Wednesday 10 June 2020

A quick reference source to help with some of the key year-end planning matters that may need to be considered for clients


Managing successful, tax-efficient financial planning strategies is generally a continual process throughout the year. Nevertheless, clients will be prompted to think about their tax planning as the end of the financial year approaches.

We have consolidated some useful reminders and references for financial services professionals to help address some of the main end-of-year questions and issues that may be encountered. This guide provides a quick reference source to help with some of the key year-end planning matters that may need to be considered for clients. 

Super accumulation

Optimise super contributions

Review contribution types and amounts to ensure contributions have been optimised.

Contribution caps for 2019-20

  • non-concessional: $100,000, provided the client’s total superannuation balance (TSB) was less than $1.6 million as at 30 June 2019.
    • For clients under age 65 (refer note below), access to the bring-forward rule also depends on their TSB as at 30 June 2019. Where the client’s TSB was:
      • less than $1.4 million, total non-concessional contributions are capped at $300,000 over three years
      • $1.4 million to $1.5 million, total non-concessional contributions are capped at $200,000 over two years
      • $1.5 million to less than $1.6 million, the bring-forward rule is not availabe and total non-concessional contributions are limited to $100,000.
    • If remaining bring-forward cap is used in a future financial year, the TSB must be less than $1.6 million at 30 June prior to the year in which the non-concessional contribution is made.
    • Note – In the 2019-20 Federal Budget, the Government proposed to increase the maximum age the bring-forward rule can be triggered from those under 65 at any time in the financial year to those under 67 in the financial year. The Bill is currently before Parliament and if passed during the June sitting days, this change will apply from 1 July 2020.
  • concessional: $25,000 unless individual uses a carry-forward unused concessional contribution (CC) cap 
    • From 2019-20, an individual’s CC cap is increased if:
      • actual CCs are greater than the standard CC cap
      • TSB is less than $500,000 at 30 June of prior financial year, and
      • they have unused CC cap available from any or all of prior 5 years (occurring from 2018-19 onwards)
  • CGT cap: $1,515,000 (lifetime limit)

Reminder

  • Contributions received by a super fund after 30 June 2020 will generally count towards the contributions cap in the 2020-21 financial year, even if they relate to 2019-20. This may have an impact on the contributions caps available next year. This is particularly important to keep in mind for employer Superannuation Guarantee contributions, as employers have until 28 July 2020 to make contributions for the quarter ending 30 June 2020.
  • Check the contributions made into all of your clients’ super funds to ensure the caps have not been exceeded.
  • Contributions not made by the member themselves (excluding spouse contributions and non-employer contributions made for a child) are treated as concessional contributions and counted towards the concessional contributions cap. However, contributions made by an employer from the take-home pay of the client are considered by the ATO to be personal contributions.

Further help

For further information on contribution types and caps please see the Macquarie Big Black Book (pages 34-36)

To view your clients’ contributions to Macquarie Super Manager / Consolidator / Accumulator, log onto the Macquarie Wrap website and go to Reporting > Download files > Download adviser reports  > Superannuation Contributions report

 

Considerations for clients turning 65

If a client has turned 65 after 1 July 2019, under current law, this financial year is their last chance to trigger the bring-forward rule which allows non-concessional contributions of up to $300,000 over three years (assuming they haven’t already triggered the three year cap in the previous two financial years). For further information on the non-concessional cap see the ‘Optimising super contributions’ section above.

Reminder

Clients aged 65 (refer note below) and over must meet the work test to contribute to super. That is, if contributing after turning 65, they must be gainfully employed for at least 40 hours in 30 consecutive days in the financial year the contribution is made. From 1 July 2019, those aged 65 to 74 are exempt from the work test in the year financial year following the year they retire, provided their total superannuation balance (TSB) at the prior 30 June is less than $300,000.

The work test is not required for mandated employer contributions, such as superannuation guarantee.

Super funds generally require a work test declaration to be provided each financial year a contribution is made after a client reaches age 65.

Note – In the 2019-20 Federal Budget, the Government proposed to increase the age the work test first applies from age 65 to age 67. Laws have now been made to implement this change and apply from 1 July 2020.

