Year end strategies: technical tips for financial services professionals

Strategies

Friday 25 May 2018

A quick reference source to help with some of the key year-end planning matters that may need to be considered for clients

Managing successful, tax-efficient financial planning strategies is generally a continual process throughout the year. Nevertheless, clients will be prompted to think about their tax planning as the end of the financial year approaches.

We have consolidated some useful reminders and references for financial services professionals to help address some of the main end-of-year questions and issues that may be encountered. This guide provides a quick reference source to help with some of the key year-end planning matters that may need to be considered for clients.

Review contribution types and amounts to ensure contributions have been optimised.

Contribution caps for 2017/18:

  • non-concessional: $100,000 , provided the client’s total superannuation balance (TSB) was less than $1.6 million as at 30 June 2017.

    For clients under age 65, access to the bring-forward rule also depends on their TSB as at 30 June 2017. Where the client’s TSB was:

    • less than $1.4 million, total non-concessional contributions are capped at $300,000 over three years
    • $1.4 million to $1.5 million, total non-concessional contributions are capped at $200,000 over two years
    • $1.5 million to less than $1.6 million, the bring-forward rule is not availabe and total non-concessional contributions are limited to $100,000.

    Note – if remaining bring-forward cap is used in a future financial year, TSB must be less than $1.6 million at 30 June prior to the year in which the non-concessional contribution is made.

  • concessional: $ 25,000 for all individuals
  • CGT cap: $1, 445,000 (lifetime limit)

Reminder

  • Transitional rules apply where a client first utilised the bring-forward rule available to non-concessional contributions in either 2015/16 or 2016/17, but did not contribute the full $540,000 by 30 June 2017. A transitional cap of $460,000 applies where the bring-forward rule was triggered in 2015/16 and a transitional cap of $380,000 applies where the bring-forward rule was triggered in 2016/17.
  • Contributions received by the fund after 30 June 2018 will count towards the contributions cap in the 2018/19 financial year, even if they relate to 2017/18. This may have an impact on the contributions caps available next year. This is particularly important to keep in mind for employer Superannuation Guarantee contributions, as employers have until 28 July 2018 to make contributions for the quarter ending 30 June 2018.
  • Check the contributions made into all of your clients’ super funds to ensure the caps have not been exceeded.
  • Contributions not made by the member themselves (excluding spouse contributions and non-employer contributions made for a child) are treated as concessional contributions and counted towards the concessional contributions cap. However, contributions made by an employer from the take-home pay of the client are considered by the ATO to be personal contributions.

Further help

For further information on contribution types and caps please see the Macquarie Big Black Book (pages 35-36)

To view your client's contributions to Macquarie Super Manager / Consolidator / Accumulator logon to the Macquarie Wrap website and go to Reporting > Download files > Download adviser reports > Superannuation Contributions report

If a client has turned 65 after 1 July 2017, this financial year is their last chance to trigger the bring-forward rule which allows non-concessional contributions of up to $300,000 over three years (assuming they haven't already triggered the three year cap in the previous two financial years). For further information on the non-concessional cap see the 'Optimising super contributions' section above.

Reminder

Clients aged 65 and over must meet the work test to contribute to super. That is, if contributing after turning 65, they must be gainfully employed for at least 40 hours in 30 consecutive days in the financial year the contribution is made.

Super funds generally require a work test declaration to be provided each financial year a contribution is made after a client reaches age 65.

Further help

Macquarie Big Black Book (page 35-36)

From 1 July 2017, a client's total superannuation balance (TSB) determines eligibility for the superannuation measures outlined in the table below. TSB is generally measured each 30 June to determine eligibility for the relevant superannuation measure in the following financial year.

Determines eligibility for...TSB threshold
Non-concessional contributions cap and the bring-forward rule $1.6 million (member TSB)
Carry forward of unused concessional contributions cap $500,000 (30 June prior to year of use)
Government co-contribution $1.6 million (member TSB)
Spouse contribution tax offset $1.6 million (receiving spouse's TSB)
SMSFs using the segregated method to calculate exempt income $1.6 million (member TSB)

If a client's TSB is approaching the relevant threshold, a planning opportunity may be to consider strategies to minimise the client's accumulation and/or pension balances at 30 June. For example, consider splitting concessional contributions with a spouse or reviewing the timing of contributions or withdrawals. 

Further help

ATO: Total superannuation balance

The 10 per cent test used to determine eligibility to make personal deductible contributions was removed with effect from 1 July 2017. Clients are generally able to claim a tax deduction for personal contributions made in 2017/18, subject to other eligibility conditions being met.

