Super housekeeping for 30 June

Super housekeeping for 30 June

Make sure you draw the minimum pension 

With 30 June only 2 weeks away, it’s important to check if you have made the minimum pension payment from your account based pension in your SMSF. For those with an industry fund or a retail super fund, it’s all done for you, so you have nothing to worry about. 

Remember, you only need to draw 50% of your regular minimum annual pension. This has been extended again for 2022/2023. 

minimum annual pension rates

If you have maxed out your Transfer Balance Cap (TBC) and taken the discounted minimum annual pension, it’s often a good idea to take any additional payments from your accumulation balance. 

Super contributions 

You should be checking the level of concessional contributions you, or your employer, have made. If you do need a tax deduction, you may consider topping this up to $27,500 prior to 30 June. 

If you are wanting to continue to build up your superannuation balance, it may also be appropriate to make a non-concessional contribution up to $110,000 for the year. Or, should you bring forward the next 2 years’ contribution this year and make it $330,000? 

Remember, from 1 July 2022, changes to contribution rules may mean you can contribute up to 75 years of age without satisfying the work test. 

Ways to contribute 

Your contributions may be simply a cash contribution, or you may transfer investments like shares into your fund. Remember, any transfer is regarded as a sale, so it will give rise to a capital gain or capital loss. This could also be advantageous. 

Super co-contributions 

If you meet the eligibility criteria, you could guarantee yourself a guaranteed return of up to 50% by making a personal (after-tax) contribution (also known as a non-concessional contribution) of up to $1,000. 

The co-contribution from the government is to support low or middle-income earners. 

The amount of government co-contribution you receive depends on your income and how much you contribute. 

You don’t need to apply for the super co-contribution. When you lodge your tax return, they will work out if you’re eligible. If the super fund has your tax file number (TFN) they will pay it to your super account automatically. 

Plan your super/pension strategy for 2022-2023 

Planning early for the next financial year is important. Your plan should include: 

  • Level of contributions to be made for 2022-2023. 
  • The best time to make these contributions. 
  • Should you commence an account based pension? 
  • Updating your SMSF Investment Strategy up to date. 
  • For those exceeding their TBC and running an account based pension within their SMSF, have members sign a notice to take the minimum pension with any surplus to be taken from the accumulation account.  

Superannuation can be very complex, and while it presents excellent opportunities for retirement, each person’s situation is very different. So, before acting, you should seek personal advice from your adviser. 

Want to learn more? Speak to a specialist about your SMSF today.

4 new super contribution opportunities

4 new super contribution opportunities

For older Australians, it has been more difficult to build up their superannuation balances. Once you are 67 years of age, there is a requirement to meet a ‘work test’ in order to continue to contribute. This work test forced you to work 40 hours over 30 consecutive days in order for you to make a lump sum contribution (known as a non-concessional contribution) of up to $110,000.

With these restrictions, it was important to carefully plan your superannuation strategy from a younger age.

However, the Federal Government sought to amend these restrictions.

May 2021 Federal Budget

In the May 2021 Federal Budget, the government announced a number of initiatives to assist Australians in building up their superannuation.

These included:

  • Removal of $450 monthly income threshold for super contributions.
  • Reduction in age to 60 for the downsizer contributions.
  • Removal of the work test for people aged 67-74.

It also increased the withdrawal limit for First Home Super Saver Scheme (FHSS).

Legislation has now passed both houses of parliament and will apply form 1 July 2022.

4 new super contribution opportunities

Removal of $450 monthly income threshold

The government has finally scrapped the $450 superannuation guarantee threshold. This should make approximately 300,000 people eligible for super contributions from 1 July 2022.

Lower Age for ‘Downsizer’ contributions

In selling the family home, couples have the ability to contribute $300,000 each into superannuation as a personal contribution. The age for this contribution was 65, however, it has been lowered to 60. As of May 2021, 22,000 Australians have taken advantage of this opportunity to boost their retirement balances. It should also be noted that these contributions are not restricted by the $1.7m transfer balance cap.

The lowering of age to 60 will come into effect from 1 July 2022.

First Home Super Save increased capacity

This is a great opportunity for couples who are saving for their first home. This scheme allows people to make voluntary contributions to superannuation to save for this purchase. The current caps on these contributions are $15,000 a year and $30,000 in total.

However, it has been passed to allow voluntary contributions (both post tax or through salary sacrifice) up to $50,000 in total.

So a couple will have access to $100,000. It’s important to remember compulsory employer contributions are excluded. Only voluntary contributions may be withdrawn.

This will commence from 1 July 2022.

Removal of work test for 67-74 year olds

The most significant superannuation opportunity announced in the May 2021 Federal Budget was to allow 67-74 year olds to make a personal contribution to superannuation without meeting the current work test. This has now been passed and will come into affect on 1 July 2022.

However, not only will older Australians be able to make a personal contribution of $110,000 pa, but they will also be able to take advantage of the bring forward rule and contribute $330,000 as a lump sum.

What you need to know about property investing in your self-managed super fund (SMSF)

What you need to know about property investing in your self-managed super fund (SMSF)

“We want to eventually retire to the coast so we will buy a property in our self-managed superfund and rent it out in the meantime. The value of the property will rise over time and when we’re ready to retire we’ll just move in.” 