Further help 

Macquarie Big Black Book (pages 33-34)

 

Total superannuation balance

From 1 July 2017, a client’s TSB determines eligibility for the superannuation measures outlined in the table below. TSB is generally measured each 30 June to determine eligibility for the relevant superannuation measure in the following financial year.

Determines eligibility for…

TSB threshold

Non-concessional contributions cap and the bring-forward rule

$1.6 million (member TSB)

Carry forward of unused concessional contributions cap

$500,000 (member TSB)

Government co-contribution

$1.6 million (member TSB)

Spouse contribution tax offset

$1.6 million (receiving spouse’s TSB)

SMSFs using the segregated method to calculate exempt income

$1.6 million (member TSB)

An exemption from meeting the work test in the year following retirement

$300,000 (member TSB)

If a client’s TSB is approaching the relevant threshold, a planning opportunity may be to consider strategies to minimise the client’s accumulation and/or pension balances at 30 June. For example, consider splitting concessional contributions with a spouse or reviewing the timing of contributions or withdrawals.

Further help

ATO: Total superannuation balance

 

Personal super contributions - deduction notices

The 10 per cent test used to determine eligibility to make personal deductible contributions was removed with effect from 1 July 2017. Clients are generally able to claim a tax deduction for personal contributions made in 2019-20, subject to other eligibility conditions being met. Clients intending to claim a deduction for personal super contributions must lodge a deduction notice using the approved form, with the fund before the earlier of:

  • the day they lodge their tax return for the year in which the contribution was made; or
  • the end of the financial year after the financial year in which the contribution was made.

Key information on how to claim or vary a deduction for contributions made to the Macquarie Superannuation Plan is contained in the Guide to completing the Deduction Notice for Personal Superannuation Contributions.

Reminder

  • Where a client rolls over or withdraws part of their super benefit before a deduction notice has been lodged, the amount of the personal contribution that can be claimed as a deduction will be reduced. This is because part of the contribution is considered to be included in the rollover/withdrawal amount.
  • Where a client uses part of their super benefit to commence a pension, a deduction notice cannot be lodged after the pension commences for contributions made prior to the pension commencing.
  • A common trap involves contributions made for self-employed clients being incorrectly classified as employer contributions. Any contributions incorrectly classified as an employer contribution will need to be reclassified to a personal contribution before a deduction notice can be accepted. It is therefore important to ensure that contributions are classified correctly.

Further help 

 

Salary sacrifice strategies - are they effective?

Review current and planned salary sacrifice contributions to ensure they are or will be within the concessional contributions cap. Be mindful of employer Superannuation Guarantee contributions relating to the 2018-19 year that may have been received by the client’s superannuation fund after 30 June 2019. These contributions will also count towards the client’s concessional contributions cap in 2019-20.

Also review salary sacrifice arrangements for the 2020-21 financial year to ensure an ‘effective salary sacrifice arrangement’ is in place ahead of your client earning the right to certain benefits.

Further help 

TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements

 

Spouse contribution tax offset eligibility

Does a client’s spouse have assessable income, reportable fringe benefits and reportable employer contributions of less than $40,000?

  • A client could consider making a non-concessional contribution to their spouse's super fund.
  • Offset is calculated as 18 per cent of the contribution, up to a maximum of $540 where the spouse's income is below $37,000.

Reminder

No offset will be available where the spouse has excess non-concessional contributions or their TSB as at 30 June 2019 exceeds $1.6 million.

Further help 

Macquarie Big Black Book (page 12)

 

Government co-contribution eligibility

Is a client's assessable income, reportable fringe benefits and reportable employer super contribution minus deductions from carrying on a business less than $53,564?

  • Clients could consider making a non-concessional contribution of up to $1,000 to super.
  • Maximum co-contribution is 50 per cent of the contribution, up to a maximum $500 for income below $38,564.

Reminder

  • The co-contribution will not be available where the client has excess non-concessional contributions or their TSB exceeds $1.6 million.
  • Eligibilty requires a minimum of 10% of assessed income to relate to income from employment or carrying on a business.

Further help 

 

Spouse contribution splitting

Clients can split up to 85 per cent of concessional contributions (up to the concessional contribution cap) made during a financial year with their spouse, provided the spouse is not over age 65 or reached their preservation age and retired.

