The ten most important action points for SMSF trustees

The end of the financial year is closing in fast after what has been a tumultuous period for many in Australia. Despite a reasonably uneventful year for superannuation legislation and policy changes, opportunities abound for superannuants and investors of all kinds.

One of the most important roles of a financial adviser is to prompt and follow-up to ensure those we assist are taking advantage of every opportunity available to them. There are as many as thirty individual strategy opportunities for investors each financial year, but for the purposes of time, we have summarised these into the most important ten considerations for SMSF trustees, young and old.

The first consideration for those still working or able to meet the eligibility criteria to contribute is to ensure you have taken full advantage of the caps. In 2020-21 non-concessional contributions are limited to $100,000 and concessional $25,000. Before topping-up your superannuation balance it is important to review your contributions to date to ensure you do not exceed the relevant caps.

For those with balances of under $500,000, you may also be able to use your concessional caps from 2019 and 2020, totalling $50,000, to top-up your concessional contributions before 30 June and gain the associated tax deductions.

One of the lesser-known benefits of concessional contributions is this associated tax deduction, which is used to directly reduce your taxable income. Given the strength of Australian property, those who have sold a property or another asset and realised a capital gain may consider bringing forward next year’s concessional contribution limit of $27,500 in what is known as a ‘reserving’ strategy.

The 2020-21 financial year saw an increase in the age at which the work test is required to make further contributions. From 1 July 2020, everyone will be eligible to contribute without working as long as they are under 67 years at the time. Similarly, the days when you could not claim the tax deduction on your contributions unless you were gainfully employed are gone, meaning anyone can make them and use the deductions to offset passive income, such as that received from shares or trust distributions.

While the benefits have been somewhat reduced by the $1.6 million transfer balance cap, those nearing retirement should consider whether a recontribution strategy is appropriate. This strategy is used to reduce the taxable component of your SMSF which has the benefit of reducing the tax payable when your balance is passed to your adult children.

Given the incredible strength in property prices, many may have chosen to downsize. For those over 65 this financial year, they may be able to contribute an additional $300,000 each under the ‘downsizer’ limit.

The federal government recently confirmed that minimum pension discounts would continue for another financial year, a positive move. However, the reduction will likely see many people exceeding their minimums, in which case it may be beneficial to consider whether any excess payments can be drawn as ‘lump sums’ from your pension or accumulation component, rather than applied against your tax-free pension cap.

For those in accumulation phase and still holding onto under-performing shares like communications, oil and gas or old-fashioned retailers, now may be the time to bite the bullet and realise those losses. At the same time, now is an important time to closely review your SMSF’s investment strategy, with your annual audit and accounts just around the corner.

Investment strategy documents should not be set-and-forget, so all trustees should be reviewing and confirming that their current portfolio suits their strategy and vice versa.

Finally, now is the time to check your binding death benefit nominations, which determine how your SMSF benefits will be paid. This can be lapsing, non-lapsing and even reversionary. 

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.