Claiming a tax deduction for personal super contributions

Members of self-managed super funds (SMSFs) that are eligible can claim an income tax deduction on personal super contributions. Members that intend to do this must notify their fund trustee before lodging their 2019 individual tax return.

The eligibility requirements to claim a deduction for personal super contributions include:

• Contributions that were made before 1 July 2017 were made to a complying super fund or retirement savings account.
• Contributions that were made on or after 1 July 2017 were made to a fund that was not:
  • A Commonwealth public sector super scheme for which you have a defined benefit interest.
  • A constitutionally protected fund or another untaxed fund that did not include your contribution in its assessable income.
  • A super fund that notified the ATO before the start of the income year that they would treat all member contributions as non-deductible.
• Members must meet the age restrictions:
  • If you are aged 75 or older, you can claim a deduction for contributions made before the 28th day of the month after you turned 75.
  • If you are aged 65 or older, you must satisfy the work test or meet the work test exemption criteria in order for your fund to accept your contribution for which you can claim a deduction.

Prior to lodging their 2019 tax return, eligible members must ensure that they supply the SMSF trustee with a notice of intent to claim or vary a deduction for personal super contributions. They must also provide a written acknowledgement from the SMSF trustee of the notice of intent.

PAYG reporting dates approach

Changes have been made throughout the year regarding SMSFs and their pay-as-you-go (PAYG) withholding. As the end of the financial year and the due date for PAYG reporting approaches, SMSF trustees should be checking whether they are meeting new withholding obligations for capped defined benefit income streams paid to their members.

If you have PAYG withholding obligations in 2018–19 you must provide your members with a PAYG payment summary by 14 July 2019 and lodge a PAYG withholding payment summary annual report with the ATO by 14 August 2019.

SMSFs have PAYG withholding obligations for super benefits paid to members who are:

• Under 60 and the benefit is an income stream (pension) or a lump sum.
• Under 60 and the death benefit is a pension which is a capped defined benefit income stream where the deceased was 60 or over when they died.
• 60 or over and the benefit is a pension which is a capped defined benefit income stream.

Capped defined benefit income streams include life expectancy and market linked pensions which were payable before 1 July 2017 and reversionary income streams paid to beneficiaries.

SMSF trustees who are paying a capped defined benefit income stream to a member must ensure to meet all obligations. These include registering for PAYG, providing your member and the ATO with payment summary information, and making sure to comply with the withholding obligations of your activity statement.

Is your SMSF adequately diversified?

When forming a fund’s investment strategy, diversification is a notable consideration for SMSF trustees. By spreading the investments of a fund across different asset classes and markets that offer varying risks and returns, SMSF members can better position themselves for a secure retirement.

Why diversify?
The intention of diversification is to spread the investment risk of an SMSF. The idea is that if one asset underperforms, it can be offset by the success of other assets and keep the fund on track to meet its investment objectives. Diversifying investments across uncorrelated assets, such as shares and bonds, may also make it possible for investors to lower the volatility of the portfolio.

How to diversify your fund:
Accessing certain asset classes can be challenging for SMSFs due to minimum investment requirements or other ownership restrictions. Managed funds and exchange-traded funds (ETFs) are two options that can provide easy access to diversification. Managed funds pool together money from multiple investors which professional managers then invest in a variety of assets, such as global or local shares, offshore property or high-yield investments. ETFs, on the other hand, aim to replicate the performance of a particular index or group of assets, which can give an investor exposure to an entirely different market or asset class. These two methods can give SMSFs the ability to access more diverse investments.

As having an appropriately diversified portfolio can have a significant impact on members’ retirement savings, trustees may consider seeking professional financial advice in the management of their SMSF’s investment strategies.

First Home Super Saver Scheme

The First Home Super Saver (FHSS) scheme was introduced in the Federal Budget 2017–18 to reduce pressure on housing affordability. The scheme allows people to save money for their first home inside a superannuation fund, helping first home buyers to save faster. Changes introduced to the FHSS scheme in the Treasury Laws Amendment (2019 Measures No. 1) Bill 2019, will come into effect on 1 July 2019.

