In the past 12 to 18 months, there have been some important changes to the rules surrounding self managed superannuation funds that you should be aware of, namely:
- Changes to rules about who can audit your super fund
- An increase to various superannuation caps
- An increase to the minimum pension amounts
- Non arms length expenses create adverse tax outcomes
STOP THE PRESS
On 21 June 2021 (three weeks after publishing this article), the Government passed Legislation that makes the following changes:
- SMSF’s will be allowed to have 6 members (up from 4); and
- Individuals aged 65 and 66 will be able to use the non-concessional carry forward cap rules (enabling them to contribute up to $330,000 to super in one year).
At the time of amending this post (22 June), these changes were awaiting Royal Assent but are expected to apply from 1 July 2022. If either of these changes appeal to you, please ensure you speak to your advisor.
THE AUDIT OF YOUR SMSF
There has been a significant change to rules around the “independence” of auditors that effects who can and cannot audit a super fund. Without going into too much detail, essentially an accounting firm is no longer able to audit any super fund that they do any accounting work for.
Previously firms were allowed to have a “Chinese wall” arrangement where different teams did accounting and audit – this is no longer allowed.
In order to minimise disruption as much as possible, we have:
- sought a reputable external auditor that will perform the audit of your super fund
- arranged for the auditor to liaise with us where there are questions or missing documents
- agreed on a fee structure that will see no increase in costs to you
From your point of view, very little will change other than the name on the audit report.
There may some slight changes with respect to signing documentation (for example we included audit authorisations in the annual financial statements, but an external auditor may require those to be separately signed documents) but we will advise you of those as they arise.
CONTRIBUTION CAPS INCREASE
From 1 July 2021 the maximum amount an individual can contribute into super (while claiming a tax deduction) will increase from $25,000 to $27,500 per year. This cap covers employer contributions and personal contributions that you are claiming a tax deduction for.
In addition to this cap increase, individuals with a superannuation balance less than $500,000 are allowed to roll-over any unused cap amounts from one year into the next year (i.e. contribute above the cap next year).
The “non-concessional” cap (which is contributions you do not claim a tax deduction for) will increase from $100,000 to $110,000 per year.
PENSION CAP INCREASE
On 1 July 2020 the “total super balance” cap increased from $1.6mil to $1.7mil. This cap is used to test eligibility for a few rules, such as:
- This cap is the maximum amount of superannuation you are allowed to have as a tax-effective pension. We maintain records of how much of this cap has been used – nothing needs to be done by yourself – but it can provide a tax planning opportunity;
- Individuals with a total super balance over this cap are not allowed to make “non-concessional” contributions into super;
- Individuals over (or going over) this cap cannot utilise the 3 year bring forward rule for non-concessional contributions; and
- Super funds with a member over this cap are ineligible to use the “segregation” method of calculating taxable income
MINIMUM PENSION AMOUNTS
If you have started drawing a pension from your superannuation fund, then there is a minimum amount you must draw each year in order to maintain the pension (and the tax benefits that come with it).
The minimum pension amounts were halved by the Government for the 2020 financial year when COVID hit, and have since been extended to cover 2021 and 2022. At this point the minimum pension amounts are scheduled to increase back to normal levels on 1 July 2022. These amounts are:
Age of Person
Standard Minimum %
2020 – 2022 Minimum %
0 – 64
65 – 74
75 – 79
80 – 84
85 – 89
90 – 94
Age: Your age as of the start of the financial year (i.e. for the 2022 year, your age on 1 July 2021)
Percentage: This is the percent of your pension account you must withdraw. The pension account balance used is the previous year’s closing balance (i.e. for the 2022 year, your balance as of 30 June 2021)
For example, you are aged 67 on 1 July 2021 and your pension account has $650,000 in it on this date. You must draw a pension of at least $16,250 for the 2022 financial year ($32,500 in a “normal” year).
If you would like to know your minimum pension requirement for the year, please contact our office.
NON ARMS LENGTH EXPENSES
Where a super fund obtains services at a discount (including for free) this could be seen as a “non arms length expense”. The consequences of this is that the income of the super fund is taxed at 47%…
For example, let’s say you are an estate agent and your super fund sells a block of land. Naturally, you will try to save money by doing this yourself as you have the facilities and expertise. Unfortunately under recent changes doing this may actually mean the sale of the land is taxed at 47%.
To complicate this, there is a general rule that you are not allowed to charge your super fund for work you do. So you are not allowed to charge, but if you don’t you get taxed higher… which is a prime example of why super funds are so complicated to work with. In this case you are allowed to charge, but only for certain items.
This is an overly simplified example, but it highlights how crucial it is to get advice before you do anything in your super fund that may be considered a non arms length expense.