Anyone who has made additional contributions to superannuation, or changed arrangements in any way, should check their position before the end of the financial year to make sure they haven’t inadvertently breached any of the rules, says Mr Michael Hutton, head of wealth management at HLB Mann Judd Sydney.
“Over the last few years, a number of people have been caught out by the superannuation rules and ended up either losing benefits, or paying significant amounts of tax – the concessional contributions cap is a prime example of this.
“In most cases, these breaches are accidental, so it’s worth taking the time now to check the status of superannuation, to make sure there are no potential problems lurking,” Mr Hutton said.
Key points to consider include:
Check contributions made this financial year
Super fund members have found themselves in difficulties with the ATO for having contributed too much to their super and breaching the contribution caps, often inadvertently.
To make sure such problems are avoided this year, Mr Hutton says to check how much has already been paid into superannuation on your behalf, and ensure that any contributions late in the financial year won’t cause the cap to be exceeded.
The maximum concessional (tax deductible) contributions that can be made for those over age 50 are $50,000 per annum, and for those under age 50 the limit is $25,000 per annum
“This check should include when bonuses or other lump sums are paid. Did last year’s bonus count in last year’s super contributions, or this year’s? When will the next bonus be paid? If it is this year, check the impact, together with any extra contributions made, on the total superannuation position,” says Mr Hutton.
“Can the bonus be held over to the next financial year, or can the employer hold off on an automatic super contribution?
“However, be aware that the concessional contribution limit from 1 July 2012 is only $25,000.”
Is it time to start drawing down a pension?
People who have turned 60, or who will do so before the end of the financial year, could consider “turning on” a tax-free pension from their superannuation fund. This is permissible regardless of their work situation.
“The benefit in doing this is that the portion of the superannuation fund that is providing the pension becomes tax-free, as does the pension itself. Such pensions can commence from age 55, but the pension payments are taxable to the recipient until age 60,” says Mr Hutton.
Check pension payments amount
For those already receiving pensions from their superannuation funds, Mr Hutton says to think about the level of pension payments being made.
“People in a fairly healthy personal cash position could consider reducing any pension payment due this financial year to protect their capital, as long as they still satisfy the minimum pension requirement for the year,” he says.
Not paying the minimum compulsory payment from an SMSF means a fund is in breach of its obligations and will not qualify as a pension paying fund or retain its tax-free status.
Does the ‘work test’ apply?
Those who turned 65 during the financial year need to satisfy a work test after reaching age 65 if they wish to make a concessional contribution. The work test requires people to do paid work for 40 hours over a 30 day period at some point during the financial year.
For SMSF trustees, consider pension timing
Many self-managed superannuation fund trustees pay pensions to themselves as a single payment late in the financial year. If they forget to do this, or aim to do it but find the fund is short of cash, they can end up with a problem.
Is the investment strategy still on track?
Any time is a good time to reflect on, and review, the investment strategy of a self-managed superannuation fund. The end of the financial year can be a particularly good time to focus on this. Think about the long term objectives of the fund and whether the portfolio is invested in the most appropriate manner.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.
For more information please contact:
Michael Hutton – Phone: 02 9020 4193
10 May 2012