1 July 2022 – Superannuation contribution changes

Several key super changes which may impact your ability to contribute to your SMSF, are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members, young and old, to grow their retirement savings.

What are the changes?

Originally announced in the 2021 Federal Budget, the following changes apply from 1 July 2022:

  • Individuals up to the age of 74, will no longer need to meet a work test to make voluntary, non-deductible, contributions
  • Individuals up to the age of 75, with a total super balance under $1.7 million, will have the opportunity to make large non-concessional contributions (possibly up to three years’ worth) in a single year
  • The minimum age to make downsizer contributions will reduce to 60, allowing more individuals to use the proceeds from the sale of their home, to fund their retirement
  • The Superannuation Guarantee (SG) rate will increase to 10.5% p.a. for all and the $450 minimum income threshold for SG contributions, will be removed
  • Under the First Home Super Saver Scheme (FHSSS) eligible individuals will have access to an extra $20,000 of voluntary contributions to fund a home deposit.

How can you benefit from these changes?

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Understanding self-managed super fund performance

New research released

When used in the right circumstances a self-managed super fund (SMSF) can provide important benefits for individuals looking for greater levels of investment flexibility and control over how their super savings are invested.

New research released by the University of Adelaide shows an SMSF may be a suitable option for individuals with lower superannuation balances than previously thought.

In its report, titled “Understanding self-managed super fund performance” the University of Adelaide used data from over 318,000 SMSFs between 1 July 2017 and 30 June 2019, to identify the minimum amount of capital required for an SMSF to achieve comparable investment returns with much larger funds.

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DIN (Director Identification Number) – SMSF Association

Director Identification Numbers (director IDs). The requirement to obtain a director ID also applies to individuals who have an SMSF with a corporate trustee. With over 60% of all SMSFs having a corporate trustee, the directors will need to apply for their own director ID before the prescribed deadlines. The SMSF Association has provided regular, member-only updates and resources to help you communicate this change with your SMSF clients.

What is a Director Identification Number (director ID) and do I need one?

You may have heard about the new rules which require directors of Australian companies to obtain a Director Identification Number (director ID). The new requirement to obtain a director ID also applies to individuals who have an SMSF with a corporate trustee, which is why I wanted to bring this new requirement to your attention. All directors of your corporate trustee will need to apply for their own director ID by the prescribed deadline.

An application for a director ID must be made individually and only by those who are applying for the director ID. As you are required to prove your identity as part of the process, our firm, or any other third party, is not able to apply for a director ID on your behalf.

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A Wonderful Write up Regarding our new 2021 Awards

Boutique Accounting Business of the Year 2021 – Eastern Australia & Client Service Excellence Award 2021

Accredited with two awards that are both truly representative of the culture and values of the business, Foxton Financial is an accounting firm like no other. Working tirelessly to ensure clients are not only satisfied but are thoroughly impressed with the exemplary service, the firm has nurtured an almost peerless reputation. With all of this in mind, we took a closer look at the history, ethos and future of Foxton Financial to find out more. (more…)

What is a Director Identification Number (director ID) and do I need one?

You may have heard about the new rules which require directors of Australian companies to obtain a Director Identification Number (director ID). The new requirement to obtain a director ID also applies to individuals who have an SMSF with a corporate trustee, which is why I wanted to bring this new requirement to your attention. All directors of your corporate trustee will need to apply for their own director ID by the prescribed deadline.

This document provides some important information about Director Identification Numbers, including how to apply for one and by when.

An application for a director ID must be made individually and only by those who are applying for the director ID. As you are required to prove your identity as part of the process, our firm, or any other third party, is not able to apply for a director ID on your behalf.

What is a Director Identification Number (director ID)?

A director ID is a unique identifier that directors need to apply for, like a tax file number. If you are a director of multiple companies, you are only required to have one director ID that will be used across all companies. You will keep your director ID forever even if you change companies, resign altogether from your director role(s), change your name, or move overseas.

Why do I need a Director Identification Number?

As part of the Government’s Digital Business Plan, it is rolling out a Modernising Business Registers program which includes the introduction of director IDs. The main purpose is to prevent the use of false or fraudulent director identities as well as to improve the efficiency of the system by making it easier to meet registration obligations and trace director activity and relationships. By improving the integrity and security of business data it is expected to reduce the risk of unlawful activity. (more…)

Boutique Accounting Business of the Year 2021 – Eastern Australia, Client Service Excellence Award 2021

Winner!


We have won the Boutique Accounting Business of the Year 2021 – Eastern Australia, Client Service Excellence Award 2021 (Small Business Awards 2120 by Corporate Vision).


This represents our hard work and dedication. Their merit led selection process narrows down nominees in order to seek out exclusively the very best that the Small Business industry has to offer on a global scale.

Setting up an SMSF – What do you need to consider?

