Three top SMSF compliance tips for 2017
With so many new rules, the risk of non-compliance is higher. So here are three tips to keep in mind to ensure your fund stays inside the rules next year and beyond.
Significant changes to the superannuation system are coming into force in 2017. These rules will reduce the funds self-managed super fund (SMSF) investors can contribute and maintain in the superannuation environment.
These regulations could have knock on effects, for instance to salary sacrifice arrangements. SMSF investors need to take into account these changes as we head toward the start of the new regime in just six months.
1. Maximise eligible contributions
From 1 July SMSF investors will only be able to contribute $25,000 a year to their super fund on a pre-tax basis. Another change is the introduction of a transfer balance cap that means investors will only be able to keep assets to the value of $1.6 million in the pension phase in their fund.
Additionally, the bring-forward provisions that currently allow investors to contribute $540,000 over three-years will change. Instead, investors will be able to contribute $100,000 a year, or $300,000 over three years, on a non-concessional basis.
But until 1 July, for couples, assuming both parties have the full bring-forward provisions available to them, each partner will be able to contribute $540,000 to a super fund in the three years prior. So even if their assets are subsequently valued at more than $1.6 million, as long as the funds arrive in the SMSF before 30 June 2017 the fund will still be compliant. This is because current rules don’t include the transfer cap balance limitation that will apply from 1 July 2017.
“For the small number of people who already have close to or more than $1.6 million in their super account, this is their last opportunity to get that extra bit of money in before the rules change,” says Peter Hogan, the Self-Managed Super Fund Association’s head of technical.
2. Re-assess salary sacrifice arrangements
Salary sacrificing arrangements are another important factor for SMSF investors who are still working to consider. At the moment anyone 49 and older can contribute up to $35,000 to super each year on a before-tax basis. People younger than 49 are able to contribute up to $30,000 a year before tax until 1 July next year. But that amount will fall to $25,000 after that date.
“Every time the government has, in the past, reduced the concessional contribution caps a large number of people have contributed too much to their fund in the next year. So start having conversations with your employer or payroll after Christmas and make adjustments to the amount that’s deducted each week, fortnight or month to ensure you stay inside the rules,” says Hogan.
3. Ensure your pension payments comply
SMSFs that are in the pension phase must meet a number of rules each year to enjoy a favourable tax status. For instance, pensions must usually be account-based and the pension payment must be made at least once a year. Another rule is that it’s not possible to make additional payments to the member’s pension account once it has started paying a pension.
“So check your minimum pension payments for the year now. It is a housekeeping matter, but it is something people often get wrong,” Hogan explains.
“You do hear stories of people who, rather than make a pension payment on a monthly or quarterly basis, only make an annual distribution and forget to make the distribution one year,” he adds.
The risk is that not making the payment will mean the fund is effectively in accumulation phase. This could mean that the fund is in breach of various regulations in this situation and be required to pay tax at 15% . To avoid this, SMSF trustees should make payments at least quarterly.
Hogan’s other advice is to use this time of the year as an opportunity to review the fund’s strategy and investment performance.
Have a look at the performance of your investments and make some adjustments if you think the strategy may require changing,” he suggests.