2020 End of Financial Year (EOFY) considerations for your SMSF

A plant growing on top of a pile of coins symbolises financial growth with the aid of a tax accountant in Sydney.

The COVID-19 pandemic has affected everyone’s lives, and SMSF trustees are no exception.

As the worst of the pandemic (hopefully) recedes into the past, trustees face challenging decisions regarding their SMSF accounts. They must contemplate the optimal strategy to align with their SMSF accountants for the upcoming 2020-21 period while ensuring compliance with their annual regulatory obligations for the preceding 2019-20 timeframe.

Meeting new pension requirements

To help manage the economic impact of COVID-19, the Government has reduced the minimum drawdown requirements by half on common pensions, such as account-based and market-linked pensions, for 2019-20 and 2020-21. This also occurred after the GFC in 2008, and you will need to consider and amend your pension strategies for these two financial years.

This includes ensuring the minimum pension has been paid for this financial year. If this requirement is unmet, SMSFs will be subject to a 15% tax on pension investments instead of tax-free.

Where you have been receiving regular pension payments, you may have received more than the minimum payment this year. Unless you meet contribution eligibility rules, these funds cannot be returned.

Contribution changes

Before 30 June, you should review your contribution strategies to ensure you have contributed what you intended to and ensure you are below the contribution caps.

Non-concessional (after-tax) contributions are limited to $100,000 for the 2020 financial year, and concessional (before-tax) contributions are limited to $25,000. These will remain the same for 2020-21.

However, SMSF trustees should be aware of the legislation slated to pass before the end of the financial year. If passed, it will allow people aged between 65 and 66 to make voluntary contributions (previously restricted to people below 65) without meeting a work test. These older individuals can also make up to three years of non-concessional superannuation contributions under the bring forward rule.

The investment strategy and property assessment

Your fund’s investment strategy is a crucial consideration on the cusp of 2020-21.

It is essential to understand that an SMSF’s investment objectives and strategy are not set in stone, with the strategy needing to be reviewed at least once a year and signed off by an auditor.

Before any investment decision is implemented, particularly in a COVID-19 environment, you should examine its impact on the overall portfolio to ensure you are investing in line with your strategy.

There are new considerations for those exposed to property, in some cases with a limited recourse borrowing arrangement (LRBA). Many SMSF commercial properties (and, to a lesser extent, residential properties) will not receive total rental payments under their lease agreements because of COVID-19, meaning less income.

All efforts should be focussed on negotiating with tenants and using the Government support packages to ensure they can withstand the effects of COVID-19. This includes considering the property relief measures the ATO has implemented and using the National Cabinet’s Mandatory Rental Code to plan out rental income for this and the next financial year.

$1.6 million transfer balance cap and total superannuation balance

A delayed lodgement date of 30 June 2020 is in place for all SMSF trustees as the sector navigates the COVID-19 pandemic. It is essential that you, as an SMSF trustee, understand the position of your SMSF on 30 June before taking any actions which could cause you to breach superannuation laws.

The $1.6 million transfer balance cap applies to SMSF members receiving a pension.
A $1.6 million transfer balance cap limits the amount of tax-free assets that can support a pension. Ensure you know the consequences of excess transfer balances and avoid exceeding the cap.

As always, don’t hesitate to contact us to discuss any of the above.

Kreston Stanley Williamson Team

*Correct as of June 2020

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.

Read Other Articles

Pin It on Pinterest