There have been a few dramatic changes to the administration, compliance and reporting of SMSFs in the last few years.
As a trustee, you need to know how this will affect your fund.
Here are some of the key changes to discuss with your adviser or accountant to avoid penalties, guarantee compliance and the best retirement outcomes.
After the reforms, you need to know the various contributions and their applicable caps.
If you exceed these caps, you might be taxed heavily on the excess contributions.
There is a 15% tax rate on the concessional contributions such as employer contributions including salary sacrifice contributions and super guarantee.
It’s also applicable to personal contributions, especially where you claim a tax deduction but every other type of deduction is categorised as non-concessional.
There is a yearly cap for all contributions at $25,000 regardless of age.
Non-concessional contributions were reduced from $180,000 to the new cap $100,000 for any future financial years after 2017.
Note that, there are a few strategies applicable with your contributions such as carrying forward concessional or non-concessional contributions.
Your accountant or adviser should provide the right way forward on how to remain compliant.
Older people often reach a place where downsizing their home is a good idea. It will release equity allowing you to get enough money to pay for retirement expenses.
However, most people have become discouraged because downsizing makes it hard for them to contribute to their SMSF.
Thankfully, there is a new downsizing policy that allows you to contribute the sale proceeds to your SMSF.
That way, older people can move into smaller homes suitable for their current needs and release the equity for the younger families.
Now, anyone aged 65 and above can make a non-concessional contribution to the SMSF up to $300,000 after selling their home.
It should be a principal place of residence for the last 10 years to qualify for this option.
Couples can make $600,000 and the contributions should be done within 90 days and don’t necessarily have to come from the proceeds from selling the home.
Note that, the rule is that you don't have to move to a smaller home as long as you sell your home that has been your principal place of residence for the last 10 years.
There is a $1.6 million cap applicable to the amount that can be transferred to the SMSF fund pension account.
It’s referred to as the TBC (transfer balance cap). Most SMSFs have 2 members, mostly spouses.
In this case, the average balance for the first member is 82% higher than that of the second.
The goal is to balance the amounts to keep enough money in the pension phase, around $3.2 million for each couple.
Rebalancing is needed here to take money from the larger account and sharing it to the smaller account.
Contribution splitting is also possible where the member with the larger account shares with the other.
If you are looking to establish a Self Managed Super Fund, or need to have your Self Managed Super Fund audited, then look no further than SMSF Pro.
SMSF Pro has years of expertise in the Self Managed Super Fund arena and is able to conduct quick and independent SMSF audits for a flat fee.
Please call us today on 1300 023 374 or message us through our website https://smsf-auditor.com.au/contact/ for all your Self Managed Super Fund requirements.