Author: Emma Partenza, Manager, TAG Financial Services
Updated 2 June 2022
With the end of financial year in sight, it is a great time for trustees to start planning and attending to matters requiring attention prior to 30 June. This is to ensure there is sufficient time to obtain the required information for a smooth 2022 administration and audit process to be completed; as well as ensuring pensions are paid, and contributions taken advantage of, for the financial year before it is too late.
Pensions
One of the requirements of trustee’s in paying a pension to members of the fund is that a minimum pension must be paid annually. Adherence to the payment standards ensures that the pension does not cease, and earnings in respect to retirement phase pensions are exempt from tax (in the form of exempt current pension income deduction).
It is critical all pensions are paid well before 30 June 2022, to ensure earnings can remain exempt from tax.
As part of temporary COVID relief measures, the Government extended the 50% reduction in the annual pension payment to members. Prior to the election, the previous Government also announced this reduction be extended into 2022-23 financial year.
Payments of transition to retirement income streams have a 10% maximum capped amount on amounts that can be paid. These pensions do not enjoy tax exempt earnings until they enter the retirement phase.
For members in receipt of TRIS’ its prudent to determine whether they turned age 65 during the financial year, as their pension will convert into the retirement phase. The 10% maximum withdrawal restriction is removed; it is subject to the member’s TBC and ECPI can be claimed.
In instances where member’s may have withdrawn amounts greater than their minimum pension requirement for the financial year (and have maximised their personal transfer balance cap), payments could be tax effectively classified as lump sums from accumulation or partial commutation from pensions – where members have instructions in place with the trustee on how to allocate payments taken in excess. Where there is no such direction in place, it may be beneficial for your client to put one in place for FY2023 for these payments to be automatically allocated in accordance with member’s instructions. Alternatively, a member is required to request a lump sum from the trustee prior to each payment.
This topic is covered in further detail in our upcoming TAG superannuation seminar.
Action required:
- Review pensions paid to date for members. Ensure any remainder is paid immediately to ensure the reduced minimum is met.
- Should the member put in place direction for the trustees in respect to treatment of excess pension payments? Please contact us to discuss further.
- Ensure appropriate documentation has been put in place for TRIS members who turned age 65 as their TRIS is now in the retirement phase. Please contact us to discuss further/assist with documentation.
Investment Valuations
Investments held by a superannuation fund must be valued at market value each financial year. You do not need to obtain an external valuation each year, however every three years is a good rule of thumb, unless a significant event has occurred that has impacted its value in the interim. It’s timely to contact real estate agents to ensure an up-to-date valuation is obtained for 30 June 2022.
The ATO advises that when valuing real property, relevant factors and considerations may include:
- the value of similar properties and recent comparable sales results
- the amount that was paid for the property in an arm’s length market – if the purchase was recent and no events have materially affected its value since the purchase
- independent appraisals from a real estate agent (kerbside)
- whether the property has undergone improvements since it was last valued
- the rates notice (if consistent with other valuation evidence)
- for commercial properties, net income yields (not sufficient evidence on their own and only appropriate where tenants are unrelated).
Action required:
- Obtain property valuations for 30 June 2022 from real estate agents.
- Obtain rental appraisals for 30 June 2022 from real estate agents (commercial properties).
Contributions
Many members may wish to maximise their contributions into super prior to the end of the financial year. Don’t leave payments to the last minute – all contributions must be received into the super fund’s bank account no later than 30 June 2021 to be attributed to the current years cap. Should amounts be received by the fund on 1 or 2 July 2022, they are a contribution in respect to the 2023 financial year.
Concessional Contributions
Each member’s cap is $27,500 and work test must be satisfied for members aged 67 or older.
Where a member will make a personal concessional contribution (that is, claim a tax deduction in their personal income tax return), ensure the member has sufficient taxable income to claim the tax deduction. Where this is not the case, the contribution will become non-concessional, potentially causing implications for the member where they are ineligible or their non-concessional cap is nil.
Catchup contributions could be utilised this financial year where the member had a total super balance on 30 June 2021 of less than $500,000.
Be careful of contributions made in June 2021 that were reserved to be allocated in July 2021 as the member may already have utilised their annual concessional contribution cap.
Non-Concessional Contributions
Where a member’s total super balance on 30 June 2021 was less than $1,700,000, members are generally entitled to make a non-concessional contribution. The annual cap for FY2022 is $110,000 and the work test must first be met for member’s aged 67 or over.
The good news is, from 1 July 2022, the work test has been abolished for all member’s making a non-concessional contribution into super.
Members under age 67 may be entitled to the non-concessional cap bring forward rules (of up to $330,000 over 3 years) – however, proceed with caution here and ensure to evaluate their circumstances for eligibility (especially where they have already triggered this). Factor in reduced bring forward timeframes and amounts for member’s who have a TSB between $1,480,000 and $1,700,000.
There is more good news for pensioners over the age of 67, as from 1 July 2022 they are also now eligible to utilise the bring forward non-concessional contribution cap (subject to meeting the eligibility requirements).
Action required:
- Ensure any last contributions up to the Concessional or Non Concessional Contribution cap limits are made ASAP.
- Ensure the notice of intent to claim personal contributions is prepared and provided to the superannuation fund at the time of making the contribution.
- Where reserving a contribution (in June 2022)is involved, ensure a request to adjust concessional contributions form is lodged with the ATO to avoid an excess concessional contribution being issued.
Careful planning is needed to avoid excesses either for FY2022 or future financial years.
Investment strategy
Trustees must formulate, regularly review, and give effect to an investment strategy that has regard to the whole of the circumstances of the fund – as per SIS Regulation 4.09.
Trustees must ensure the fund’s investments are in line with their strategy. Where this is not the case, the strategy must be updated. During the financial year, if the fund invested into other assets, such as property or entered into a limited recourse borrowing arrangement, that it had not in the past, it is now prudent to ensure this is reflected in the fund’s strategy. Additionally, the strategy needs to be reviewed where a member may have entered pension phase during the financial year.
For funds investing in a sole (or predominantly sole) asset class, the lack of diversification needs to be addressed in the investment strategy together with the trustee’s evaluation of risk levels in respect to doing so.
Action required:
- Trustees to review the fund’s current investment strategy to ensure it is line with fund’s current investment mix.
Estate planning
As part of any annual review, it is critical to ensure members have addressed their estate planning needs. Including: Wills, Enduring Powers of Attorney and Binding Death Benefit Nominations.
Death benefit nominations can now be made non-lapsing under SIS legislation, so they never expire unless revoked. Members who have had these in place for quite some time would be worth a review and potential update.
Action required:
- Have members addressed their estate planning needs? Please contact us if you need any assistance or would like to discuss further.
Trust Deed
There have been significant changes to superannuation since 2007, which may or may not be expressly provided for in the fund’s deed. It is generally recommended trustees update the fund’s trust deed every 5-7 years, so it remains up to date and relevant to its members.
In some cases, a trust deed specifically details what is allowable (outside of SIS legislation), especially in relation to binding death benefit nominations, for example. An up-to-date deed will provide greater flexibility for members and important strategic opportunities for the fund.
Action required:
- Review the fund’s current trust deed and consider updating it where it is ageing.
Any questions?
If you have any questions, please contact us on 03 9886 0800 or via email.
Join our Upcoming Webinar
Register now for our upcoming webinar – EOFY Super Strategies and 1 July changes | Thursday, 9 June 2022 | 12pm.
Specialist Advice
If you would like to discuss a project, please contact us. Our advice is quoted upfront for your approval before commencement.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2022. Please do not reproduce without the expressed written consent of the author.