Both 2017 and 2018 certainly gave SMSF Trustees cause for concern, from both a strategy and an investment perspective. A volatile political environment coupled with equally volatile investment markets in the closing weeks of 2018 have certainly provided us with some interesting times.
For many self-funded retirees, the $1.6 million transfer balance cap was a game changer, with Trustees urgently reviewing their SMSF strategy prior to its inception on 1 July 2017.
What’s the Good News?
With the focus on the negative changes to superannuation, there has unfortunately been a lack of attention paid to the less “newsworthy” but ultimately positive changes introduced at the same time.
1. Increasing the Number of SMSF Members
It has been proposed that as of 1 July 2019, the maximum permitted number of members of an SMSF increases from four to six. Some of the potential upsides to this increase are the ability to allow additional family members to join the Fund, provide a vehicle to hold assets for businesses with more than four partners, assist with members who may not be Australian residents (currently there are limitations around this) and it could also possibly soften the blow should the current franking credit regime be overhauled after the next election.
2. Tax Deduction for Superannuation Contributions
Since 1 July 2017, those under the age of 75 are now able to claim a tax deduction for personal super contributions (made with after tax $$$$$). Prior to this, only self-employed individuals were able to claim a deduction; however, it is now open to employees as well.
Care needs to be taken to ensure that the $25,000 contribution cap isn’t breached as the compulsory super that your employer pays to your Fund, along with any salary sacrifice amounts (pre tax $$$) also count toward the $25,000 cap. It is also important to note that your Fund will pay the 15% contributions tax on this amount as well.
3. Catch-up Contributions
Since 1 July 2017, the concessional contributions cap has dropped to $25,000 in any financial year. If you were not able to contribute the full $25,000, then you were unable to carry over any shortfall to a future year.
As of 1 July 2019, and assuming you have a total superannuation balance of less than $500,000, you will now be able to access any unused prior year (prior being the financial year 1 July 2018-30 June 2019) cap. This can offer some great tax planning opportunities, with the ability to defer contributions to better manage years when your taxable income may be higher.
4. Retirement Work Test Changes
Currently, following your retirement, individuals aged between 65 to 74 must work a minimum of 40 hours in a consecutive 30 day period (within a financial year) to be eligible to make contributions to super. Under proposed changes from 1 July 2019 (and assuming your total super balance is below $300,000), you will be able to make voluntary super contributions for 12 months from the end of the financial year in which you last met the work test.
This could be beneficial in managing capital gain, with any gain offset by a contribution to super, as the contribution can be claimed as a tax deduction for the individual. Word of warning with this strategy, you will need to be mindful of contribution caps and timing of contributions.
5. Downsizer Contributions
From 1 July 2018, if you are aged 65 years or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution to your Fund from the proceeds of selling your home, capped to $300,000 (each if you are part of a couple). There is a lot of misinformation around the downsizer contribution, the biggest being that you must buy a smaller house.
In fact, you are not compelled to purchase another property at all; it is simply contingent on you selling your principal place of residence, which you must have owned for at least 10 years. There is no work test or age limit, you are still able to make the contribution even if your total superannuation balance exceeds $1.6 million and it does not affect your ability to make concessional or non-concessional contributions, should you be eligible. Care should be taken if you are currently in receipt of an aged pension or you are considering moving into an aged care facility or currently receive home care services.