We’ve heard this statement many times, but if only it was so easy. At a time when property markets are buoyant and interest rates so low, many people are considering property investment within their SMSF but the laws around what you can do, and can’t do, with the property are complex. 

Investing in residential property

Firstly, residential property purchased through an SMSF cannot be lived in or rented by you, any other trustee or anyone related to the trustees – no matter how distant the relationship. Buying a coastal property in your SMSF and moving in when you retire is therefore not allowed. When you retire you must first purchase the property from the SMSF, perhaps from the money you receive from selling your city residence. This is just like buying a regular property except you won’t have to deal with negotiations. The transaction must take place at a fair market value, based on objective and verifiable data, and will involve additional costs such as stamp duty and legal.

Investing in commercial property

Rules regarding related parties that apply to residential properties do not apply to commercial properties. They therefore can be sold to an SMSF by its members, as well as being leased to SMSF trustees or an individual or business related to them.

This exception makes SMSF commercial properties appealing to many small business owners such as barristers to buy their chambers or manufacturers who can purchase a warehouse/factory. This allows the business to pay rent to their superfund rather than ‘dead money’ to a landlord. Again, it’s important the lease agreement is at market rate and must be paid promptly and in full at each due date. 

Regardless of whether it’s a residential or commercial property, the investment must also satisfy the overarching function of the SMSF, which is to provide retirement benefits for its members (a concept known as the sole purpose test). You must consider the yield or potential capital appreciation when selecting the property and if neither makes good investment sense, you should reconsider.

The loan

Lending through your SMSF must be done by a limited recourse borrowing agreement (LRBA). The property must be owned by a separate ‘bare’ trust that sits outside of the SMSF structure and has its own trustee. All the property-related income and expenses are then made through the superfund’s bank account. These loans are specifically designed to ‘limit the recourse’ so that if the terms of the loan are breached the lender can only access the property and other superfund assets are protected. 

Given the unique characteristics of the loan, SMSF loans generally attract significant application fees and higher rates than standard home loans. The lending criteria are also much stricter and can involve things such as reduced loan to value ratios (LVR), shortened loan terms resulting in higher repayments, and often borrowers require a minimum percentage of liquid superfund assets available to make loan repayments if needed. There are also additional legal costs associated with the setup and ongoing compliance of both the SMSF and bare trust structure. These costs must be factored in to decide if purchasing in your SMSF is the right option for you.

Renovating

The idea of renovating a residential property within an SMSF to improve capital value is also more complicated than it first appears. Whilst general maintenance and repairs can be made, any significant renovations must be funded by available cash already held within the superfund and not by the loan or borrowed money. Even if funds are available, you are not allowed to make significant changes to the original property that was purchased using the limited recourse borrowing arrangement. Renovations that substantially change the asset will require a new LRBA.

Given the right opportunity, there is no doubt that buying property in your SMSF can be an excellent long-term strategy but there are clear complexities. The considerations presented in this article are by no means exhaustive and investing through your SMSF should always be done in consultation with your financial adviser and an experienced mortgage broker. 

Contact us today to discuss whether buying a property in your SMSF could work for you.

What you need to know from the 2021-22 Federal Budget

What you need to know from the 2021-22 Federal Budget

As Scott Morrison kept reminding us this morning, ‘we are fighting the pandemic’ and so the Federal Budget focuses on key spending to drive Australia’s economic recovery.

This is a Budget promoting economic growth and employment. While you will have those who continue to have major concerns over government debt and the continued spending, could it be that we are seeing a ‘new’ way of thinking when it comes to debt? My colleague, James Weir, wrote a paper explaining this with Modern Monetary Theory (“MMT”), suggesting maybe the focus on debt is unwarranted?

So here are the simply the main features of the 2021-2022 Budget;

Personal Income Tax

Low and middle income tax offset

This will be extended to 2021-2022 providing a reduction in tax of up to $1,080 to low and middle income earners.

Superannuation

Federal Budget - Superannuation

Removing the work test

This is actually a significant change. Individuals aged 67 to 74 years will be able to make non-concessional super contributions, or salary sacrifice super contributions without meeting the work test.

However, in order to make personal deductible contributions, you will still need to meet the work test.

Downsizer contributions

The charges announced in the Budget from that article include reducing the eligibility age for 65 to 60 years of age. This scheme allows a one-off contribution of $300,000 per person from the proceeds of the sale of their home.

To learn more about downsizer contributions and how it can work for you check out my blog here.

SMSF residency restrictions

From 1 July 2022, the Government will extend the central control test from 2 years to 5 years and remove the active member test.

Super guarantee threshold

The $450 per month minimum income threshold under which employers are not required to make a super contribution for employees will be removed 1 July 2022.

First Home Buyer Scheme (FHBS)

From 1 July 2022, the Government will increase the amount of voluntary contributions to $50,000 which may be released for the purchase of a first home.

