The 2020 year has been significant for SMSF trustees. And with the end of tax year fast approaching many are considering how to get their SMSF set to enjoy the most tax benefits.
Check your pension payments
If your SMSF is in pension phase it does not pay tax on its investment income. And to retain that tax-free benefit you must make a minimum pension payment each year to the SMSF member. If you do not pay the minimum pension part of your pension, monies might go back to an accumulation phase (and then pay tax).
The pension payments this year have been halved to take into account the poor market returns many investors have felt. So, if you need to make a minimum pension payment prior to 30 June make sure you use the new lower pension rates.
Also read: End of year tax tips for landlords
Also read: What can I claim on tax this year?
Also read: How do you know if you need a tax agent?
Look at share losses
If you are going to make a capital profit on the sale of an investment, now might be a time to do some tax planning. If you have another investment that has gone down in value you could choose to sell that investment and offset the profit from the first investment against the loss on the second.
Most SMSF trustees can only trigger a tax loss on an investment when it is sold. So even if a company is in liquidation the SMSF might not be able to claim a tax deduction for that loss.
If you are intending to sell shares, generate a tax loss, and then immediately repurchase the same shares the ATO might consider this as a tax sham. So care needs to be taken to ensure that the sale is legitimate and not done with the intention to trigger a tax loss and retain the underlying investment.
Check the conditions for early release
Many SMSF members have been considering the early release of superannuation. A SMSF trustee can do an early release of $10,000 to a member before 30 June. If the member has become unemployed, suffered a reduction in work hours or received some other type of government assistance, they might be eligible to access the SMSF money early.
Importantly a SMSF trustee can only release the money once the ATO has authorised you to do so. Just because you control the money and you know the member asking for the money does not allow you to self-assess the early release.
Make your contributions before 30 June
If you want to make a contribution to your super fund before 30 June the SMSF must receive the contribution before or on 30 June. Many banks allow you to transfer money to your SMSF on 30 June but if the payment is processed by the banks a few days later you risk not being able to enjoy the tax deductions or the contribution thresholds for the current year.
Know your caps
If you contribute more than your maximum limits each year, you run the risk of being forced to repay the contribution or potentially incurring more tax than you need. The caps (generally) are $25,000 as a tax-deductible contribution and $100,000 as an after-tax contribution.
The contribution caps also be affected by your superannuation balance at 30 June 2019 and your age. So, understanding the tax impact of contributing, together with good records to see your current contributions is important to getting a good tax outcome.
Get your documents clear
Some SMSF landlords have had to give rent free periods to their tenants. And the ATO has indicated that giving a COVID-19 rent abatement is , provided that it is on commercial terms.
If your SMSF is renting commercial property to a related party make sure you have evidence of how the rent abatement is commercial and justified.
By Ross Forrester, Director, Westcourt Family Business Accountants.
Ross is a Chartered Accountant, Chartered Tax Advisor and an Accredited Family Business Advisor.