With 30 June fast approaching and the recent budget changes, you may be left scratching your heads thinking…”have I done everything I can for my clients prior to the end of the financial year?”
To help out, we’ve created a checklist of considerations for you to discuss with your clients prior to 30 June 2016.
What to Attend to Before 30 June 2016
Paying Pensions – Minimum/maximum pension letters sent to clients advising them of their respective pension limits.
It is ideal for a pension to be paid in cash.
If a pension is being paid in-specie, partial commutation rules need to be considered.
Unit Trusts – If the fund invests in a related unit trust, is there any capacity to reinvest back into the unit trust and is there any need to collect any unpaid trust distribution entitlement?
It is imperative 30 June 2015 distributions are paid to the SMSF before 30 June 2016 as failure to do so may result in a breach of the in-house asset rules.
- The collectable or personal use asset must not be leased to a related party of the fund
- Collectables and personal use assets cannot be used by any related party of the fund
- Collectables and personal use assets must not be stored or displayed in the private residence of a related party of the fund
- Trustees must make a written record of the reasons for the decisions on where to store the collectables and personal use assets and keep the record for 10 years
- Trustees must ensure that collectables and personal use assets are insured in the name of the fund within seven days of acquisition
- Market value must be determined by a qualified independent valuer
Non-arm’s Length LRBAs – Consider updating the terms and making appropriate payments to ensure all related party LRBA’s meet the safe harbour guidelines by the 31 January 2017 deadline (the deadline was previously 30 June 2016).
- If a member is 65 or more, ensure they meet the gainful employment test, as merely working for a trust or being the director of a company may not meet all the requirements of the gainful employment test.
- Consider contacting the ATO to determine your clients non-concessional contribution records going back to 1 July 2007.
This will be necessary information if the new lifetime non-concessional contribution cap is brought in from the May budget.
You need to ensure you provide all your SMSF clients with their ESA number. They then need to pass this onto their employer.
Note, the ESA number is determined by SMSF software you use, each SMSF doesnot have an individual ESA number; it is software based.
Regulation 995-1.03 Elections (Partial Commutations) – If a member is under 60 and receiving a pension, consider the applicability of reg 995-1.03 election (especially if account based pension).
I.e. fully retired with taxable components, lump sum cap applies to partial commutations, therefore no tax on first $195,000 withdrawn from fund.
Contribution Reserve – Consider implementing a contribution reserve.
When a contribution reserve is utilised effectively, a member is able to contribute double their concessional contribution cap in the one financial year.
Re-Contribution Strategy – Consider whether a re-contribution strategy would benefit the members.
A re-contribution strategy allows for the reduction of death taxes where a death benefit payment is made to a non-dependant.
Note, with the May budget changes, this may not be appropriate.
Binding Death Benefit Nomination – Consider the members binding death benefit nomination.
Binding nominations should be reviewed and, if necessary, revised every three years unless there is an indefinite binding nomination, then it should be reviewed at least every three years to ensure it is still appropriate and will withstand legal challenge.
Trustee – Consideration of whether a corporate trustee should be appointed.
Remember – Where a fund incurs an automatic penalty, the penalty is issued to each individual trustee where a corporate trustee is not used.
Reminder – The new FOFA rules apply from 1 July 2016 whereby the Accountants exemption around any SMSF advice is prohibited unless doing so under an approved AFSL licence
GET 2016YE WORK IN – Start contacting your clients with a schedule to process their SMSF work prior to December 2016.
- 1st Group – 31 October 2016 due date. This group is a priority.
- 2nd Group – SMSFs in 100% pension phase who are expecting tax refunds. These clients will love you.
- 3rd Group – 28 February 2017 due date.
- 4th Group – All other SMSF clients.
Aim to have 80% of all SMSF lodgements completed by 30 November 2016. Make your list; prepare checklists of data required per SMSF; then contact your client and advise them of their scheduled date to have source documents delivered to your office. BE PROACTIVE.
Good luck with organising your team in readiness for a big year in 2017. We are ready to smash out your funds as they come through.