The FHSS can now only be applied to a first home that is bought in Australia, as opposed to previously being in any location.

Another change is that individuals must now also apply for and receive an FHSS determination from the ATO before signing a contract for their first home or applying for the release of FHSS amounts. A contract can be signed to purchase or construct a home either:

• From the date a valid request to release your FHSS amounts is made;
• Or up to 14 days before a valid request to release your FHSS amounts is made.

There is no longer a waiting period between the first FHSS amount being released and signing a contract to purchase or construct the home.

Individuals now have 12 months from the date they make a valid release request to do one of the following:

• Sign a contract to purchase or construct the home and notify the ATO within 28 days of signing;
• Or recontribute the assessable FHSS amount (less tax withheld) into their super and notify the ATO within 12 months of the valid release request date.

These changes apply retrospectively to valid FHSS release requests and contracts entered into on or after 1 July 2018.

How the ‘Protect Your Super’ changes will affect you

A number of changes to superannuation will come into effect from 1 July 2019. The ‘Protect Your Superannuation’ Bill passed through Parliament in February and forms part of the Government’s package of reforms that were announced in the 2018-19 Federal Budget.

The new legislation is designed to protect Australians’ superannuation savings by ensuring that their super balance isn’t negatively affected by unnecessary fees on insurance policies. Changes that may affect you are;

Insurance:
For those who do not act before 1 July, your insurance may be deemed inactive. Under the Protect Your Superannuation Bill, super accounts that have been inactive for 16 months will have their automatic insurance cancelled. Members will be able to ‘opt-in’ to protect their insurance cover and stop their account from being inactive, but this must be done before 30 June.

Ban on exit fees:
The new laws will remove the need to pay exit fees from all superannuation accounts. Trustees that are currently charging exit fees will need to review the current fee structure in order to implement any necessary disclosure and product changes.

All superannuation trustees and members will need to review these changes to ensure they are meeting all necessary obligations. If further help is needed about how the changes will impact you, consult your financial advisor.

What and when you need to report in your SMSF

The event-based reporting (EBR) framework for self-managed super funds (SMSFs) commenced on 1 July 2018. This system allows the ATO to administer the transfer balance cap. Reporting under the EBR framework commences when your first member begins a retirement phase income stream. The transfer balance account report (TBAR) is then used to report certain events and is separate from the SMSF annual return.

An SMSF must report events that affect a member’s transfer balance, these should include details of:

• Pre-existing income streams being received on 30 June 2017 that;
  • continued to be paid to them on or after 1 July 2017.
  • were in retirement phase on or after 1 July 2017.
• New retirement phase and death benefit income streams including value and type.
• Limited recourse borrowing arrangement (LRBA) payments, including the value and date of each relevant payment, if entered into on or after 1 July 2017.
• Compliance with a commutation authority issued by the ATO.
• Personal injury contributions.
• Commutations of retirement phase income streams that occur on or after 1 July 2017.

All SMSFs must report events that affect their members’ transfer balances. If no event occurs, there is nothing to report.

Timeframes for reporting are determined by the total superannuation balances of an SMSF’s members. In the events affecting members’ transfer balances, reports must be made within 28 days after the end of the quarter in which the event occurs. Unless a member has exceeded their cap and the fund needs to report an event sooner, the first due date for the lodgment of TBARs is 28 October.

In’s and out’s of the super downsizer scheme

Under the super downsizer scheme, eligible individuals that are 65 years and older may be able to make a contribution into their superannuation of up to $300,000 from the proceeds of selling their family home. This scheme came into effect on 1 July 2018 as one of several measures announced in the May 2017 Federal Budget.

