An article from our partner, Quill Group.
The end of the 2020/21 financial year is approaching – a great time to perform some financial “housekeeping”, according to your personal circumstances.
For many individuals, Superannuation and the management of their SMSF is often an important consideration at this time of year. So, let’s look at some of the important issues (remembering that this may not be relevant to your personal circumstances and so very important that you talk to an adviser or obtain personal advice relevant to you).
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 you are funding insurance within super, but separately from your SMSF and wanting to claim a deduction for this, then that amount is also included in the $25,000 limit.
For any contributions to count toward this financial year the contributions need to be made and cleared within the fund prior to 30/6/2021. It’s important to note that employer contributions for June will normally only hit your fund after 30/6 and therefore, only count toward next year’s limits. The same applies to last year’s contributions.
Any amounts over the $25,000 will firstly toward what is called your non concessional (or after-tax contribution limit). They will be taxed at your marginal tax rate as if you had received this amount as income and a small excess contribution charge of around 3% pa may apply. You may also elect to withdraw the excess contribution from the fund once the ATO has provided you with their determination post completion of your personal tax return.
In some cases, depending on your age, you 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. The other change here is that the cap on the amount of total superannuation that can be converted to a pension will increase from $1.6 to $1.7mil next financial year.
The employer Super Guarantee (SG) rate of super for this financial year is 9.5% increasing to 10% next year and will gradually increase to 12% over time.
2020/2021 Superannuation Pensions – Considerations
Important to ensure that you have taken the minimum pension prescribed for 20/21 year. This rate of pension depends on a combination of your balance as at the start of the financial year as well as your age. The Government decided that because of Covid-19, the pension rate would be halved this financial year. That is, if the minimum rate of pension in your case was 5% of the super balance, then you would only need to take out 2.5% as a minimum (this amount would have been indicated in your last SMSF return). Whilst the change in minimum pension rates 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. This does not mean that you must take the reduced level of pension, as you would still have the option of taking an amount above this minimum level.
If you’ve not already done so, consideration may also need to be given, for those larger super balances, as to when you would look to commence a pension. The reason for this is that as mentioned in the previous section, the cap on how much you can have in a pension is increasing to $1.7mil from 1/7/21.
Other 2020/2021 EOFY Housekeeping Matters
Whenever we think about financial housekeeping beyond superannuation, we consider investment, insurance, and estate planning.
June is a good month to review all your 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 your portfolio by selling a loss-making investment to offset realised gains obtained during this year. Again, this depends on your individual circumstances as one size does not fit all.
At this time of year, it is also a good time to review your insurance policies to determine whether you have sufficient or perhaps too much cover depending on changed circumstances. Are you perhaps paying for insurance outside of super when it may be possible to have that inside super and be able to claim the premium as a tax deduction? Remember: not all insurances can be claimed as a deduction.
By estate planning we refer mainly to wills and powers of attorney. Whilst not necessarily directly related to super or investment it is very important that you review these documents on a regular basis to determine whether they are still appropriate given any recent changes to your circumstances. Anything such as relationship changes for you or a family member, 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 your estate planning arrangements. Too often we find that people will complete their estate planning 5, 10 or even 20 years ago and then store it in the bottom drawer without any further reference. It goes without saying, that many of the problems and costs associated with protracted estate issues we see at Intello could have been avoided if wills and powers of attorney had been reviewed and addressed whilst the individual was still alive. If you’d like your estate planning reviewed by our specialist department, contact us.