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SMSF members continue to report very high levels of satisfaction with the performance of their fund, according to rolling research.

 

       

SMSFs continue to record the highest level of satisfaction from their members in regards to their financial performance, according to consumer polling conducted by Roy Morgan.

In the latest edition of its “Superannuation Satisfaction Report”, the market research firm found overall satisfaction with superannuation increased from 64.7 per cent to 71.7 per cent for the year from April 2020 to April 2021.

SMSF members reported the highest level of satisfaction with financial performance at 81.1 per cent, up 5.8 percentage points from 75.3 per cent over the year. While that was not the largest increase in satisfaction across the different segments of superannuation, SMSFs were also the highest rated sector for satisfaction in April 2020.

Retail superannuation funds recorded the highest increase in satisfaction levels, up by 7.2 percentage points from 60.6 per cent in 2020 to 67.8 per cent in 2021, but despite this they still ranked behind industry funds, public sector funds and SMSFs in terms of overall satisfaction.

Public sector funds ranked second behind SMSFs for overall satisfaction at 78.9 per cent, up 4.8 percentage points since April 2020, while industry fund satisfaction rose by 6.8 percentage points over the year to April 2021.

Roy Morgan chief executive Michele Levine noted the highest levels of satisfaction across the board followed the ending of the harshest conditions of the COVID-19 restrictions and strong gains on the ASX 200, which has added 1245 points to 6790 since the end of the Victorian lockdown in October 2020.

The satisfaction figures were taken from the Roy Morgan Single Source Australia survey conducted between November 2020 and April 2021 with a sample size of 19,117 Australians aged 14 years and over with work-based or personal superannuation.

SMSFs have regularly recorded high levels of satisfaction in past surveys, including during and after the COVID-19 lockdowns of 2020.

 

 

Jason Spits
May 26, 2021
smsfmagazine.com.au

 

 

The Federal Government announced in the May Budget that it is widening the scope of the scheme allowing eligible Australians to sell their home and put extra money into their superannuation. Here’s what you need to know.

 

       
First introduced in the 2018-19 financial year, the “downsizer measure” has provided an opportunity for individuals 65 years and older to add up to $300,000, and couples up to $600,000, into their super from the proceeds of their home.
 
Data from the Australian Tax Office shows that, as of 30 April 2021, just over 23,000 older Australians had collectively made $5.46 billion in downsizer contributions to their super fund.
 
But those numbers are set to increase significantly over time.
 
From 1 July 2022 the minimum age limit for participation will be reduced to 60, which will open the superannuation door for more people wanting to build up their superannuation account balance.
 

Here's what you need to know

 
The downsizer scheme is administered by the Australian Tax Office (ATO) and has a range of eligibility criteria in addition to the minimum age requirements.
 
The ATO will only permit additional super contributions if they are made using the proceeds from selling your principal place of residence.
 
You or your spouse must have owned your home for 10 years or more prior to the sale, with your ownership calculated from the date of settlement when you bought your home.
 
Your home needs to be exempt or partially exempt from capital gains tax under the main residence exemption.
 
There's also a strict definition of what constitutes a home. It must be in Australia and cannot be a caravan, houseboat, or a mobile home.
 
You're unable to use the downsizer scheme to deposit funds from the sale of an investment property. These can only be done through a non-concessional (tax-paid) super contribution.
 
Downsizer super contributions must be made within 90 days after you receive the proceeds of your home sale. The ATO will allow for a longer period if the delay is due to circumstances beyond your control.
 
The downsizer measure is a one-off, so once you've made a super contribution you're unable to do so again by using the proceeds from another home in the future.
 
However, if the home that is sold is only owned by one spouse, the spouse that does not have an ownership interest is able to make a downsizer contribution or have one made on their behalf, provided they meet the other eligibility requirements.
 
Downsizer contributions form part of the tax-free component in your super fund. They can be made in addition to non-concessional super contributions and do not count towards your personal super contribution limit.
 
They can also be made even if you have a total super balance of more than $1.6 million.
 
Your downsizer contribution will not affect your total superannuation balance until your total super balance is re-calculated to include all your contributions, including your downsizer contributions, on 30 June at the end of each financial year.
 
Ultimately any downsizer contributions you make however will count towards your tax-free transfer balance limit when you move into pension phase at retirement.
 
You'll need to make sure your super fund (or funds) accepts downsizer contributions. If you don't currently have an open account with a super fund, you'll need to open a new super account to make your downsizer contribution.
 
You'll also need to provide your fund with a completed Downsizer contribution into super form, which can be downloaded from the ATO's website, either before or at the time of making your downsizer contribution.
 