Clients intending to claim a deduction for personal super contributions must lodge a deduction notice, using the approved form, with the fund before the earlier of:

  • the day they lodge their tax return for the year in which the contribution was made; or
  • the end of the financial year after the financial year in which the contribution was made.

Key information on how to claim or vary a deduction for contributions made to the Macquarie Superannuation Plan is contained in the Guide to completing the Deduction Notice for Personal Superannuation Contributions.

Reminder

  • Where a client rolls over or withdraws part of their super benefit before a deduction notice has been lodged, the amount of the personal contribution that can be claimed as a deduction will be reduced. This is because part of the contribution is considered to be included in the rollover/withdrawal amount
  • Where a client uses part of their super benefit to commence a pension, a deduction notice cannot be lodged after the pension commences for contributions made prior to the pension commencing
  • A common trap involves contributions made for self-employed clients being incorrectly classified as employer contributions. Any contributions incorrectly classified as an employer contribution will need to be reclassified to a personal contribution before a deduction notice can be accepted. It is therefore important to ensure that contributions are classified correctly.

Further help

ATO: Deduction for personal super contributions

ATO: TR 2010/1 Income tax: superannuation contributions (example 10)

Macquarie Contribution Cap Companion (pages 16-18 for deduction notices and page 31 for classification of contributions)

Review current and planned salary sacrifice contributions to ensure they are or will be within the concessional contributions cap. Be mindful of employer Superannuation Guarantee contributions relating to the 2016/17 year that may have been received by the client's superannuation fund in July 2017. These contributions will also count towards the client's concessional contributions cap in 2017/18.

Also review salary sacrifice arrangements for the 2018/19 financial year to ensure an 'effective salary sacrifice arrangement' is in place ahead of your client earning the right to certain benefits.

Does a client's spouse have assessable income, reportable fringe benefits and reportable employer contributions of less than $40,000?

  • A client could consider making a non-concessional contribution to their spouse's super fund.
  • Offset is calculated as 18 per cent of the contribution, up to a maximum of $540 where the spouse's income is below $37,000.

Reminder

No offset will be available where the spouse has excess non-concessional contributions or their TSB as at 30 June 2017 exceeds $1.6 million.

Further help

Macquarie Big Black Book (page 12)

Macquarie: Spouse Contribution Tax Offset Calculator

Is a client's assessable income, reportable fringe benefits and reportable employer super contribution minus deductions from carrying on a business less than $51,813?

  • Clients could consider making a non-concessional contribution of up to $1,000 to super.
  • Maximum co-contribution is 50 per cent of the contribution, up to a maximum $500 for income below $36,813.

Reminder

The co-contribution will not be available where the client has excess non-concessional contributions or their TSB exceeds $1.6 million.

Further help

Macquarie Big Black Book (page 38)

ATO: Superannuation Co-contribution Calculator

Clients can split up to 85 per cent of concessional contributions made during a financial year with their spouse, provided the spouse is not over age 65 or reached their preservation age and retired.

The application to split contributions must generally be made before the end of the financial year immediately after the financial year in which the contribution was made.

Reminder

The concessional contributions will still count towards the cap of the spouse who made the contributions.

Further help

Macquarie Big Black Book (page 44)

ATO: Contributions splitting

Clients with account based pensions must be paid at least the minimum amount from their pension account before the end of the financial year. For pensions commenced between 1 June 2018 and 30 June 2018 no pension payment needs to be paid this financial year.

Reminder

Where the minimum pension has not been paid, the pension may be treated as having ceased at 1 July 2017 and will be taxed as an accumulation account. The ATO has published guidance on minimum pension payment requirements for income streams payable from SMSFs. The guidance is useful for SMSF trustees who are dealing with situations where the minimum pension payment requirements are not met in a financial year.

Before the end of the financial year:

  • ensure any tax deductions for personal contributions are claimed (ie deduction notice is lodged with the fund and acknowledgement received) prior to commencing the pension
  • if using an SMSF - investigate bringing forward expenses to utilise any carry forward tax losses prior to switching to pension phase.

Reminder

A limit (called the transfer balance cap) applies to the amount of accumulated superannuation benefits that can be transferred into the retirement (tax-free pension) phase. The transfer balance cap is $1.6 million for 2017/18 and 2018/19.

SMSF trustees should ensure all pension-related events (eg pension commencement values) are appropriately documented, as this information will need to be reported to the ATO via the new transfer balance account report.

Further help

Macquarie Contribution Cap Companion (pages 14-18)

For clients facing a termination of employment, a planning opportunity may be to delay receiving any payments to the following financial year if other taxable income is expected to be lower in that year.

