Hamilton SMSF Trustees – what you need to consider before the 2020 End of Financial Year
The impact of the COVID-19 pandemic has impacted everything from how we spend our weekends, to how we work.
And for Self Managed Superannuation Fund (SMSF) trustees based in Hamilton, Warrnambool, Mount Gambier, Colac and Camperdown, it’s impacted how they could meet their regulatory obligations for 2019-20, as well as how best they can position their SMSF for the year ahead.
Some of the considerations SMSF trustees need to make in the coming weeks are outlined below. Any trustees who have further questions should contact Sinclair Wilson’s SMSF experts for a discussion about their personal circumstances.
Meeting new pension requirements
In order to help manage the economic impact of COVID-19, the Federal Government has reduced the minimum drawdown requirements on common pensions by half, for 2019-20 and 2020-21. This also occurred after the GFC in 2008.
We suggest that trustees consider and amend their pension strategies for these two financial years, in light of this change.
This includes ensuring that the minimum pension has been paid for this 2019-2020 financial year. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments, instead of being tax free.
Where trustees have been receiving regular pension payments, it’s likely they may have received more than the required minimum payment for this year. Unless they meet contribution eligibility rules, these funds cannot be returned.
It is also important to amend trustees’ pension strategies for 2020-21 to reflect the “new” minimum pension standards.
Specialist SMSF advice should be sought to help trustees determine the most effective way to structure benefit payments. It’s only advice that can be provided by a qualified expert, so contact Sinclair Wilson’s SMSF team to discuss this further.
30 June is just over a fortnight away – so it’s vital trustees review their contribution strategies to ensure they have contributed what they intended to, AND that they are below the contribution caps.
Non-concessional (after-tax) contributions are limited to $100,000 for the 2019 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 that is expected 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 will also be able to make up to three years of non-concessional superannuation contributions under the bring forward rule. Trustees who fit this segment, should seek specialist advice to ensure they can maximise their contribution.
Contact us as soon as possible to sort this out.
Investment strategy and property assessment
Trustees investment strategy is a key consideration on the cusp of 2020-21.
It is important to understand that an SMSF’s investment objectives and strategy are not set in stone; the strategy must 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, trustees should examine the impact it will have on the overall portfolio, to ensure they are investing in line with their strategy.
For those exposed to property, in some cases with a limited recourse borrowing arrangement (LRBA), there are new considerations.
Many SMSF commercial properties (and, to a lesser extent, residential property) will not be receiving full rental payments under their lease agreements because of COVID-19. This means less income.
All efforts should be focused on negotiating with tenants and using the Government support packages to ensure they will be able to withstand the effects of COVID-19. This includes considering the property relief measures the ATO has put in place, and the use of the National Cabinet’s Mandatory Rental Code to plan out rental income for this and 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 important that SMSF trustees understand the position of their SMSF at 30 June before taking any actions that could be a breach of superannuation laws.
The $1.6 million transfer balance cap applies to SMSF members who are receiving a pension. A $1.6 million transfer balance cap limits the amount of tax-free assets that can support a pension. Trustees need to ensure they are aware of the consequences of excess transfer balances and avoid exceeding the cap – always speak to one of our SMSF specialists before proceeding.
It’s also important to consider that different total superannuation balance thresholds exist for SMSF. Trustees should ensure they are across their fund’s total superannuation balance which may be relevant for contributions, exempt pension income or transfer balance account reporting.
How can we help?
Trustees who would like more help or information when making decisions about their fund before the end of the 2020 financial year can contact Sinclair Wilson to discuss their situation in more detail.
We will be able to work together to ensure trustees are maximising their fund to reach their financial goals.