1 May 2021

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 2020-21
  • non-concessional: $100,000, provided the client’s total superannuation balance (TSB) was less than $1.6 million as at 30 June 2020.
    • For clients under age 65 (refer note below) at the start of the financial year, access to the bring-forward rule also depends on their TSB as at 30 June 2020. 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 2021-22, the TSB must be less than $1.7 million at 30 June 2021.
    • 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 draft legislation is currently before Parliament and is not yet law.
  • concessional: $25,000 unless the individual uses the carry-forward of their 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: $1,565,000 (lifetime limit)
Reminder
  • Contributions received by a super fund after 30 June 2021 will generally count towards the contributions cap in the 2021-22 financial year, even if they relate to 2020-21. 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 2021 to make contributions for the quarter ending 30 June 2021.
  • 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 count 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 non-concessional contributions.
  • The contribution caps will be indexed on 1 July 2021.  Triggering the bring forward provisions in the next financial year (instead of this financial year) may be a suitable strategy as this may allow your client to contribute more capital into superannuation (non-concessional contribution cap will increase to $110,000 in the 2021-22 financial year).
  • Note - due to the indexation of the general transfer balance cap and the non-concessional contribution cap, the total superannuation balance thresholds outlined in the table above will be increasing for the 2021-22 financial year. The change to these thresholds should be factored into the non-concessional contribution strategies.
Further help

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

ATO: Indexation of the super contribution caps

To view your clients’ contributions to Macquarie Super Manager / Consolidator / Accumulator, log onto the Macquarie Wrap website and go to Quick Links > Superannuation Contributions Rpt

 

Considerations for clients turning 65

If a client has turned 65 after 1 July 2020, under current law, this financial year is the last in which 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.

Note – the law has been changed with effect from 1 July 2020 to increase the age at which the work test applies. The work test (or work test exemption) applies for contributions made from age 67 (was age 65 prior to 1 July 2020).

Further help 

Macquarie Big Black Book (pages 33-35)

 

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, 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

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 mistake 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 as a personal contribution before a deduction notice can be accepted. It is therefore important to ensure that contributions are classified correctly.
  • Be mindful of the concessional contribution cap ($25,000 for the 2020-21 financial year) as the excess concessional contribution amount will incur additional tax and will count towards the client’s non-concessional contribution (unless the client makes an election to release the funds).
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 2019-20 year that may have been received by the client’s superannuation fund after 30 June 2020. These contributions will also count towards the client’s concessional contributions cap in 2020-21.

Also review salary sacrifice arrangements for the 2021-22 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. A reduced offset may be available where income is at least $37,000 and less than $40,000.
Reminder

No offset will be available where the spouse has excess non-concessional contributions or their TSB as at 30 June 2020 exceeds $1.6 million.

Further help 

Macquarie Big Black Book (page 12)

ATO: Super-related tax offset

 

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 $54,837?

  • 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 $39,837.
Reminder
  • The co-contribution will not be available where the client has excess non-concessional contributions or their TSB exceeds $1.6 million as at 30 June 2020.
  • Eligibilty requires that a minimum of 10% of assessed income relates 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.

This includes concessional contributions which utilises the client’s carry-forward unused concessional contribution cap.

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 and not the cap of the spouse who receives the split 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 percent 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 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 at the prior 30 June, 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 2020-21. 

Further help 

ATO: Exempt current pension income

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 2021 and 30 June 2021 no pension payment needs to be paid in 2020-21.

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 income streams.

Reminder

Where the minimum pension has not been paid, the pension may be treated as having ceased at 1 July 2020 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 (i.e., 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) cannot 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, 2018-19, 2019-20 and 2020-21.  

The general transfer balance cap will increase to $1.7 million on 1 July 2021. Where a client has met a condition of release and has yet to commence a pension or is yet to use their full transfer balance cap, consider delaying the commencement of the pension until 1 July 2021 to allow access to the full/partial indexation of their transfer balance cap, therefore increasing the amount of capital that can be held in the tax free pension phase. The benefits of receiving full/partial indexation of the transfer balance cap needs to be compared to the potential loss of tax free income for the 2020-21 financial year.

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

Further help

ATO: Indexation of general transfer balance cap

Personal Taxation

Employment termination payments (ETPs)

Clients facing a termination of employment should consider delaying the receipt of any payments until 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 the prepayment rules do not apply to SMSFs in relation to limited recourse borrowing arrangements.

Further help

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