Tax time can be a stressful and confusing time for many of us, often doubly so if you have a self-managed super fund (SMSF).
You may be inclined to leave all the heavy lifting to an accountant, but it’s still important to understand what you’re legally required to do to avoid any mistakes.
We asked the experts what their top tax tips for people with an SMSF were, as well as common traps people fall into around tax time.
Top tax tips for people with an SMSF
Sam Paalvast, SMSF manager at Findex, said the key for people with an SMSF to make tax time easier is planning.
“To help ensure trustees get the timing correct, planning prior to 30 June each year is critical to have all required items actioned,” Mr Paalvast told Savings.com.au.
“If planning starts early, then everything should fall into place for a smooth tax time. To assist with year-end tax planning, trustees should make themselves familiar with current legislation and understand how it impacts them.”
He added it was wise to engage a tax adviser before June 30.
“Trustees are ultimately responsible for the management of their SMSF, so receiving advice before actioning anything at tax time can help save you a lot of headaches down the line and help avoid penalties if you get it wrong.”
Generally, trustees focus on three main areas around tax time for their SMSF: contributions, pensions, and fund specific items.
Mark Chapman, Director of Tax Communication at H&R Block Australia, said June 30 (End of Financial Year) falls on a Wednesday this year, so it was vital contributions had cleared into the SMSF bank account by that date.
“With concessional contributions, it’s essential that SMSF members liaise with their employer or payroll office to determine the timing of contributions,” Mr Chapman told Savings.com.au.
“Many employers accrue superannuation guarantee contributions prior to the year-end, even though they might not pay them until after the end of the financial quarter.
“Try to get your employer to actually pay the contribution by 30 June. That way, both parties benefit; the employer gets a deduction and the SMSF receives the contribution in this financial year.”
Mr Chapman said a common SMSF end of financial year strategy was for individuals to make non-concessional (after-tax) contributions.
“An amount of $100,000 per annum can made, or $300,000 per individual where the bring-forward from prior years is triggered,” he said.
Mr Chapman said the limits on non-concessional contributions into an SMSF depends on the member’s total super balance.
Total Superannuation Balance on 30/06/2020
Non-concessional cap available
Less than $1.4m
$1.4m to $1.5m
$1.5 to $1.6m
1 year only (current)
More than $1.6m
“Note that the total superannuation balance is determined based on 30 June of the prior financial year, i.e. 30 June 2020 for the current year ended 30 June 2021,” he said.
For trustees looking to complete contribution splitting, Mr Chapman said it was vital this was done prior to EOFY.
“Contributions splitting enables a person to transfer or rollover 85% of their concessional contributions for a financial year from their account to their spouse’s superannuation account. The due date for splitting contributions made during the 30 June 2020 financial year is 30 June 2021.”
Fund specific items
Mr Paalvast said it was important to discuss fund specific items with an adviser prior to June 30.
“Meet with your adviser to discuss any unlisted trust distributions to ensure prior year receivables are cleared and review any outstanding audit items and address them before 30 June.
“You should also review property items including lease agreements to ensure they are still current and rental amounts received compared to what the lease says should be paid for the period.”
Mr Paalvast said people with SMSFs in the pension stage of their life needed to review both before EOFY.
“Once you have reviewed your minimum pension requirement and drawdowns taken to date, discuss with your adviser on how you plan to draw any shortfall amounts prior to 30 June.
“Keep in mind that you may need to sell down investments if insufficient cash is held so ensure you allow sufficient time to do this.”
Common mistakes people with an SMSF make at tax time
According to Mr Paalvast, a common mistake people with an SMSF made at tax time was failing to meet the June 30 deadline for contributions to be paid into the fund meaning the contribution does not count towards the current year contribution caps.
“This can cause some adverse personal tax implications if clients are claiming a personal tax-deductible contribution, or clients exceed their contribution caps.”
Another common mistake Mr Paalvast found was the minimum pension drawdown requirements not being met, which could have adverse implications for the SMSF, including:
“The fund could lose its exempt current pension income for the period meaning it will pay a higher rate of tax than it would if the minimum drawdown was satisfied.”
“If a fund is habitually unable to meet the pension standards, there may be compliance issues.”
“If clients are receiving Centrelink entitlements, pensions could lose their 'grandfathered' status, which may have personal implications.”
Mr Paalvast said property related issues could also cause problems at tax time. These included:
“Rent amounts being missed.”
“Expenses being paid by the wrong entity and not in line with the lease.”
Lastly, he said issues with payables could see the ATO come down hard on trustees.
“Uncleared receivables or payables could result in a loan to or a loan from a related party, which could cause compliance issues and potentially result in an audit contravention report being lodged with the ATO,” Mr Paalvast said.
Tax traps when SMSFs divorce or split assets
When a relationship breaks down, current legislation allows an interest in superannuation, or a super payment, to be divided or split by agreement or court order, according to H&R Block’s Mr Chapman.
“When couples divorce, funds held within the superannuation system generally need to remain within the superannuation system unless the individual has satisfied a condition of release, such as retiring after reaching the preservation age, turning 65 or starting a transition to retirement pension,” Mr Chapman said.
“If you run a SMSF and you’re separating from your spouse, an additional level of complication is added to the picture, as both spouses are usually trustees of the fund.
“Whatever personal difficulties the trustees may have with each other, they are still obliged to act in the best interests of all the members of the fund.”
Mr Chapman said both spouses had to work together to administer the fund, or it may be made non-compliant by the ATO.
However, he noted the problem for many SMSFs was the fund was tied up in one non-liquid asses like property.
“So, if a court order determines that a $2m fund is to be split 50:50 between the parties, but the only asset of the fund is a property worth $2m, how can that court order be satisfied unless the property is sold?
“There are solutions to that, usually involving either borrowing to pay out the departing spouse or restructuring the trust such that a separate interest inside the existing trust is set up for the benefit of the departing spouse.
“Either way, specialist advice will be essential.”
Shares, cryptocurrency and SMSFs
Author and chartered accountant Dr Adrian Raftery, a.k.a. ‘Mr Taxman’, said if you were a share market or cryptocurrency investor, you could reduce your tax by using your SMSF.
“The cryptocurrency and share markets have had a pretty good run in 2020/21, bouncing back strongly from the declines during the peak of the global COVID-19 pandemic,” Dr Raftery told Savings.com.au.
“If you made a nice capital gain then you can reduce Capital Gains Tax (CGT) by selling any non-performing shares or crypto that you may be currently holding.
“Any unrealised gains should be sold after 1 July to defer tax for another year. And remember that if you hold shares or crypto for more than 12 months you reduce CGT by a third in an SMSF.
“Any capital losses incurred can be carried forward to future years.”
Savings.com.au’s two cents
SMSFs can be a tax minefield and putting just a toe wrong can see the ATO come down on you like a tonne of bricks, rendering your fund non-compliant and potentially stopping you from ever having another one. Keep yourself informed and understand how to best keep you and your fund compliant. Consider seeking out a qualified specialist to help you where possible.
Photo by Soroush Karimi on Unsplash