End of financial year checklist for SMSFs

End of financial year checklist for SMSFs

With the end of the financial year fast approaching, practitioners are predominantly focused on helping clients avoid the last-minute scramble. However, it is also an ideal time for strategic planning with clients.

The end of the financial year is only a few weeks away, so it is the perfect opportunity for practitioners to engage with trustees to ensure steps are put in place for the coming year. There are five key areas practitioners can cover off with trustees before 30 June.

1. Maximise use of the available concessions now

When the 2016-17 federal budget was announced this year, many older Australians may have drawn a sharp breath around the changes to concessional contribution caps. What this means for Australians and their finances will depend on their personal circumstances.

For many, now is an opportune time for SMSF trustees to contribute more under the existing rules. This is because from 1 July 2017 the concessional caps will be reduced to $25,000 regardless of age. For those aged 49 or older on 30 June 2015, the current cap of $35,000 remains in place until next year.

It’s important to be aware of the concessional contributions for your clients’ super, as chances are the majority of them have been made by someone else, eg, employer or spouse.

The beauty of compound interest and long-term savings means that a little saved today can make a big difference in the future. So if your clients are considering tipping extra funds into super, doing so before 30 June is a good time.

The lowering of the concessional contribution caps to $25,000 from 1 July 2017 means there is a stronger reason to consider investing more into super this year.

2. Be aware of the contributions previously made to super

With immediate effect from the 2016-17 budget night, a lifetime cap of $500,000 has been placed on non-concessional (or after tax) contributions. This cap includes any after tax contributions made to your clients’ super since 1 July 2007.

It’s important that your SMSF clients know their level of contributions to ensure they don’t inadvertently exceed the cap.

In the event a client has contributed more than $500,000 of after tax contributions prior to the budget announcement on 3 May, they will not need to withdraw any excess amounts.

It’s still good practice for clients to keep a record of their contribution levels from prior years.

3. Review your guiding principles

SMSF trustees are required to review their investment strategy on a regular basis. It’s good practice to do this in the lead-up to the end of financial year.

SMSF practitioners can help their clients review:

  • How their funds are invested in their SMSF
  • Have their retirement goals changed?
  • Does the return match their retirement goals?
  • Are insurance policies in place and are they appropriate?

The item that governs a clients’ guiding principles is the trust deed for their SMSF.

A client’s trust deed should be reviewed on a regular basis to ensure it remains current with existing super law. This doesn’t necessarily mean it needs to be changed, but it should be reviewed annually, especially if there has been any significant event in the last year or something is expected in the coming year. For example, if a client is planning to retire in the next 12 months, it’s important the deed provides them with the flexibility for retirement options allowed under super law.

4. Review any gearing arrangements in place

Depending on your clients’ investments, and whether they have exposure to gearing (or loans) in their SMSF, over the assets; it’s important to ask whether the arrangement remains appropriate.

This is particularly the case if the loan is from a related party such as a relative or even the trustee. The ATO recently released guidance on the minimum expectations they have for related party loans and have allowed SMSFs until 30 June 2016 to ensure any existing loans are on arm’s length terms.

5. Ensure your clients have a support network

Running an SMSF is not easy, even for the most engaged trustees. The rules can be complex and new and proposed legislation can affect the way the SMSF operates.

But it’s important for SMSF clients to know that they have the necessary support to manage their SMSF. Clients choose to run their own SMSF for control and choice, but it doesn’t mean they’re alone.

The end of the year is a good time to review the support you have in place with your clients, not only to ensure they are complying with the rules, but that they feel they have the help they need, when they need it.

An experienced and qualified support network can give clients the comfort and peace of mind that help is on hand when they need it.

Bryan Ashenden, head of financial literacy & advocacy, BT Financial Group

End of financial year checklist for SMSFs
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