The application to split contributions must generally be made before the end of the financial year immediately after the financial year in which the contribution was made.

Reminder

The concessional contributions will still count towards the cap of the spouse who made the contributions.

Further help 

SMSF

SMSF contribution issues

Timing of contributions:

  • Contributions are taken to be made when they are received by the SMSF
  • In-specie contributions are taken to be made when the SMSF receives all completed documentation necessary to transfer ownership of the asset.

However, depending on the terms of the trust deed, a super fund may accept contributions into a suspense account and allocate them to member accounts within a certain period after the contribution is made. Superannuation law generally requires a trustee to allocate the contribution within 28 days after the end of the month in which the trustee received the contribution. In the ATO’s view, contributions that are allocated to a member account under these rules will count towards the applicable cap in the financial year in which they are allocated.

For concessional contributions there is a specific form (see Further help) SMSF trustees can use to notify the ATO if this strategy is used to ensure contributions are correctly allocated in both financial years. This form should be completed and lodged with the ATO either before or along with the fund’s annual return.

Personal payments of accounting, audit fees and other expenses of an SMSF may be considered to be contributions to the fund.

Further help 

 

SMSF trustee issues

  • Review and value fund assets to ensure in-house assets are within the five per cent limit.
  • Rebalance portfolios and/or review investment strategies to ensure compliance with the SMSF’s investment strategy.
  • Review meeting minutes to ensure all issues are documented.
  • SMSF trustees are also required to:
    • consider if it is appropriate to hold insurance for fund members
    • regularly review the SMSF’s investment strategy, and
    • ensure the SMSF’s assets are valued at market value for reporting purposes.

Further help

ATO: Valuation guidelines for self managed superannuation funds

ATO: Your self-managed superannuation fund (SMSF) investment strategy

 

Transfer balance account report

Superannuation funds, including SMSFs, have an obligation to report certain events to the ATO that will impact a member’s transfer balance cap. The new transfer balance account report (TBAR) is separate to the SMSF annual return.  

Those SMSFs with a retirement phase pension that was in place on 30 June 2017, or a member who has exceeded their transfer balance cap needed to lodge a TBAR prior to 1 July 2018.

Reporting for all other SMSFs commenced from 1 July 2018, with the TBAR required to be lodged either annually or quarterly, depending on whether the fund has any members with a TSB of $1 million or more.  For TBAR purposes, TSB was measured as at 30 June 2017 for members who had an existing pension or commenced a pension during 2017/18. For later years, TSB is measured as at 30 June of the year before the fund commences to pay its first pension. 

Further help 

 

Exempt current pension income

From 1 July 2017, certain SMSFs were prohibited from using the segregated method to calculate the fund’s exempt current pension income. This restriction applies to funds where a member:

  • has a TSB of more than $1.6 million, and
  • is receiving a retirement phase income stream (either paid from the SMSF or another fund).

Impacted funds are required to use the proportionate method (also known as the unsegregated method) to calculate exempt current pension income in 2019-20. 

Further help 

ATO: Exempt current pension income

 

Annual return for 2018-19 deferral

The ATO has deferred the 2018-19 annual return lodgement date for SMSFs. Annual returns with lodgement dates of 15 May and 5 June 2020 will now have until 30 June 2020. The deferral is automatic and does not require the SMSFs tax agent to lodge a request.

Further help

ATO: COVID-19 – automatic deferrals for SMSF annual returns until 30 June 2020

Benefit payments

Ensure minimum pension standards are met

Clients with account based pensions must be paid at least the minimum amount from their pension account before the end of the financial year. For pensions commenced between 1 June 2020 and 30 June 2020 no pension payment needs to be paid this financial year.

Due to COVID-19, the Government has halved the minimum pension payment percentages for the 2019-20 and 2020-21 financial years. This change applies to a range of income streams, including account-based, transition to retirement and market linked.

Reminder

Where the minimum pension has not been paid, the pension may be treated as having ceased at 1 July 2019 and will be taxed as an accumulation account. The ATO has published guidance on minimum pension payment requirements for income streams payable from SMSFs. The guidance is useful for SMSF trustees who are dealing with situations where the minimum pension payment requirements are not met in a financial year.