Be mindful of the pension assets test

 
People considering making a home downsizer contribution into super – especially those already receiving a partial or full government Age Pension – should do proper due diligence.
 
Because the Age Pension is calculated on the value of all assets outside of your family home, including the amount you have in your super accumulation or pension account, a large cash injection from your home proceeds may result in a breach of assets test rules.
 
Under what's known as the taper rate, Age Pension entitlements are reduced by $3 per fortnight for every $1,000 in assets over the Government's asset test thresholds.
 

The current assets test limits are shown in the table below.

Full Age Pension Homeowner Non Homeowner
Single $268,000 $482,500
Couple $401,500 $616,000
 
Part Age Pension Homeowner Non Homeowner
Single $585,750 $800,250
Couple $880,500 $1,095,000

Source: Department of Human Services, limits effective 20 March 2021

 
Once an individual or couple breach the limits for the full Age Pension, their fortnightly payments will gradually reduce using the taper rate. Those on a part pension could find their payments cease altogether if they move above the maximum thresholds.
 
So, even with a higher superannuation balance because of your home sale contribution, your total income stream could be less than what you received from a full or part Age Pension.
 
It's therefore essential to seek out professional financial advice before proceeding, especially with respect to social security means testing.
 
 
 

By Tony Kaye
Senior Personal Finance Writer, Vanguard Australia
25 May, 2021
vanguard.com.au

 

 

 

 

The information in this chart is fascinating from both an historical perspective as well as what it predicts. It also guarantees you’ll be the breakfast table expert every time.

 

Please click on the following image to view how the world has changed in the past 220 years and how it is expected to change in the next 19.

 

 

Senator Jane Hume has assured that the superannuation measures announced in the federal budget aren’t aimed to force retirees to draw down on savings but instead create greater control in an increasingly complex super environment.

 

         

Addressing the Australian Institute of Superannuation Trustees CMSF 2021 conference, Minister for Superannuation, Financial Services and the Digital Economy Jane Hume said that the measures made in this year’s federal budget have highlighted the importance of flexibility in super.

She noted the changes such as reduction of the eligibility age for the downsizer contribution and the removal of the work test for non-concessional contributions are all part of providing flexibility for older Australians to manage their retirement savings to suit their individual circumstances and the flexibility to save more for their retirement than is mandated by the superannuation guarantee.

“As the Retirement Income Review made abundantly clear, your quality of life in retirement is made up of efficient and effective use of all three pillars, including the Aged Pension and savings outside of superannuation,” Ms Hume said.

“Retirees should have the confidence to draw down on their retirement savings knowing that the Age Pension will always be there to support them should their savings not last as long as they planned.

“Let’s be very clear here. This is not about forcing retirees, current or future, to draw down on savings through rigid policy settings or punitive regimes that restrict their choice and agency. In fact, quite the opposite.

“It’s about giving retirees control of their retirement income no matter what the economic circumstances. And the flexibility and the confidence to use their assets more effectively should they choose to do so.”

Ms Hume said these changes come on the back of the Your Future, Your Super reforms announced in the October budget last year. She noted the Your Future, Your Super package is estimated to benefit members by around $17.9 billion over the next decade.

“Swimming upstream against a torrent of critics to make our system better, fairer and more efficient for its members has been no easy feat, but the futures of Australian retirees depends on it,” she said.

“Today, Australians are more likely to move between jobs and industries and, for most people, superannuation is their primary, if not the only, vehicle for their retirement savings.

“Our system is complex. It’s compulsory. It’s opaque. And it’s been plagued by disengagement. But as more Australians rely on superannuation as their primary source of retirement income, much more is at stake financially than it was at superannuation’s inception.

“Those vestiges of a past system that tied retirement savings to workplace relations have endured. Super needs to adapt to better meet the needs of a modern workforce. And its structural flaws, unintended multiple accounts and entrenched underperformers are harming millions of members.”

 

 

Tony Zhang
20 May 2021
smsadviser.com

 

 

With the end of the financial year approaching there may be some valuable opportunities worth discussing for you or your family, depending on your personal circumstances.

 

         

Contributions review

As always there are two concerns here, especially if you wish to maximise the contributions made and the dangers of going over concessional (CC) or non-concessional contribution (NCC) caps.

For concessional contributions, there is a universal standard cap of $25,000 that applies if you qualify. But if the total super balance (TSB) on 30 June 2020 is less than $500,000, you can have the benefit of carrying forward any unused concessional contributions. These are the concessional contributions under the cap that haven’t been fully used since 1 July 2018.

