Take advantage of super changes now to get the most out of an SMSF

There were also changes to the continuation of the 50 per cent reduction in the pension minimum, and an increase the amount available under the First Home Savers Super Scheme, all of which allow an SMSF to keep more of their super fund for retirement savings.

“Super contributions can be made in many ways by cash, cheque, electronic transfer or transfer of a limited range of investments,” Mr Colley said.

“It is important to ensure the contribution reaches the fund by 30 June. Otherwise, any late contributions won't count until the next financial year. This could result in an excess contribution, and an excess concessional or non-concessional contribution penalty may be applied.”

One of the best ways to navigate and keep a check on contributions and ensure an SMSF can take advantage of the new rules and regulations, he said, is to start an income stream from the fund before 30 June.

“If you are age 59 (the current preservation age) or older, you are entitled to commence an income stream from 1 June in any year to make sure you can access the advantages,” he said.
These include any income earned by the superannuation fund on the balance used to commence the pension, which is in the retirement phase is tax-free.

“There is no requirement to actually receive an income stream payment in June of the financial year in which the pension commences,” he said.

“This allows you to delay receipt of the income stream that commenced in June 2023 up until the end of June 2024 at the latest.

“If you commence a pension on 1 June 2022 and don’t reach age 60 until the next financial year, any pension received after reaching 60 years of age will be tax-free.”
However, the changes to superannuation provide new rules that need to be applied to now for the 2022/23 financial year.

“Whether it’s the abolition of the work test for non-concessional contributions, tax deductions or getting pension payments right - they all may have an impact on your situation,” Mr Colley said.

One of the first changes that should be considered is the Transfer Balance Cap and the Total Superannuation Balance Cap which increased from $1.7 million to $1.9 million and came into force on 1 July 2023 are perhaps the most significant for SMSFs to consider immediately, he said, as good planning now may “reap rewards over the coming financial year”.

“There are two types of contributions that can be made to super, tax-deductible concessional contributions and non-deductible non-concessional contributions.,” he said.

“If you are an employee, your employer may claim a tax deduction for contributions made for you.”
He said there is also a chance that an SMSF member may be eligible to claim a tax deduction for personal concessional contributions they make to their super.

“For personal concessional contributions, you’ll need to send a ‘Notice of Intent’ to your fund prior to lodging your personal tax return of the amount you intend to claim,” he said. “The important part is to make sure the contribution is made to the fund by 30 June in the financial year.”

Mr Colley reminded SMSFs the standard concessional contribution of $27,500 for the 2022/23 financial year is taxed at 15 per cent and any concessional contributions in excess of this cap are taxed at personal rates.

“You can have the excess refunded to you or leave them in the fund and counted against your non-concessional contribution cap,” he said.

“However, it is possible to have a higher concessional contributions cap if the amount you had in super on 30 June 2022 was no more than $500,000. If you qualify, then your cap will include the amount that has not been claimed as a tax deduction and is below your concessional contributions cap since 1 July 2018. These contributions are called your ‘carry forward concessional contributions’.”

There are a number of other ways to make personal non-concessional contributions.

Downsizer contributions can be made under personal non-concessional contributions if members sell their main residence, or for those with a small business, they can be made under a CGT retirement concession.

They can also be made for a spouse or a child under 18, while those on low incomes may qualify for the government co-contribution and low-income superannuation tax offset.

Mr Colley said downsizer contributions have become more popular since they started in July 2018 since the legislation will change on 1 July, 2023 to allow anyone from 55 years to make a downsizer contribution it will more than likely become an even more popular strategy.

“There is a standard cap of $110,000 that applies for the 2022/23 financial year to non-concessional contributions if the total amount you had in superannuation on 30 June 2022, your Total Super Balance, was no more than $1.7 million.”

“If your TSB is greater than $1.7 million, a penalty tax applies to your non-concessional contributions, and you may need to withdraw the excess from super. If you leave the excess amount in the fund, it is taxed at 45 per cent, which should be avoided.”

If members are under 75 years as of 1 July 2022, they can use the bring-forward rule, allowing them to bring forward the next two years of non-concessional contributions.

However, this rule applies only if the TSB was not more than $1.59 million. If the TSB was between $1.48 million and $1.59 million members can bring forward one year’s standard cap and if the TSB was below $1.48 million they can bring forward the two-year’s standard cap.

Mr Colley warned although salary sacrifice is a much more common practice in employment today, it’s best to start it after the financial year as the deduction from a salary may not maximise the amount that can be paid into super.

“However, now that personal tax deductions are available for super contributions, you can top up your concessional contributions from personal savings if the amount you have salary sacrificed looks like it will fall short.”

He also said that Superannuation Guarantee (SG) contributions made by an employer can count against a concessional contributions cap but as these contributions are compulsory, they need to be considered in conjunction with any contributions made under a salary sacrifice agreement to avoid going over the limit.

Although spouse contributions are treated as non-concessional contributions and aren’t tax-deductible, they can qualify for a tax offset if the spouse is considered to be low-income earning (less than $37,000) and SMSFs may qualify for a tax offset of up to $540 if the contribution is at least $3000.

The new work test rules now mean that if an SMSF member has retired and is between 67–75 years, they can make a once-only contribution if they have a TSB of less than $300,000 in the previous financial year.

“Of course, you can make non-concessional contributions in any year after you have ceased work if you qualify right up to the time you meet the age 75 limit, and there’s no need to meet the work test,” Mr Colley said.

Another contribution avenue of which to be aware is the co-contribution. If a member has made a non-concessional contribution of at least $1000 to superannuation they may qualify for the government co-contribution of up to $500. To qualify, you must be under age 71, have an adjusted income of less than $57,016 (2022/23 financial year) and be employed or self-employed.

For SMSFs with a small business component there are certain CGT retirement concessions available on the disposal of the business or certain business assets.

Mr Colley said it is best to get the advice of a tax accountant for these calculations.

“During the financial year, it helps to keep an eye on the amount of concessional and non-contributions made to super to see whether any excess is likely to occur and penalties applied,” he said.

“For concessional contributions, it’s important to see what your employer may have contributed, including anything made under a salary sacrifice agreement.

“For non-concessional contributions, you should check the amount contributed so far in the 2022–23 financial year and the last two years in case the ‘bring forward rule’ has been triggered.

“And don’t forget that any spouse contributions you may have made count towards your spouse’s non-concessional contribution cap, which their total superannuation balance can limit on 30 June in the previous financial year.”