Your 2020 SMSF End of Financial Year (EOFY) Considerations

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The COVID-19 pandemic has affected everyone’s lives, and SMSF trustees are no exception.

While the worst of the pandemic is (hopefully) behind us, trustees still have difficult questions to ponder as they focus on how best to position their SMSF in 2020-21, as well as meet their annual regulatory obligations for 2019-20.

If there is anything in this article that you are unsure about, we encourage you to contact us to discuss your specific circumstances in more detail.

Meeting new pension requirements

To help manage the economic impact of COVID-19, the Government has reduced the minimum drawdown requirements by half on common pensions, such as account-based pensions and market-linked pensions, for 2019-20 and 2020-21. This also occurred after the GFC in 2008, and you will need to consider and amend your pension strategies for these two financial years.

This includes ensuring that the minimum pension has been paid for this financial year. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax free.

Where you have been receiving regular pension payments, it’s likely you may have received more than the required minimum payment for this year. Unless you meet contribution eligibility rules, these funds cannot be returned.

It is also important to amend your pension strategies for 2020-21 to reflect the “new” minimum pension standards.

Contribution changes

Before 30 June, you should review your contribution strategies to ensure you have contributed what you intended to and ensure you are below the contribution caps.

Non-concessional (after-tax) contributions are limited to $100,000 for the 2019 financial year and concessional (before-tax) contributions are limited to $25,000.

Investment strategy and property assessment

Your fund’s investment strategy is a key consideration on the cusp of 2020-21.

It is important to understand that an SMSF’s investment objectives and strategy are not set in stone, with the strategy needing to be reviewed at least once a year and signed off by an auditor.

Before any investment decision is implemented, particularly in a COVID-19 environment, you should examine the impact it will have on the overall portfolio to ensure you are investing in line with your strategy.

For those exposed to property, in some cases with a limited recourse borrowing arrangement (LRBA), there are new considerations.  Many SMSF commercial properties (and, to a lesser extent, residential property) will not be receiving full rental payments under their lease agreements because of COVID-19, meaning less income.

All efforts should be focussed on negotiating with tenants and using the Government support packages to ensure they will be able to withstand the effects of COVID-19. This includes considering the property relief measures the ATO have implemented and the use of the National Cabinet’s Mandatory Rental Code to plan out rental income for this and next financial year.

$1.6 million transfer balance cap and total superannuation balance

A delayed lodgement date of 30 June 2020 is in place for all SMSF trustees as the sector navigates the COVID-19 pandemic.  It is important that you, as an SMSF trustee, understand the position of your SMSF at 30 June before taking any actions which could cause you to breach superannuation laws.

The $1.6 million transfer balance cap applies to SMSF members who are receiving a pension. A $1.6 million transfer balance cap limits the amount of tax-free assets that can support a pension.  Ensure you are aware of the consequences of excess transfer balances and avoid exceeding the cap.

Different total superannuation balance thresholds exist for SMSF. Ensure you are across your fund’s total superannuation balance which may be relevant for contributions, exempt pension income or transfer balance account reporting.

How can we help?

If you need assistance when making decisions about your fund before the end of the 2020 financial year, please feel free to give us a call so that we can discuss in more detail. We will be able to work together to ensure you are maximising your fund to reach your financial goals.

This document contains general advice only and is prepared without taking into account your particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should speak to a licensed financial advisor who should assess its relevance to your individual circumstances.  While The Field Group believes the information is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the corporations Act 2001.

About the author

The Field Group is composed of experts in the fields of Xero accounting, personal tax, self-managed superannuation, audit services, business services, bookkeeping, bench marking, business structuring and ATO Compliance. Based in Melbourne, The Field Group are also able to work with clients all over Australia and are the market leader for accounting services in the Ringwood, Croydon, Chirnside Park, Lilydale and general Melbourne eastern suburb region.
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