Self Managed Superannuation Fund (SMSF) – 2016 Budget & Year End Tax Planning

Posted on 29/03/2016 by Michael Klem in Superannuation
Michael Klem
Michael Klem is a Principal within the Self-Managed Superannuation Fund (SMSF) group in the Sinclair Wilson Warrnambool office. Michael provides his clients with specialist advice in all aspects of Self-Managed...

With the pending 2016 Budget, superannuation is an increasingly topical subject particularly with regard to whether the concessional taxation treatment is overly favourable. However, for those who have worked hard and are astute enough to include an SMSF as part of their overall retirement savings plan, it makes perfect sense to ensure your taxation and savings plan is optimised.

With the right specialised SMSF advice, our Warrnambool based SMSF experts can assist, ensuring you’re in the best position prior to both the upcoming Budget and 30 June and highlight the following 3 opportunities:

1 – Tax deductible contributions

The current tax deductible contribution cap for individuals aged 50 and above is $35,000 and for individuals aged less than 50 is $30,000. There has been recent speculation that the concessional contribution cap may be reduced to $20,000.

Accordingly, if you intend to utilise the full contribution cap, you may consider making a contribution sooner rather than later.

2 – Tax free member entitlements

Pensions currently received by SMSF members age 60 or over are tax free. However, your SMSF’s underlying member balance may often include both taxable and tax-free components. Having an understanding of the makeup of your member entitlements is important not only for estate planning purposes, but also in light of concerns that Budget changes could impact on the current tax free treatment.

It is generally accepted that the higher the tax-free component the better. With careful planning, it is possible to reduce or eliminate any taxable component, which would assist in:

  • Future-proofing against Budget changes: Parliamentary changes could result in the cessation of tax free pension payments on the taxable member component;
  • Enabling members aged less than 60 to receive pension payments tax free: this can be achieved by utilising the tax-free contribution thresholds; and
  • Minimise tax paid on the passing of the member: with careful planning, it is possible to remove a potential tax liability on the sudden passing of a couple of between $183,000 and $245,000.

3 – Transition to Retirement Income Stream (TRIS)

There has been much debate in the lead up to the 2016 Budget as to the leniency of concessions that may be afforded by a TRIS. However, for members that have saved in the build up to their retirement, a TRIS can be an important consideration. From 1 July 2015, a member aged 56 or above can commence a TRIS, continue to work and still make contributions to further their retirement savings.

The key changes associated with converting to pension mode are the pension earnings are completely tax free (prior to being in pension mode, the income was taxed at 15% and capital gains at either 10% or 15%) and that the Fund must pay a minimum pension payment to the member each year.

Furthermore, with advice from your SMSF specialist, it is possible (as noted above) for a member to receive pension payments completely tax free even if they are less than 60. Consider an example of a couple with income assessed at the top marginal tax rate and both aged between 56 and 60. With careful consideration of tax-free contributions and assuming earnings of 5%, they could potentially save over $25,000 per year.

It is best to take a proactive approach to tax planning for your retirement savings. Speaking to one of our Warrnambool-based SMSF experts will ensure you’re in the best possible position the current rules allow and ensure you’re able to easily adapt to any future changes.