Benefits to downsizer contributions:

• It can provide a way to boost your super balance. For those who may not have saved enough to fund their retirement, tax-free downsizer contributions can be a good opportunity to top up their already existing savings.
• No work test applies. This test requires that taxpayers aged 65-74 who wish to make voluntary contributions must be employed for at least 40 hours within a 30-day period. By removing this requirement, older Australians who no longer work significant hours will still be able to add large sums to their super.
• There are no contribution caps, as concessional and non-concessional contribution caps do not apply.
• Downsizer contributions aren’t subject to the $1.6 million total super balance restriction.
• For couples, both spouses are able to take advantage of downsizer contribution. This means that up to $600,000 per couple may be contributed towards their super.

Other considerations to be aware of include:

• Contributions must be made within 90 days of receiving the proceeds of a sale.
• The sold property must have been owned for at least 10 years and must have been your main place of residence at some point in time.
• The property must be in Australia and excludes houseboats, caravans and mobile homes.
• Downsizer contributions are not tax-deductible.

What disqualifies you from an SMSF

SMSF’s are regulated by the ATO and have specific eligibility criteria that members and trustees must follow. While anyone 18 years old or over can be a trustee or director of an SMSF, they mustn’t be under a legal disability, such as mental incapacity, or a disqualified person.

The ATO can render an SMSF trustee as a disqualified person if they see the need, particularly in relation to illegal early access breaches. There are other ways a person may become disqualified and some may not even realise they have been. Continuing to act as an SMSF trustee or director of the corporate trustee while disqualified is an offence, further penalties may apply.

A person is disqualified if they:

• Have been convicted of an offence involving dishonesty.
• Are or have been subject to a civil penalty order under the super laws.
• Are insolvent under administration (including being an undischarged bankrupt).
• Have been disqualified by a court or regulator (for example, by the ATO or APRA).

The ATO has a Disqualified trustees register to see if an individual has previously been disqualified. The register provides information and easy search options to help determine whether a potential trustee has been disqualified. It is updated quarterly and includes all individuals who have been disqualified since 2012 (when the information was first published electronically).

ATO warns of TBAR lodgement errors

With upcoming annual lodgement dates for Transfer Balance Account Reporting (TBAR), the ATO is alerting funds of common lodgement mistakes that could lead to delays and additional processing time.

The Transfer Balance Cap (TBC) is a $1.6 million cap on the total amount of superannuation benefits that a member can transfer into a tax-free retirement phase income stream. TBAR is used by SMSF trustees to report to the ATO any events that affect a member’s transfer balance. The information is used to record and track the member’s TBC and apply provisions if the member were to breach the cap.

Reports can be lodged both online or by paper forms. The electronic method is recommended by the ATO as human errors are common when using the paper form to report. These issues are often a failure to provide the fund’s ABN and failing to report the event type. When these errors occur, the form will be suspended for manual review and the ATO may need to contact funds in some cases to resolve any issues.

A TBAR must be lodged for the 2018-19 financial year if any member had a transfer balance account event occur in the last year, and if all members have a total super balance of $1 million. The due date for annual TBAR reporting is the same date as the SMSF annual return on 15 May 2019, although not all funds have the same lodgement due date. Trustees should familiarise themselves with their SMSF’s due dates and ensure they are reporting the correct information to avoid processing delays.

Super changes to protect employees’ entitlements

Several revisions from the Treasury Laws Amendment (2018 Measures No.4) Bill 2018 took effect from 1 April 2019. These measures are designed to help reduce the super guarantee (SG) gap, protect employees’ super entitlements and strengthen the ATO’s ability to recover unpaid super.

Changes to disclosure laws will now allow the ATO to disclose information to employees about an employers’ failure to meet SG obligations. This will also allow for the ATO to reveal their processes involved in retrieving these amounts.

Additionally, a free voluntary online education course is now available to help employers understand and meet SG obligations. Education directions permit the ATO to instruct employers who don’t meet their SG obligations to complete the online education course, which includes an assessment element.

Individuals are encouraged to notify the ATO of non-complying employers. If your employer is approachable, you could make them aware of the online course and its benefits prior to the ATO contacting them and directing them to complete it.