Managing your SMSF in the current regulatory environment
There was a raft of announcements at the May federal budget that could impact the SMSF sector should the Senate pass these proposals later this year.
It can be challenging running an SMSF during these times of regulatory uncertainty. But Daniel Martinez, senior financial adviser and Authorised Representative of AMP Financial Planning, says the starting position is to assume the proposals will become law.
“The last thing you want to do is prepare a strategy under existing rules and find you have to unwind it all because the proposals did in fact become legislation. You have to try to stay within both sets of rules,” he says.
Martinez is trying to negotiate one client’s situation at the moment through the regulatory maze. The client owns a commercial property they want to place in their super fund. He says before the budget he had come up with a strategy to achieve this. But he had to make sure this was still possible under the proposed changes to the super system, especially as one of the proposals includes a provision to look back as far as 2007 when calculating contributions.
“I had to make sure my clients hadn't breached the $500,000 lifetime non-concessional cap and fortunately they hadn't,” Martinez explains.
Nevertheless there are still steps SMSF members can take now to make the most of the more generous older provisions that still exist. For instance, the reduced $25,000 concessional contribution cap is unlikely to start until 1 July 2017, which means those who can afford to contribute up to the limits of the higher $30,000 (for people younger than 49) and $35,000 (for those 49 and older) caps should do so if they can afford to.
Says Martinez: “Taking advantage of concessional caps is important wherever you can.”
Another change is the $1.6 million lifetime limit people can accumulate in their super fund and receive the tax benefits the super system delivers.
“Putting a cap on the amount of super eligible for concessional treatment has been in the government’s sights for some time. Contribution splitting is a strategy that I often suggest for my clients, to help them maximise the benefits of the super system. Assuming both members are roughly the same age, then equalising super balances may be a prudent approach,” he adds.
Contribution splitting involves splitting concessional super contributions between two spouses.
“Some of the biggest changes to the super system from the budget have been reductions to concessional and non-concessional contribution caps. SMSF members must keep these changes in mind because it’s likely that we're not going to have the same opportunity as we have had in the past to put large lump sums into super, and it’s more important now than in the past to plan head,” says Martinez.
“Super is still the best place to build wealth over time, but more fore-thought is required now than in the past to ensure you are making the most of the system. Even at a younger age you need to think about super as a preferred vehicle to build long-term wealth and it’s never too early to start planning for a comfortable retirement,” he adds.