Superannuation is more critical than it has ever been. If having an ageing population has taught us anything, it is how managing money now can have substantial ramifications for your retirement plan.
Merge your super
Every super account you have comes with a set of fees. It is worth your while chasing down inactive accounts and putting all your super into the one account to reduce fees and maximise the investment benefits.
If you can budget putting more of your salary away into a super account every month, you can reap multiple rewards. First, you can use the extra super payments to offset your pre-tax payments up to the current concessional contribution cap of $25,000 per year and after-tax contributions of $100,000. You can also build up your super while you can afford to.
Your investment strategy should depend on the amount of risk you are willing to take. This will vary on where you are in your career. A growth investment option, which is high risk, might suit you if you are in the early stages of your career development. However, as your income stabilises to your goal amount, it might be wise to change super funds to a lower risk option that will protect your growing retirement nest egg.
The Government has introduced new measures to allow SMSF members to access their super for their first home or make contributions to their super from the sale of downsizing their home. SMSFs should be aware of the following:
From 1 July 2018, SMSF members who are 65 or over and exchange a contract of sale of their main residence may be eligible to make a down sizer contribution of up to $300,000 into their super without affecting their total super balance or contributions cap for the year.
This contribution will count towards the transfer balance cap and be taken into account for determining eligibility for the age pension.
SMSF members do not have to purchase another home to access this measure. However, the contribution can only be made once; it cannot be used for the sale of a second main residence.
The First Home Super Saver Scheme
SMSF members looking to get into the property market can now use some help from their SMSF under the First Home Super Saver Scheme.
As of 1 July 2018, SMSF members over 18 years of age can apply to release their voluntary concessional and non-concessional contributions made from 1 July 2017, along with associate earnings to purchase their first home.
Voluntary contributions made since 1 July 2017 of up to a maximum of $15,000 from any one financial year or a total of $30,000 across all years can be applied for.
The ATO is warning self-managed super fund (SMSF) trustees about the risks of some emerging retirement planning arrangements.
Retirees or SMSF trustees who are involved in any illegal arrangement, even by accident, may face severe penalties, risk losing their retirement savings, and potentially, their rights as a trustee to manage their own fund.
The Tax Office has released additional information through their Super Scheme Smart Program to help educate retirees and trustees of these complex tax avoidance schemes and arrangements.
Super Scheme Smart provides case studies and information packs to ensure taxpayers are informed about illegal arrangements including what warning signs to look for and where to go for help.
Many of the arrangements are cleverly designed to look legitimate, give a taxpayer a minimal or zero amount of tax or tax refund or concession, aim to give a present day tax benefit and involve a fair amount of paper shuffling.
Some arrangements may be structured in a way which appears to satisfy certain regulatory rules, however, these arrangements are often ‘too good to be true’ and are in fact illegal.
Among the ATO’s previous concerns about dividend stripping arrangements and contrived arrangements involving diversion of personal services income to an SMSF, there are some new arrangements on the Tax Office’s radar, including:
- Artificial arrangements involving SMSFs and related-party property development ventures.
- Arrangements where an individual or related entity grants a legal life interest over a commercial property to an SMSF. This results in the rental income from the property being diverted to the SMSF and taxed at lower rates whilst the individual taxation or related entity retains legal ownership of the property.
- Arrangements where individuals (including SMSF members) deliberately exceed their non-concessional contributions cap to manipulate the taxable component and non-taxable component of their fund balance upon refund of the excess.
If you are concerned about your involvement with such arrangements, you can contact the Tax Office early to work towards a resolution.