Superannuation update: year end planning (June 2020)
With the end of the 2020 financial year fast approaching, combined with the added impact of the COVID-19 outbreak, it is important now more than ever for contribution, pension and investment strategies to be reviewed by both individuals personally and by the trustees of self-managed superannuation funds. Below we summarise just a few of these areas of consideration.
Recap on contribution limits
| Concessional contributions | Non-concessional contributions |
| $25,000 per annum | $100,000 per annum - for individuals with a total superannuation balance of less than $1.6m at the previous 30 June $nil - for anyone with a total superannuation balance of $1.6m or more at the previous 30 June |
| Unused carry-forward concessional contributions – available for individuals with a total superannuation balance of less than $500,000 at the previous 30 June | Bring forward non-concessional contributions - available for individuals aged under 65 up to a maximum of $300,000 depending on the individual’s total superannuation balance at the previous 30 June |
For the year ended 30 June 2020, the work test rules apply for people aged 65 or over and the usual notice requirements continue to apply for personal deductible concessional contributions. We note that the work test rule is currently being amended to lift the age to 67 effective 1 July 2020, providing contribution planning opportunities for individuals near or within this age range.
Unused concessional contributions
From 1 July 2019 members of superannuation funds can make additional catch-up contributions using unused concessional contributions from the previous year.
The ability to make a catch-up concessional contribution applies to individuals whose Total Superannuation Balance (TSB) was less than $500,000 at 30 June of the previous financial year. Any unused amounts, commencing from 1 July 2018, can be carried forward but expire if unused after five years.
This new provision provides a tax planning opportunity for family groups which can distribute income to individuals, such as children over 18, who have unused concessional contribution caps. For example, if a child has turned 18 before the end of the current financial year, there is the ability for them to make a personal concessional contribution of up to $50,000 against taxable income. Please ensure that any superannuation guarantee on part time work has been taken into account since 1 July 2018. This will allow the respective individual to invest more superannuation benefits into the superannuation environment for long term wealth creation. It may also help the relevant individual save and withdraw up to $30,000 under the first home savers scheme discussed in more detail below.
First home super saver scheme
The First Home Super Saver Scheme (FHSSS) enables eligible members who make voluntary superannuation contributions from 1 July 2017 of up to $15,000 per annum to withdraw these contributions to help fund a deposit on their first home. If eligible, the maximum amount of contributions that can be withdrawn under the scheme is $30,000 for individuals or $60,000 for couples (plus the associated earnings).
You will be eligible for the FHSSS if:
- you live in the property you buy (or intend to in the near future); and
- you intend to live on the property for at least six months within the first 12 months of ownership.
Contribution opportunities for 2021 financial year
In the current environment of COVID-19 we have seen the global economy take a major economic downturn with widespread impacts on a variety of different sectors and industries. For some superannuation funds this may have had, and will likely continue to have, a dramatic impact on members balances.
The likely depressed values of assets within the superannuation environment will provide an opportunity for members whose benefits at 1 July 2019 were close to or over $1.6 million, to review bring forward non-concessional contribution strategies and consider whether it may be appropriate to make further non-concessional contributions from 1 July 2020.
Changes in minimum pension requirements
In March 2020, as part of the second COVID-19 economic response stimulus package, the Government announced a relief measure to support superannuation retirees. This included a reduction in the superannuation minimum income stream drawdown requirements for account-based income streams, market linked income streams and similar products by 50% for the years ended 30 June 2020 and 30 June 2021.
It is important to note, where a member has already withdrawn over their reduced minimum, no mechanism has been provided by the government to return these surplus amounts.
The table below illustrates the reduction per age bracket for account based income streams:
| Age | Minimum % pre-COVID-19 | Minimum % reduced |
<65 |
     4% |
2% |
65-74 |
    5% |
2.5% |
75-79 |
    6% |
3% |
80-84 |
    7% |
3.5% |
85-89 |
    9% |
4.5% |
90-94 |
    11% |
5.5% |
95+ |
    14% |
7% |
Where an individual has a lump sum withdrawal arrangement currently in place, this should now be reviewed and additional documentation put into effect by 30 June 2020 instructing the trustee how they wish to receive their benefits for the 2021 financial year.
Rental income reductions
As a result of the COVID-19 economic downturn, trustees of SMSFs owning commercial properties may be concerned about their tenants ability to continue to pay rent and the market has seen numerous instances of tenants negotiating with their landlords to vary either the amount of rent, in some cases down to nil, or to defer payment of rent to a future period.
Where the tenant is a related party, this adds an additional onus on trustees to ensure that all negotiations are documented and that any agreements reached are on commercial terms with sufficient evidence retained to support this position.
Retirement planning
For those individuals who are nearing retirement, have recently retired or are over age 65, now might be a good time to review your retirement strategies or to consider if it’s appropriate to commence either an account based income stream, translation to retirement income stream or make a lump sum withdrawal from your superannuation fund.
Before implementing any strategy, a number of factors need to be taken into consideration including Transfer Balance Cap (TBC) limitations, age requirements, taxation impact for both the individual and SMSF (if applicable) and the estate planning needs of the individuals. An individual's TBC, currently $1.6m, limits the amount in total which is able to be transferred into the retirement phase and penalties will apply should this limit be exceeded.
Ultimately any decision made needs to be appropriately documented and reported to the Australian Taxation Office. You should always seek appropriate investment advice prior to implementing any retirement strategies.
Market value of assets
One of the requirements for trustees of SMSFs is to ensure that all assets of the fund are recorded in the financial statements each year at a fair market value, noting property valuations are required every 3 years unless the value of the property differs materially to the financial statement value. While some assets are easy to value, it is a much more difficult task for other assets such as unlisted investments and property. Sufficient evidence needs to be obtained to support any valuation to satisfy the auditor of the fund.
The impact of COVID-19 has also meant that the previous value of some assets may need to be updated, such as commercial and rental properties. It may now be harder to value such assets and a valuation from an appropriately qualified person, such as a real estate agent or independent registered valuer, may now be required.
Estate planning
For some individuals, superannuation balances form a significant portion of their overall wealth and it is important to regularly review and update SMSF trust deeds and any binding death benefit or income stream reversionary nominations. One of the impacts of COVID-19 is the effect it has had on people’s perception of their mortality. It is an opportune time to consider your overall estate planning strategy, taking into consideration the taxation implications. We have been undertaking a number of extensive reviews for clients so please let us know if we can be of any assistance in this regard.