Further help 

 

Starting an account based pension in the new financial year

Ensure any tax deductions for personal contributions are claimed (ie deduction notice is lodged with the fund and acknowledgement received) prior to commencing the pension. Once a pension has commenced a deduction notice (including a variation to a valid notice) can’t be accepted in relation to contributions made prior to commencement.

Reminder

The transfer balance cap applies to the amount of accumulated superannuation benefits that can be transferred into the retirement (tax-free pension) phase. The transfer balance cap is $1.6 million for 2017-18, 2019-20 and 2019-20.  

SMSF trustees should ensure all pension-related events (eg pension commencement values) are appropriately documented, as this information will need to be reported to the ATO via the new transfer balance account report.

 

Temporary early release of superannuation

The Government is allowing individuals affected by the COVID-19 to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21. The payment will not be subject to tax and will not affect the Centrelink or Veterans’ Affairs payments.

To apply for early release, you must satisfy any one or more of the following requirements:

  • you are unemployed; or
  • you are eligible to receive a JobSeeker payment, Youth Allowance for jobseekers, Parenting Payment (which includes the single and partnered payments), Special Benefit or Farm Household Allowance; or
  • on or after 1 January 2020:
    • you were made redundant; or
    • your working hours were reduced by 20 per cent or more; or
    • if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.

This condition of release is not available to market linked or transition to retirement income streams. However, those in transition to retirement income streams may partially commute to an accumulation account and use this condition of release to access benefits from the new accumulation account.

Applications are made to the ATO through the myGov website.

Further help 

Personal Taxation

Employment termination payments (ETPs)

For clients facing a termination of employment, a planning opportunity may be to delay receiving any payments to the following financial year if other taxable income is expected to be lower in that year.

Note - From 1 July 2019 the cut off age for genuine redundancy and early retirement schemes was increased from age 65 to age pension age. This change broadens the range of people who will benefit from the associated tax concessions.

Further help

Macquarie Big Black Book (pages 15)

 

Prepay expenses

If certain requirements are met, clients may be able to claim a tax deduction for up to 12 months of prepaid expenses, including interest paid in advance on an investment loan, premiums on an income protection policy or trade publication subscriptions. Note that this opportunity is not available to SMSFs in relation to limited recourse borrowing arrangements.

Further help

Related products

Subscribe to our monthly newsletter

We bring you technical updates, financial insights and industry expertise.

 

 

Wider View of Wealth newsletter preview
 
Thank you for subscribing.
Please try again.

Simply fill out your details below:

By submitting this enquiry, I acknowledge that I have read the Macquarie Group privacy policy, and understand that Macquarie will use my personal information to contact me in relation to my enquiry, and for other general marketing purposes.

You can change your marketing preferences by telephoning Macquarie on 1800 806 310 or customising your preferences with the unsubscribe link included in our marketing communications. Please note that all of our calls are recorded. If you do not want your call to be recorded, please advise the Macquarie staff member.

Contact us

Monday to Friday 8am – 6pm (Sydney time)

1800 808 508

Talk to us today

To speak to a specialist complete this form and we'll be in touch.

Help and support

Visit our Adviser Help Centre and search our adviser FAQs.

Additional information

Macquarie Investment Management Limited (MIML) ABN 66 002 867 003 AFSL 237 492 is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959, and MIML’s obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542.  Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MIML.

This information is provided for the use of licensed and accredited brokers and financial advisers only. In no circumstances is it to be used by a potential client for the purposes of making a decision about a financial product or class of products.

The information on this page does not take into account your objectives, financial situation or needs. Before making any financial investment decision or a decision about whether to acquire a product mentioned on this page, a person should obtain and review the terms and conditions relating to that product and also seek independent financial, legal and taxation advice.

While the information provided here is given in good faith and is believed to be accurate and reliable as at the date of preparation, it is provided by MIML for information only.  We will not be liable for any losses arising from reliance on this information.

MIML and Macquarie Bank Limited do not give, nor purport to give, any taxation advice. The application of taxation laws to each client depends on that client’s individual circumstances.  Accordingly, clients should seek independent professional advice on taxation implications before making any decisions about a financial product or class of products.

Copyright 2020 Macquarie Investment Management Limited.