Family Support

Family Home Guarantee

The Government has introduced the Family Home Guarantee to support single parents with dependants buying a home. This is regardless of whether they are a first home buyer or a previous owner-occupier. From 1 July 2021, 10,000 guarantees will be made available over four years to eligible single parents with a deposit of as little as 2%, subject to an individual’s ability to service a loan.

The Government is also providing a further 10,000 places under the New Home Guarantee in 2021/22. This is specifically for first home buyers seeking to build a new home or purchase a newly built home with a deposit of as little as 5%.

Increasing childcare subsidy (CCS)

To ease the cost of childcare and encourage a return to the workforce, from 1 July 2022 the Government proposes to provide a higher level of CCS to families with more than one child under age 6 in childcare. The level of subsidy will increase by an extra 30% to a maximum subsidy of 95% for the second and subsequent children. For example, currently a family may receive a 50% subsidy on childcare costs for each child if family income is between $174,390 and $253,680. Under the proposal, the family would receive a CCS of 50% of costs for their first child and 80% for their second and subsequent children. The annual CCS cap of $10,560 for families earning between $189,390 and $353,660 will also be removed.

Social Security

Pension Loan Scheme

The Government has announced added flexibility by allowing up to two lump sum advances in any 12 month period up to 50% of the annual pension.

The Government will also not claim back any more than the sale price of the house used to guarantee the payment.

Aged Care

The Government has announced a $17.7b investment in aged care reform over the next 5 years which will cover:

  • Additional Home Care Packages
  • Greater access to respite care services
  • A new funding model for residential aged care
  • A new Refundable Accommodation Deposit (RAD) support loan program.

Business Support

COVID Package

The Government will extend until 30 June 2023 the instant write-off of depreciable assets as well as the ability for qualifying companies to claim back tax paid in prior years from 2018-2019 where tax losses occur until the end of the 2022-2023 financial year.

2021 tax tips – How to avoid overpaying

2021 tax tips – How to avoid overpaying

I’m sure we can all agree that tax is something we would prefer to not pay; or at least not pay any more than we need to.

The ATO provides us with the ability to claim a tax deduction for personal expenses we incur in the quest to generate assessable income. It also incentivises through tax concessions, to reward certain practices such as funding for our retirement through superannuation.

So, rather than leaving it late, we have listed a few general tax tips for individuals which you may consider to either reduce your potential tax liabilities for the 2020/2021 financial year, or even to maximise your tax refund. But remember, you should always receive professional advice to determine which of these tips are appropriate for you.

Tax Tips 2021

Superannuation contributions

A ‘concessional’ contribution of $25,000pa may be made and a full tax deduction claimed for the 2020/2021 financial year. It’s important you don’t exceed this amount and remember your employer contributions are included in this limit. So, check-in again in June at what level your contributions sit at for the year, and if it makes sense it may be worthwhile adding while under the $25,000 limit.

And if you qualify under the ‘catch-up’ super provisions (detailed in our previous blog) your concessional contribution could be significantly higher.

General working deductions

Generally you can claim a deduction for work-related expenses (including educational costs). In order for the expense to qualify, you must not have been reimbursed by your employer and the expense must relate directly to your occupation and the earning of income. You must always keep your receipts.

The ATO has a list of occupation specific expenses which is helpful here.

Home office deductions

Many of us are continuing to spend more time working from home. If you are, you may be able to claim a deduction for expenses you incur relating to work.

For 2020/2021, the ATO will allow you to continue to use the ‘Short-cut’ method in determining your home office expenses. This basically involves maintaining a diary for 4 weeks noting the hours you work from home. An amount of $0.80 per hour may then be claimable.

The second method is the ‘Actual’ method, whereby you retain receipts and claim work related expenses (including depreciation on equipment), for which your employer has not reimbursed you. If you have a dedicated office, you may also claim utility expenses.

It’s actually worth considering both methods and to compare which is more appropriate for you.

Pre-payment of expenses and interest

Bringing forward deductible expenses is a great way to help manage your tax position.

If you have borrowings on an investment, such as property or shares, you may pre-pay the next 12 months worth of interest in June.

Capital gains tax deferral & the 12 month rule

If you are contemplating the sale of an asset, and expect to generate a capital gain, you may want to consider selling after 30th June to defer your tax liability.

Also, if you can hold on to an asset for 12 months before selling it, you will qualify for a capital gains discount of up to 50% (except for an asset held in the name of a company).

Offsetting capital gains with capital losses

If you have a capital gain for the year, one way to reduce it is to sell down any asset which may be trading at a loss. Just remember that any capital losses will reduce the gross capital gain (ie. The gain before any discount is applied).

It’s also worth noting that any capital loss which is not used may be offset against future capital gains.

Income protection insurance

Income Protection insurance protects up to 75% of your salary, if you can’t work due to injury or illness.

Not only is income protection imperative for many people, the premium is also tax deductible.

If you haven’t had you insurance needs reviewed, this may well be a trigger to get it done and possibly benefit from a tax deduction.

With the end of the financial year approaching, careful planning now may help to minimise any tax liability you may incur. So, don’t wait until it’s too late.

Review your personal situation now, and if you need clarification on what you can do to improve your situation, please get in touch.

Call Steward Wealth today on (03) 9975 7070.