Tim Miller, head of education for Smarter SMSF, speaking at last month’s SMSF Association Technical Summit said that several triggers will ultimately lead to potential issues for these clients to contemplate.
“From a contribution point of view, there have been between 25 and 30 changes to the contribution rules just since 2017, and how many trustees have kept up with each and every one of those rules?”
“I suspect there are many trustees that don’t have a full appreciation for what the contribution rules and requirements are. What we know is that effective from 1 January 2023 it’s pretty simple to be the trustee of an SMSF. We’re looking at one thing only. How old are you? And subject to your age that will determine whether the trustees can accept a contribution.”
Miller said if a member is under 75 trustees can accept a contribution, but whether they should is a different question because of the tax implications.
“If a member is under 75 years or under 75 and in a month plus 28 days, the fund can accept those contributions. From 55 from 55 years, they can make downsizer contributions,” he said.
“Having an appreciation for that, it’s pretty easy to be the trustee of an SMSF from a contribution acceptance point of view, but once you introduce tax and the implications of various tax strategies, the acceptance forms part of it, but what you can do with those contributions forms the much bigger part.”
He continued that advisers want to be able to do the best for their clients to try and maximise the superannuation balance and minimise tax implications by having money placed in the superannuation environment.
“The biggest change realistically that came about with these movements to 75 years in the work test is that it is effectively a tax test now, not a contribution test,” he said.
“What we know is that for anybody aged 67 years to be able to make a contribution after that point from a deductibility point of view, they have to satisfy the gainful employment test, but before 2023 they had to ultimately satisfy that gainful employment test to be able to accept the contribution.”
Miller said what he believes will happen over time due to this change is that more people who end up with excess, non-concessional contributions, and excess concessional contributions because there’s no barrier to putting the money in.
“It’s just the tax rules that are going to dictate what the issues are for those clients. When we look at the personal deductions post-age 67 we’ve got to understand that if there’s no work test met, the contribution can still be accepted, but that contribution is going to be a non-concessional contribution,” he said.
“Contributions are always non-concessional on receipt until we meet the criteria for it to be deductible, and when you marry that together with other NCC strategies, this is where the potential issue arises from an excess contribution point of view.”