Further help

Macquarie Big Black Book (pages 20-21)

If certain requirements are met, clients may be able to claim a tax deduction for up to 12 months of prepaid expenses, including interest paid in advance on an investment loan, premiums on an income protection policy or trade publication subscriptions. Note that this opportunity is not available to SMSFs in relation to limited recourse borrowing arrangements.

Timing of contributions:

  • Contributions are taken to be made when they are received by the SMSF
  • In-specie contributions are taken to be made when the SMSF receives all completed documentation necessary to transfer ownership of the asset.

However, depending on the terms of the trust deed, a fund may accept contributions into a reserve or suspense account and allocate them to member accounts within a certain period after the contribution is made. Superannuation law generally requires a trustee to allocate the contribution within 28 days after the end of the month in which the trustee received the contribution. In the ATO’s view, contributions that are allocated to a member account under these rules will count towards the applicable cap in the financial year in which they are allocated.

For concessional contributions there is a specific form (see Further help) SMSF trustees can use to notify the ATO if this strategy is used to ensure contributions are correctly allocated in both financial years. This form should be completed and lodged with the ATO either before or along with the fund’s annual return.

Personal payments of accounting, audit fees and other expenses of an SMSF may be considered to be contributions to the fund.

  • Review and value fund assets to ensure in-house assets are within the five per cent limit
  • Rebalance portfolios and/or review investment strategies to ensure compliance with the SMSF’s investment strategy
  • Review meeting minutes to ensure all issues are documented.
  • SMSF trustees are also required to:
    • consider if it is appropriate to hold insurance for fund members
    • regularly review the SMSF’s investment strategy, and
    • ensure the SMSF’s assets are valued at market value for reporting purposes.

The Government's Super Reform package included transitional capital gains tax (CGT) relief for funds with members impacted by the introduction of the transfer balance cap or the changes to the taxation of transition to retirement pensions.

SMSFs wanting to apply the relief must do so in the approved form by the time the fund is due to lodge its annual return for the 2016/17 financial year. The approved form for this purpose is the Capital Gains Tax (CGT) Schedule 2017 to the annual return.

The due date for lodging 2016/17 SMSF annual returns has been extended to 30 June 2018. As 30 June 2018 falls on a Saturday, funds have until the next business day (ie 2 July 2018) to lodge without penalty.

Superannuation funds, including SMSFs, have a new obligation to report certain events to the ATO that will impact a member’s transfer balance cap. The new transfer balance account report (TBAR) is separate to the SMSF annual return.  

Those SMSFs with a retirement phase pension that was in place on 30 June 2017, or a member who has exceeded their transfer balance cap will need to lodge a TBAR prior to 1 July 2018.

Reporting for all other SMSFs will commence from 1 July 2018, with the TBAR required to be lodged either annually or quarterly, depending on whether the fund has any members with a TSB of $1 million or more.  For TBAR purposes, TSB is measured as at 30 June 2017 for members who had an existing pension or commenced a pension during 2017/18. For later years, TSB is measured as at 30 June of the year before the fund commences to pay its first pension.

Exempt current pension income

From 1 July 2017, certain SMSFs will be prohibited from using the segregated method to calculate the fund’s exempt current pension income. This restriction will apply to funds where a member:

  • has a TSB of more than $1.6 million, and
  • is receiving a retirement phase income stream (either paid from the SMSF or another fund).

Impacted funds will be required to use the proportionate method (also known as the unsegregated method) to calculate exempt current pension income in 2017/18.

From 1 July 2017, certain SMSFs will be prohibited from using the segregated method to calculate the fund’s exempt current pension income. This restriction will apply to funds where a member:

  • has a TSB of more than $1.6 million, and
  • is receiving a retirement phase income stream (either paid from the SMSF or another fund).

Impacted funds will be required to use the proportionate method (also known as the unsegregated method) to calculate exempt current pension income in 2017/18.

Share this

If you enjoyed reading this article, why not share it?

Simply copy and paste the text and include a link to the article. Please read the Expertise Articles Terms of Use before sharing.

Related articles


 

Subscribe to our monthly newsletter




We bring you technical updates, financial insights and industry expertise.

Thank you
There seems to be an error with your form

 *
 *
 *
The information you provide on this form will be retained by Macquarie and may, from time to time, be used to contact you about other products and services we feel would be of interest to you. If you do not wish to receive information of this nature or would like access to your personal information, please phone us on 1800 287 153. Please refer to our Privacy Policy for specific details.

Find out how we can help


If you'd like to speak to a specialist about how we can help build your business, get in touch.