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Olivia Long, Head of SMSF, shares insights on how to best prepare yourself and your self-managed super fund in 2020.

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Topics covered:

• Preparation for 2020 (0:15)
• Greatest opportunities for clients (1:56)
• Must do’s for clients (3:44)
• Risks and how to mitigate them (5:17)
• Emerging trends (6:25)
• Investment property (7:10)
• Key takeaways (8:51)

In detail:

Commencing 2020

As we commence the new calendar year two key items are front of mind at present.

First is an important change that took effect on the 1^st January 2020 that impacts all Employers and Employees and the amount of super guarantee paid.

Under current arrangements, if an employee elects to salary sacrifice part of their wage, otherwise known as ordinary time earnings, an Employer can elect to reduce the amount of superannuation they pay to that employee to the base salary less any amounts sacrificed.

The good news for Employees is that this how now changed. Employers must now contribute 9.5% of an employees ordinary time earnings irrespective of whether they are salary sacrificing or not. 

The next important message we have is for those clients who have prior years outstanding or who are usually late in lodging their SMSF returns.

From the 1^st October last year, if an SMSF is more than 2 weeks late lodging any annual return and hasn’t requested an extension, their status will be changed from a ‘Complying’ fund to ‘regulation details removed’.

This means that employers may not make contributions into the fund nor can rollovers be made into the fund until the fund’s lodgements have been brought up to date.

I strongly recommend SMSF trustees get their affairs in order and ensure all information is provided to their Accountant when requested.

SMSF opportunities for clients

Recontribution strategies remain popular.  They are used to equalize balances between spouses or even to put a member’s balance in a more favorable tax position from an estate planning point of view.

Super splitting between spouses.  Where clients don’t meet a condition of release to be able to utilise a recontribution strategy but want to begin the process of equalizing balances they are able to split 85% of the taxable contributions made on their behalf for the previous financial year to their spouse

The Downsizer contribution is still relatively new. Essentially if eligible people who are over 65 sell their home and don’t meet the work test requirement, they can now contribute up to $300k per member to super, giving their super balance a boost.

And finally, from 1 July 2020 we have good news for those age 65 and 66. They will now be able to make contributions to super without the need to meet the work test. This is great news because provided an SMSF member is aged 66 at the start of the income year they can utilise the bring-forward rule, enabling people in this age bracket to contribute an additional $300k into superannuation.

What are the must do’s this year for clients?

It’s more important now than ever that SMSF trustees review their investment strategy and assets to ensure they are in line with their strategy because the ATO has a current focus on diversification.

As many Accountants may know, last year they wrote to nearly 18k SMSF Trustees who had more than 90% of their super in one asset and asked them to review their investment strategies to ensure they have considered all the required areas.

The required areas include:

• Diversification of fund assets
• Risks associated with inadequate diversification
• Likely return from investments having regard to their retirement objectives and expected cash flow requirements
• Liquidity of fund investments and the ability to pay benefits to members
• Whether to hold insurance cover

Ensure your SMSF trustees make time to sit down and review their investment strategies and if required, document the reasons why they’ve made certain decisions.

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG for contact information and information about remuneration and associations with product issuers. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.