Time frames are always important if you wish to claim a tax deduction for personal concessional contributions. An election must be made within your SMSF, setting out the amount being claimed, and must be lodged with the fund. This must be done before personal tax returns are sent to the ATO for the 2021 financial year and no later than the end of the financial year after the contribution was made. Remember, there’s a bit of a twist as you need to lodge the notice with the fund before any part of the contribution is withdrawn or used to start a pension. The SMSF also needs to acknowledge its election before you lodge the income tax return.

A major consideration in making non-concessional contributions (NCC), which are not tax-deductible, is the amount of an investor’s TSB. The TSB determines the amount that can be contributed to an SMSF without facing a tax penalty. If a TSB is more than $1.6 million, a penalty will apply to any NCC made and this may mean even having to withdraw any excess.

If you have a TSB of less than $1.6 million, and qualify to make an NCC into your SMSF, you may be able to immediately make up to $300,000 over a fixed three-year period. The standard NCC is $100,000, but for anyone under 65 it is possible to bring forward up to the next two years’ standard NCC if you have a TSB of less than $1.5 million. If a TSB is less than $1.4 million, you can bring forward the next two years’ standard NCC and if it is between $1.4 million and $1.5 million, you can bring forward just one year’s standard NCC.

If you have triggered the bring-forward rule in either 2018/19 or 2019/20, then the total NCC may be either $300,000 or $200,000 respectively, provided the maximum TSB has not been exceeded as at 30 June 2020.

Indexation of caps – strategy 

From 1 July 2021, the TSB will increase to $1.7 million and the standard NCC will rise to $110,000. Those under 65, thinking of using the bring-forward provisions this financial year, may wish to seek further advice to see what can provide the greatest benefit. Where the amount of the caps changes, there are nearly always strategic advantages from the timing of NCCs. For example, there may be advantages in making some contributions in late June and taking advantage of the indexed amounts from 1 July this year.

Accessing the Government co-contribution

Individuals with assessable income (2) of below $54,838 may qualify for the government co-contribution of up to $500 if they make a non-concessional contribution of $1,000 before 30 June 2021. To qualify for the co-contribution:

  • at least 10% of assessable income must be received from employment or a self-employment arrangement
  • the individual must be below age 71 at the end of the financial year
  • they must have Total Superannuation Balance of less than $1.6m on 30 June 2020 and;
  • they must lodge a tax return for the 2020/21 income year

Make a spouse contribution

Couples with one spouse earning a low income or no income, may benefit from the spouse tax offset if the high-income earner makes a spouse contribution into the low-income earner spouse’s superannuation. The maximum offset that can be claimed is $540 where the low-income earner spouse’s income is below $37,000 (3) and $3,000 is contributed before 30 June. As well as the tax benefit available to the high-income earner spouse, the strategy can also help to build up superannuation savings for the low-income earner spouse.

Contributions splitting

Another way to increase a spouse’s super is implementing the contribution splitting strategy. The strategy allows eligible spouses (married or de facto) to split up to 85% of concessional contributions (including mandatory employer contributions) made in the prior financial year. The split must occur before the end of the following year, i.e. 30 June 2021 is the deadline for splitting concessional contributions made in the 2019/20 income year.

First Home Super Saver Scheme

Individuals saving for their first home may benefit from making voluntary contributions to super before 30 June. The FHSS Scheme allows first home buyers to make voluntary contributions of up to $15,000 to superannuation per financial year while saving towards the deposit in a tax-effective environment. After contributing for a couple of years, they can withdraw these contributions (up to $30,000 per individual being increased to $50,000 from 1 July 2022) and use the proceeds towards the acquisition of their first home.

SMSF Contribution Reserving

This strategy allows SMSF members to make personal deductible contributions over the annual cap in June and claim larger tax deduction for the current year.

SMSF meeting the minimum pension requirement

SMSF Trustees with members in the retirement income phase must ensure the minimum pension requirement is met before the 30th of June. Otherwise, the income stream will be taken to have ceased for income tax purposes at the start of the year and the SMSF will lose the eligibility to claim the tax-free earnings for that year.

Downsizer Contributions

This strategy allows people who are aged over 65 (reducing to 60 from 1 July 2022) who are selling a residence they have lived in for ten years to contribute $300,000 each to superannuation within 90 days of settlement without the normal restrictions on contributions. There is no age limit.

Investment strategy review

Ensuring an investment strategy accurately reflects a SMSF’s current asset allocation is an important compliance responsibility. While there is a degree of flexibility with respect to movements in overall asset allocation, it is good practice to review the current asset allocation against the documented strategy. If the fund’s current allocation falls outside the documented strategy, you may wish to make an adjustment to either so they fall back into line.

