August 2020 - Practical Systems Super

Control still key driver for SMSFs

Aug 25,2020 Comments Off

The ability to have personal control over superannuation investments has remained the key driver behind the establishment of SMSFs and concerns they were being used as property investment vehicles was a minor issue, according to research group Investment Trends.

Investment Trends chief executive Michael Blomfield said research conducted for the “2020 Vanguard/Investment Trends SMSF Investor and Planner Report” found control-related issues continued to rate as the leading reasons for the establishment of SMSFs despite an increase in the level of interest in property held within an SMSF since 2015.

“In the year to September 2019, the number of SMSFs continued to grow, but at a lower rate than previous years. There were almost 600,000 funds by September 2019, but only 20,000 were set up in the 12 months before that date,” Blomfield said.

“When we talked about why they [trustees] established an SMSF, control of investments remains the big driver. Control is the number one issue by a long way for all SMSF trustees and behind that we start to get into issues related to better returns and being more tax effective.”

He said the issue of property investment was one he had to “call out” and despite an increase in investment in property between 2015 and 2020 by SMSF trustees, as a reason for starting an SMSF it “does not get anywhere close to the drivers for control or approach the secondary drivers of better returns”.

He pointed out control was the leading factor for the establishment of a fund for 67 per cent of SMSF trustees, while property investment was the leading factor for around 32 per cent of funds and prior to 2015 was the primary driver for only 15 per cent of trustees.

While SMSF trustees continued to remain strong in their views they can make better investments than an Australian Prudential Regulation Authority-regulated fund, some trustees had hesitated to set up a fund because of regulatory concerns, he said.

“We saw in lead-up to the last federal election there was discussion about franking credits and we were not sure if that drove people to holding back or decreased their interest in SMSFs,” he said.

“Trustees have been telling us for a long time that it is regulatory uncertainty that makes them think twice, or three times, about whether SMSFs are the right place to be, and while we are still seeing growth, we have no reason to believe that has ceased.”

The report was compiled from 3156 trustee responses to a quantitative survey conducted online between February and May and also found a large unmet need for advice from trustees who had not made major changes to their SMSF investments as a result of COVID-19 market downturns.

Source: smsmagazine.com.au

Changes to your super

Aug 13,2020 Comments Off

The recent change to change to the work test for making contributions to superannuation to age 67 has certainly raised issues with clients making contributions after 65 and how those changes impact on any contributions that are being made for them. The downside of the Government’s 2018 budget announcements for superannuation contributions is that the opportunity to use the bring forward rule is still restricted to those age 65 or younger.

The changes to the income tax law in the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020, which move the bring forward rule to age 67, remain in the House of Representatives. As parliament does not resume until early August, the bill has a way to go prior to becoming law. So where are we now with contributions for anyone 65 or older with the start of the 2020/21 financial year?

Until 30 June, 2020, personal concessional and non-concessional contributions could be accepted by a fund without any work test being met prior to the member reaching age 65. However, once the person reached the age 65 in the financial year the member was required to meet the work test at some time during that year and in all later financial years prior to the contribution being accepted.

As with personal superannuation contributions, the fund trustee is unable to accept personal concessional or non-concessional contributions any later than 28 days after the month in which the person reaches age 75. There is one exception to the age test which is the acceptance of downsizer contributions.

The only exceptions to the work test are where a person wishes to make contributions in the year after ceasing work and downsizer contributions. Ceasing work contributions are permitted to be made on a once only basis after the member has reached 67, previously age 65, in a year after they have ceased work if they have a total super balance on 30 June in the previous year of less than $300,000. These contributions can be accepted by the fund trustee 28 days after the month in which the person reaches 75.

As far as downsizer contributions are concerned, a person and their spouse are eligible to each make a contribution of up to $300,000 within 90 days of selling their main residence after age 65. There is no upper age limit applying to downsizer contributions or any work test that needs to be satisfied.

Anyone who is employed after age 65 may be eligible for compulsory employer contributions and if they meet the work test, they may wish to salary sacrifice to super.