Setting up an SMSF can be complicated.  Not getting it right can materially affect your financial situation and retirement plans.

The first question you need to be sure about is whether an SMSF is the right fit.  Seeking specialised financial advice can help you determine this answer. Some considerations include:

Low balances

You must ensure you have an appropriate superannuation balance before considering an SMSF. While a low balance can be a red flag, it is not always a barrier to entry.  Establishing an SMSF with a small balance may not be in your best interests. This is because SMSFs tend to be more cost-efficient with larger balances. Therefore, before rolling over your superannuation balance to an SMSF, you should establish and justify that by doing so you are likely to end up in a better position in retirement.

Motivation

You must also understand your motivation for establishing an SMSF. The most common motivation SMSF trustees indicate is control. Control of an SMSF allows individuals to have a wide range of investment choice, flexibility and engagement with their superannuation. However, superannuation law is complex and you need to ensure your ambitions are allowed under the law and will be able to achieved in an SMSF.

Costs and time

SMSFs incur a wide range of costs in establishment and the day to day running of the fund. Ensure you are across the estimated establishment, accounting and audit costs that will be incurred by your SMSF. Speak with your advisers so you are across all other incidental costs, which unlike large super funds generally occur with fixed rates rather than as a proportion of your balance.

SMSFs also require dedicated attention from trustees which will take time out of your daily life to manage. Understanding from the outset your legislated responsibilities and obligations before establishing an SMSF is important.

Establishment process

Once you have decided that an SMSF is right for you, the process of establishing the fund can commence. A Specialist SMSF adviser is the best person to help you with this process which generally involves choosing a trustee structure, selecting a trust deed, completing the ATO registration,  opening a unique fund bank account, getting an electronic service address and arranging for rollovers to the fund to occur.

Investment Strategy and Insurance

Upon establishment you must also create an investment strategy which must be regularly reviewed.

Your investment strategy should be in writing and must consider:

•             Diversification (investing in a range of assets and asset classes).

•             The liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses).

•             The fund’s ability to pay benefits (when members retire) and other costs it incurs.

•             The members’ needs and circumstances (for example, their age and retirement needs).

•             Whether to hold insurance in your SMSF.

Property investment

It is also common for SMSF trustees to be motivated by investing in property when establishing an SMSF. You should be sure that any investment in property, particularly when gearing is involved, is appropriate for your circumstances. Holding properties in an SMSF can also require some complex structures to ensure the law is being followed and specialist advice may be needed before making an investment choice. A lack of diversification, low balances and inappropriate property investments can have a detrimental impact on your retirement savings.

How can we help?

If you are considering an SMSF, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements and circumstances in more detail.

Moving from Working Holiday Maker to Temporary Skills Shortage 482

When you are moving from Working Holiday Maker (WHHM) Visa to a Temporary Skills Shortage 482 (TSS482) you need to ensure that you complete the attached Withholding Declaration form and give it to your employer.

The ATO receives your tax status from your employer, so without doing this you could end up under or over paying tax. It could come as quite a shock when you are completing your end-of-year tax returns.

“If you’re on a working holiday visa, you’ll be taxed at 15% for the first $37,000 you earn. If your residency status changes during the financial year, you’ll need to notify your employer by completing a withholding declaration to notify them of the change in your residency status and you elect to start claiming the tax-free threshold.

When your residency status changes partway through a financial year, you’ll be entitled to a pro-rata tax-free threshold based on the number of months you’ve been a resident of Australia. If you’re concerned you won’t have enough tax withheld based on your situation, you can request extra tax to be withheld by completing an upwards variation form.”

(https://community.ato.gov.au/t5/Working-visa/Tax-moving-from-a-417-to-482-TSS-Visa/td-p/13622)

Should you have any queries in relation to your working visa please contact our office at foxton@foxtonfin.com.

Is your SMSF ready for the End of the Financial Year (EOFY)?

With the end of the financial year fast approaching, now is the perfect time to make some final checks and ensure everything is in order for your SMSF before 30 June. The following are some matters that you might want to know more about, particularly if you have taken advantage of some of the COVID-19 relief measures.

If there is anything in this paper that you are unsure about, we encourage you to contact us to discuss your specific circumstances in more detail.

Contributions

From 1 July 2020, if you were under the age of 67 you were able to make voluntary contributions without meeting a work test. This was previously restricted to people below age 65. In addition, if 2020-21 is the first year that you no longer satisfied the work test, you may still be able to make voluntary contributions under the work test exemption if you had a total superannuation balance (TSB) of less than $300,000 on 30 June 2020.

Therefore, it is important to review your contribution strategies before 30 June 2021, to make sure you maximise your contribution opportunities whilst ensuring you are below your contribution caps.

