With the imminent arrival of the 2016 Federal Budget, various policy changes are on the horizon, encompassing the potential discontinuation of the Transition to Retirement Pension schemes and adjustments to the concessional and non-concessional contribution caps. It is crucial to examine your SMSF to identify and explore the potential opportunities that can be incorporated, especially in light of the forthcoming SMSF audit.
We’ve pulled together the following checklist to help you:
- Contributions – What has been contributed to date? What are my contribution caps?
As contributions are assessed on a cash basis, care must not exceed your contribution caps. If you intend to make additional contributions to maximise your concessional and/or non-concessional contributions, then now is the time to do this.
- Concessional contributions:
- Aged 48 and under on 30 June 2015: $30,000
- Aged 49 or over on 30 June 2015: $35,000
- Non-concessional contributions:
- Aged less than 65 on 1 July 2015: $180,000 (or 3-year limit of up to $540,000)
- Aged 65 to less than 75: $180,000
- Aged 75 and over, non-concessional contributions cannot be made
Some tips and traps:
- Superannuation outside your SMSF – check if you or your employer has made contributions into these fund(s), as these contributions are included in the above annual caps
- Your fund must receive contributions in cash before 30 June
- Work test for those aged 65 to 74 needs to be met before the contribution is made
- Consider commencing a Transition to Retirement Pension (TTR)
One possible change in the budget is the removal of the TTR, and if implemented is unlikely to be made retrospective.
Hence, if you’re over 55, still working and would benefit from a TTR, now is the time to commence it.
- Pension Payments – Review your minimum and maximum pension limits
Account Based Pensions (ABPs) have a minimum pension payment which must be paid each year, and care must be taken to ensure this is met before the end of each financial year to ensure the pension remains concessionally taxed.
| Age | Percentage of the account balance on 1 July 2015 |
| Under 65 | 4% |
| 65 – 74 | 5% |
| 75 – 79 | 6% |
| 80 – 84 | 7% |
| 85 – 89 | 9% |
| 90 – 94 | 11% |
| 95 or more | 14% |
Since there is no upper limit on how much can be withdrawn from an ABP, there are no issues in wanting to draw more to cover any “extra” payments.
Transition to Retirement Pensions (TTRs), the minimum pension percentage remains the same as the above percentages. However, there is a maximum payment percentage of 10%. That means you cannot withdraw more than 10% of your TTR balance as of 1 July 2015.
- Collectables and Personal Use Assets – reminder on new rules from 1 July 2016
From 1 July 2016, all funds that own collectables and personal use assets such as artwork, coins, wine, recreational boats etc., will be required to adhere to the following rules:
- Leasing – these items can only be leased to an unrelated party and at arm’s-length terms
- Usage – collectables and personal use assets may not be used by members or related parties
- Storage and display – the asset must not be stored or displayed in a private residence of a related party
- Insurance – all assets must be insured in the name of the fund within 7 days of purchase
- SuperStream Electronic Service Address – a reminder for 1 July 2016
Members with employer contributions paid into the SMSF must be registered for SuperStream and provide their employer with an Electronic Service Address (ESA) by 1 July 2016.
- Non-Arm’s-Length Limited Recourse Borrowing Arrangements (LRBAs) Safe Harbour Guidelines Effective 1 July 2016
Funds which have existing LRBAs for property or listed securities and related party loans should be reviewed immediately for non-arm’s-length terms such as:
- an interest rate lower than 5.75% for the 2015/16 year;
- loan term more significant than 15 years;
- repayments which are not monthly repayments of principal and interest;
- Loan to Market Value Ratio (LVR) exceeding 70%;
- do not have a registered mortgage in place; and
- does not have a written and executed loan agreement in place
Those loans do not meet the above safe harbour guidelines in the ATO’s Practical Compliance Guidelines PCG 2016/5 and will need to take one of the following corrective actions by 30 June 2016:
- Amend the loan terms so they are consistent with an arm’s length loan by 30 June 2016
- Bring the LRBA to an end by 30 June 2016; or
- Refinance to a commercial lender by 30 June 2016.
Failure to comply with the guidelines by 30 June 2016 may result in a significant tax bill.
These rules will also apply to SMSF trustees considering entering into a new LRBA, which a bank will not finance.
Summary
If you have any queries on the above budget tips or any other superannuation, please do not hesitate to contact our office.
Kreston Stanley Williamson Team
*Correct as of April 2016
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
