 year. If Cassandra had a realised capital gain in the 2019/2020 year, this superannuation deduction would also reduce any capital gains tax payable in that year.
Further, if Cassandra did not make the $40,000 contribution in the 2019/2020 year (or if she only deposited a component of her superannuation cap in the 2019/2020 year) then her contribution cap in the 2020/21 year is $25,000 plus whatever the carry over contribution from prior years are.
As the contribution caps are a function of the individuals circumstances and not the superannuation fund, contact your accountant responsible for lodging your personal tax return to determine your modified (if applicable) contribution cap.
Downsizer contributions – what do they mean?
From 1 July 2018 the Coalition introduced ‘downsizing’ provisions where, in the event you sell the family home, some of the proceeds from the home sale (up to a maximum of $600k for a couple) can be contributed to super. The key eligibility criteria for these provisions are as follows:
You (or your spouse) are 65 years old or over at the time you make a downsizer contribution (there is no maximum age limit).
The amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018.
Your home was owned by you or your spouse for 10 years or more prior to the sale.
The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset.
You make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement.
These contributions are bound to be popular particularly when considering.
The size of the ‘new home’ is irrelevant for the purposes of accessing the downsizer contribution.
The downsizer contribution is available irrespective of a members superannuation balance (eg individuals can still access the downsizer contributions if their super balance is in excess of $1.6m)
Please contact our office if you have further questions with regard to the downsizer contributions.
The Bush & Campbell SMSF Team
Daniel Uden – Director
Daniel commenced at Bush & Campbell 20 years ago and heads our SMSF team. Daniel has been working with our superannuation client base over the last 8 years. Daniel is a Chartered Accountant, Registered Company Auditor and holds a Professional Certificate in Self Managed Superannuation Funds. Daniel is also licensed to provide advice, as an Authorised Representative of Aura Wealth Pty Ltd, with regard to superannuation and SMSF recommendations. Daniel is looking forward to working with our existing and new clients to continue to develop positive financial strategy outcomes for self managed superannuation.
Di McAlister – SMSF Manager
Di McAlister commenced employment with Bush & Campbell in 1978. After working with local real estate firms specialising in property management and accounting. She returned to Bush & Campbell in November 2001 to take up a position in our self managed super fund team. Di has been co-ordinating the superannuation team since and has a deep understanding of the transactions and day-to-day activities and obligations of super fund trustees.
Julie Zappala – SMSF Accountant
Julie Zappala started as a trainee with Bush & Campbell in February 1987. After time with KPMG in Albury and in commerce she returned to the Bush & Campbell in 2002 and took up a full-time position in the self managed super fund team shortly thereafter. She has been working as an integral SMSF accountant in the team ever since.
David Rosetta – Director and head of SMSF Audit and Technical
David Rosetta is a Chartered Accountant, Registered Company Auditor and SMSF Auditor. David is part of our technical SMSF team and assists the SMSF audit department with their technical queries.
Geoff Watson – Auditor
Geoff Watson is a Director of Bush & Campbell who commenced his employment with the firm more than 50 years ago. Geoff is a qualified SMSF Auditor who is responsible for auditing a number of our SMSF’s.
Jenny Low – Auditor
Jenny Low is new to the Bush & Campbell team after recently moving to Wagga Wagga. She has over 10 years of SMSF audit experience with a varied client base.
Liz Leman - Administration
With a background in office management in professional services firms, Liz commenced work with Bush & Campbell in 2016. Liz is our SMSF administration assistant who is responsible for all the administration functions that occur within the SMSF team.
Sharon Ferguson – Director
Sharon Ferguson is the Director of Bush & Campbell Financial Services. Commencing with Bush and Campbell in 2001, she has over 19 years financial planning experience. Sharon is an expert in providing total financial solutions to assist individuals, business owners and families to better manage their wealth and financial needs. Sharon specialises in investment advice including direct share portfolio management, superannuation, retirement planning, insurance and in more recent years, Aged Care. Sharon is now a sought after professional in the region of aged care financial advice, explaining and managing the maze of nursing home information.
Ann Thompson – Financial Planner
Financial Planner Ann Thompson has over ten years experience in the financial services industry. Ann's focus on getting to know her clients enables her to develop with them a personalised strategy to ensure they each achieve their goals throughout their lifetime. With specialised knowledge in the areas of life insurance and self managed superannuation funds, Ann can advise in all aspects of financial planning including strategic advice, investment advice, superannuation, retirement planning and personal insurance. Along with a genuine commitment to exemplary customer service, Ann enjoys mentoring team members and developing systems to continually enhance the customer experience.