Non-concessional (after-tax) contributions are limited to $100,000 for the 2021 financial year and only available if your TSB was less than $1.6m on 30 June 2020. 

If you were under 65 at any time during the 2020-21 financial year, you can potentially contribute up to three times the non-concessional cap (or $300 000) at once. The maximum bring forward non-concessional contribution amount you can make will depend on your TSB on 30 June 2020. Please note that draft legislation to allow older individuals to make up to three years of non-concessional superannuation contributions under the bring forward rules, has yet to be passed.

Concessional (before-tax) contributions are limited to $25,000 for the 2021 year. You may also be eligible, subject to your TSB, to make larger concessional contributions if you have any unused concessional contribution cap from the 2019 financial year onwards.

Where you have made personal contributions and intend to claim a tax deduction in 2020-21, it is important that you reconcile all employer contributions and salary sacrificed amounts to superannuation to make sure you do not breach the annual concessional contributions cap. It is also important to ensure that the relevant notice requirements are met so that you can claim a deduction.

These annual limits will increase on 1 July 2021 to $110,000 for non-concessional contributions and $27,500 for concessional contributions.

The Government also announced in the latest Federal Budget that the work test will be removed altogether to allow voluntary non concessional contributions and salary sacrificed contributions to be made up to the age of 75. If passed, these changes are expected to be available from 1 July 2022.

Investments & COVID Relief Measures

SMSF trustees are required to value the fund’s assets at their market value as at 30 June each year in the annual financial accounts. Although it can be a straightforward process to value assets when it comes to term deposits or listed shares and managed funds, it can be quite difficult to ascertain the value of real estate or private companies and units trusts. When valuing SMSF assets, you must comply with the ATO valuation guidelines for SMSFs. Contact us if you have any questions or require assistance.

For the 2020-21 financial year, getting the value of the fund’s assets correct is important in assessing the impact of COVID-19 on your superannuation benefits. It is even more important for SMSFs relying of the ATO’s in-house asset COVID-19 relief. These SMSFs will have till 30 June 2022 to ensure that in-house asset levels are reduced to less than the allowable 5% limit.

For those SMSFs that took advantage of the property relief measures the ATO implemented to reduce rent in 2020-21, any form of rental relief must end by 30 June 2021. From 1 July 2021, COVID-19 will not be a valid reason for any rental relief and SMSF trustees will need to ensure that all rent is at an arm’s length rate.

For those SMSFs with a limited recourse borrowing arrangement (LRBA), there are additional considerations.  Where your SMSF was provided with COVID-19 loan repayment relief to assist in meeting loan repayment obligations, this relief should cease by 30 June 2021. From 1 July 2021, any LRBA should revert to the original terms of the loan to ensure that the arm’s length requirements continue to be met. Where the COVID-19 loan relief has resulted in a variation to the original term of the LRBA, provided that interest continues to accrue on the loan and you repay any deferred principal and interest repayments in accordance with the varied terms, the LRBA will be considered to be consistent with an arm’s length dealing.

Meeting new pension requirements

To help manage the economic impact of COVID-19, the Government reduced the minimum drawdown requirements by half on account-based pensions and market-linked pensions for 2020-21. The Government recently announced the 50% reduced minimum pension drawdown requirements will be extended for 2021-22.

Whether or not you have taken advantage of this reduction, it is important that you reconcile all pension payments received to ensure you do not underpay the minimum pension payment required by 30 June 2021. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax free.

All pension withdrawals for 2020-21 must be paid in cash by 30 June 2021 and cannot be accrued or adjusted using a journal entry so it is important to attend to this as soon as possible. For example, if you are making pension payments via an electronic transfer, you need to ensure that online transfers show the money coming out of the fund’s bank account by no later than 30 June.

$1.6 million transfer balance cap and total superannuation balance

Ensuring that member’s benefits are shown at market value is important in calculating each member’s TSB and in determining whether a member will exceed their transfer balance cap (TBC).

The $1.6 million TBC applies to SMSF members who are receiving a pension and limits the amount of tax-free assets that can support a pension. To track the relevant events against your personal TBC, SMSFs are required to lodge with the ATO a transfer balance account report (TBAR). The TBAR is separate to an SMSF’s annual return and TBAR lodgment obligations, depend on members’ TSBs.

With the general TBC set to index to $1.7million on 1 July 2021 it is more important than ever to ensure that all your TBAR lodgments are up to date and that you seek help in correctly calculating your entitlement to any proportional indexation of the TBC.

How can we help?

If you have any questions, require assistance or would like further clarification with any aspect of your end of year superannuation matters, please feel free to contact us to discuss your particular requirements in more detail. Alternatively, you can refer to the SMSF Association’s trustee education platform, SMSF Connect.

Minimum Drawdowns – Pension 2022

The Government has announced that the temporary reduction in super minimum drawdown rates has been extended until 30th June 2022.