Employer-mandated contributions, such as those made for super, guarantee purposes or under an industrial award, are not subject to a work test or age limit. However, other employer contributions, including salary sacrifice, are subject to age limits described above.

The changes to the work test requirements have been extended to include non-concessional contributions made for an eligible spouse. The age restriction which applied up to 30 June, 2020, permitted spouse contributions to be made between ages 65 and 70 providing the spouse met the work test.

From 1 July, 2020, this is now extended to apply for spouse contributions made between 67 and 28 days in the month after the spouse reaches 75 in line with other personal superannuation contributions. The work test is required to be met prior to contributions being made to the fund.

In relation to the operation of the bring forward rule for non-concessional contributions, those fund members who are in the 65 to 66 age bracket are in a bit of a dilemma from now until the time when the passage of the legislation is clear. It is only those members who have a total superannuation balance of less than $1.5 million as at 30 June, 2019, or 2020 that should be concerned if they wished to maximise their non-concessional contributions by using the bring forward rule.

The rules for non-concessional contributions allow up to two years standard non-concessional contribution to be brought forward if the total super balance as at 30 June in the previous financial year and up to one year standard non-concessional contribution is between $1.4 and $1.5 million. Anyone with a total superannuation balance of greater than $1.5 million on those dates does not have access to the bring forward rule for the subsequent financial year.

As an example of the operation of the bring forward rule, a person who is currently 65 would have access to the bring forward rule of at least one year standard non-concessional contribution assuming their total super balance is less than $1.5 million. If they contribute greater than the standard non-concessional contribution, the bring forward rule will be triggered and they will be able to make the relevant contributions over a two or three year period. If they make the contributions prior to reaching age 67 the fund can continue to accept the contributions without requiring the member to meet the work test.

In contrast, a person who is currently 66 or 67 will not be able to trigger the bring forward rule as they were older than 65 on 1 July in the 2020/21 financial year. This will limit the maximum amount of non-concessional contribution they can make without penalty to $100,000 p.a., however, the consolation is that there is no requirement for them to meet the work test unless they wish to make contributions in the financial year after they reach 67.

Source: moneymanagement.com.au

Important eligibility condition flagged for early release of super

Aug 4,2020 Comments Off

SMSF clients that have been unemployed for a number of years may be eligible for early release of super, but it is vital they are able to show that they are facing financial difficulty, says a technical expert.

SMSF Association deputy chief executive Peter Burgess explained that in order for clients to apply to access their super early, they need to meet at least one of the eligibility conditions.

“In addition to a client meeting at least one of these conditions, they also need to show that they’ve been adversely impacted by the pandemic,” Mr Burgess said at the SMSF Association Technical Day last week.

With some of the conditions, it’s quite obvious that the client has been financially impacted, he said.

“[For example], if they’ve been made redundant as a result of the pandemic or their hours have been reduced, then it’s pretty obvious that they’ve been impacted and that they qualify,” he explained.

Other conditions, however, are not as obvious, he noted.

“Where the client is unemployed and perhaps has been unemployed for a number of a years, it may not be so obvious that they have been financially impacted by the pandemic,” he said.

“In fact, we’ve had a number of advisers ask us questions about unemployed clients. The common scenario is where the client has been a stay-at-home parent and they’ve been unemployed for many years.”

They can qualify to access their super early under this measure, Mr Burgess said, as long as they can show that they have been financially impacted by the pandemic.

“It’s been put to us that it’s not difficult to show that someone has been impacted. The fact that they’re paying more for their toilet paper could be an indication that they have been financially impacted, but that’s clearly not the intent of these provisions,” he stated.

“So, in addition to meeting one of these conditions, they also need to show that they’re facing difficulty making ends meet and those difficulties have been caused by the coronavirus.”

Source: SMSF Adviser

1800 951 855

[email protected]

Archive August 25, 2020

Control still key driver for SMSFs

Changes to your super

Important eligibility condition flagged for early release of super