As another financial year draws to a close, it’s a good time for you and your clients to perform a little “financial housekeeping”. Here are a few important considerations that may prompt your clients, depending on their personal circumstances.
Naturally, Superannuation is an important consideration at this time of year for many individuals. So, let’s look at some of the important issues particularly those that relate to SMSF’s.
2020/2021 Superannuation Contributions – Considerations
The limit this year (20/21 FY) for personal and employer super contributions combined is $25,000. It’s important to remember that if your clients are funding insurance within super, but separately from say their SMSF and wanting to claim a deduction for this, then that amount is also included in the $25,000 limit (this is often overlooked by clients).
For any super contributions to count toward this financial year the contributions need to be made and cleared in the bank account prior to 30/6/2021. Important to note: employer contributions for June will normally only hit the SMSF or industry fund after 30/6 and therefore, only count toward next year’s limits. This also applies to last year’s contributions.
Any amounts over the $25,000 will firstly count toward non-concessional limits and will be included in assessable income and taxed at marginal tax rates. They may also elect to withdraw the excess contribution from the fund once the ATO has provides them with their determination post completion of their personal tax return. An excess contribution charge may also apply.
In some cases, depending on their age, they will also need to meet a work test to make a super contribution.
Super contribution limits for next year (21/22) are increasing to $27,500 for concessional (deductible limits) and $110,000 for non-concessional limits. Of course, the three year bring forward rule may still apply dependant on their age and super balances. The total superannuation cap that can be converted to a pension will also increase from $1.6 to $1.7mil next financial year.
Have your clients updated their investment strategy and is this correctly documented? This can be particularly important if they have purchased a property in the fund.
2020/2021 Superannuation Pensions – Considerations
It’s important to ensure that your clients have taken the minimum pension prescribed for 20/21 year. This should be paid prior to 30/6. The Government decided that because of Covid 19 the pension rate would be halved this financial year. Whilst this change was due to end on 30th June this year the Government recently announced that it would be extending this reduction to the 21/22 year as well.
For those larger superannuation balances, consideration may also need to be given to when your clients may look to commence a pension. The reason for this is that as mentioned in the previous section, the cap on how much one can have in a pension is increasing to $1.7mil from 1/7/21.
For those in pension phase an increased emphasis should also be placed on beneficiaries and estate planning considerations. Consideration should be given to whether best to have these as binding or non-binding, reversionary or not and how these fit in with their overall estate plan.
Other EOFY Financial Housekeeping Duties
Whenever we talk about financial housekeeping, the other things that come to mind are investment, insurance, and estate planning.
June is a good month to review all your clients’ investments, not only superannuation. With a sharp rebound in many share markets over the last 12 months it may be appropriate to offset any capital gains against prior carried forward losses or rearrange a portfolio by selling a loss-making investment to offset realised gains obtained during the year.
At this time of year, it is also a good time for clients to review their insurance policies to determine whether you have sufficient or perhaps too much cover depending on changed circumstances. Perhaps they are paying for insurance outside of super when it may be possible to have that inside super and may be able to claim the premium as a tax deduction?
Estate planning, whilst not necessarily directly related to super or investment it is very important that your clients review these documents on a regular basis to determine whether they are still appropriate given any recent changes to their circumstances. Anything such as relationship changes for them or a family member, a new addition to your family, asset purchases or sales, recent inheritances, death in the family or increased employment or business risks can be a trigger to re-examine their estate planning arrangements.
Too often at Intello legal we find that people have completed their estate planning 5, 10 or even 20 years ago and then store them in the bottom drawer without any further reference. It goes without saying, that many of the problems and costs associated with protracted estate issues could have been avoided had these been reviewed and addressed whilst the client was still alive.
On behalf of the Intello SMSF and Intello Legal Teams, we would like to thank our financial services partners for your continued support during a financial year that was more challenging than most, and which not only created some challenges for our clients but also our teams. Let’s hope that next financial year sees a continued improvement on the economic front – as well as an improvement in freedom of travel!