Some of the more common situations where SMSF investment strategies should be reviewed include:

  • trustees purchasing property for their fund, but not updating the investment strategy to reflect the purchase,
  • an asset class, such as listed shares, being over the fund’s target position due to significant rises or falls in the underlying holdings,
  • trustees moving from accumulation to pension phase and changing asset allocation due to cash-flow needs, but neglecting an investment strategy update, and
  • trustees choosing to invest in predominantly one asset or asset class – 90 per cent or more of the fund – can lead to concentration risk.
  • In this situation, a fund’s investment strategy needs to document how the trustees have considered the risks associated with a lack of investment diversification. This should include how high concentrations of assets can meet the fund’s investment objectives, including predicted returns and cash-flow requirements.

Asset concentration risk is heightened in leveraged funds, especially where the fund has used a limited recourse borrowing arrangement to acquire the asset. This can expose members to a loss in the value of their retirement savings should the asset decline in value. It could also trigger a forced asset sale if loan covenants (for example, the loan-to-valuation ratio) are breached.

Capital gains tax review

In the lead-up to the end of the financial year, trustees or advisers may wish to undertake tax planning to minimise the capital gains tax position of their SMSF. This is usual where an SMSF has assets with an unrealised loss position. Trustees may seek advice on whether it is worthwhile to crystallise the unrealised losses to reduce any of the fund’s realised gains. It’s important to understand there may be tax consequences from simply selling an asset and buying it back immediately.

Asset revaluation

One of your most important obligations is to ensure, for the purposes of preparing a fund’s financial accounts, that assets are valued at market value each year. This is a legal requirement and ensures the value of the fund assets and member balances are accurate. There are valuation implications for each member’s TSB, as well as taxing the fund’s income if it is paying pensions.

The value of some of a fund’s investments may be easy to obtain, such as listed company shares and bank account balances. However, when it comes to real estate and other fund investments, market value may not be that obvious and a valuation may be required from an appropriately qualified person, such as an independent registered valuer or real estate agent.

For assets where a valuation is not easy to determine, it is necessary to obtain evidence to support whatever value you decide on as this will assist when the fund is audited. For more exotic assets, such as privately held unlisted shares, unit trust holdings or artworks and collectables, the matter can always be raised with a fund’s auditor to see whether the fund is on the right track.

Pension review

Make sure at least the minimum pension is paid for any existing pensions and the maximum level is not exceeded for transition-to-retirement income streams. A pension that does not satisfy the payment rules will mean any income on assets supporting the pension will be taxed at 15 per cent rather than be tax-exempt.

When deciding to draw more than the minimum pension, a client may wish to consider taking any amount over the minimum as a pension payment or as a lump sum. The reason is that lump sum commutations of a client’s pension balance will result in a reduction of their transfer balance account and can be used to access additional pension benefits in future.

Taxation

Prepay income protection premiums

Individuals holding income protection insurance outside of superannuation can prepay premiums for the next 12 months to bring forward the tax deduction to the current financial year. This may be beneficial where individual has larger than expected taxable income for the current year.

Prepay interest on an investment loan

Similar to prepaying income protection premiums, prepaying deductible interest on an investment loan before 30 June 2021 will bring forward the tax deduction to the current financial year.

Social Security

Gifting

Social security recipients wishing to gift an amount or an asset within the allowable disposal amount can do so before 30th June. These individuals can gift up to $10,000 before the 30th of June and another $10,000 after 1 July 2021, a total of up to $20,000 over June and July. Individuals in receipt of government benefits can gift up to $10,000 in a single financial year or up to $30,000 over 5 rolling financial years. However, the amount gifted in any given financial year cannot exceed $10,000 or the deprivation rules will be applied.

These are just some of the things you should be considering as you wrap up this financial year. We encourage you to contact our office to discuss if any of these strategies might suit your personal circumstances, goals and objectives.

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IMPORTANT: Certain eligibility requirements may apply to strategies listed. To avoid penalties, we strongly recommend seeking advice from your financial planner before implementing any of the strategies explained in this article. The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we do not accept responsibility for any action that you take without confirming with us that it is suitable for your personal circumstances.

(1) Up to 30% if you earn $250,000 or more.
(2) Assessable income for this purpose includes assessable income plus reportable fringe benefits plus reportable employer contributions less business deductions.
(3) Income for this purpose includes assessable income plus reportable fringe benefits plus reportable employer contributions.

 

A compilation based in information from Graeme Colley (SuperConcepts) and AcctWeb, the latter being for added general EOY accounting topics.

 

 

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