When it comes to SMSFs and your end of financial year obligations you could try to wing it by yourself but you might find yourself facing a raft of ATO imposed penalties.
Managing your SMSF requires quite a bit of effort to comply with the rules and report on time. If you can’t, or don’t want to make the time and effort, you will need a professional to do it for you, because getting it wrong can be costly.
Here we’ve prepared an End of Financial Year (EOFY) SMSF Checklist that considers FIVE key matters you need to know about.
1. Investment Strategy
SMSF investment strategies are a hot topic for the ATO at present. ATO concerns relate to the use of off the shelf products which do not necessarily account for the individual needs of each SMSF or of the members of the SMSF.
You will need to discuss your investment strategy with your share broker or financial adviser to ensure it is specific to your personal circumstances and, importantly, your investments comply with super laws and your SMSF Trust Deed. Your investment strategy must also be reviewed (and documented) each year to reflect any changes in your circumstances.
2. Trustee Reporting Obligations
Strict reporting obligations include: appointing an approved SMSF auditor at least 45 days before the SMSF annual return is due; payment of minimum annual income streams in pension phase; and valuation of the fund’s assets.
Some tasks may not need to be undertaken every year, such as valuations of real property, however if the valuation is materially different, then it is important to engage a qualified valuer to provide an update. This need may arise due to a change in market conditions or impacts of natural disasters.
3. SMSF compliance
It’s important that your SMSF is compliant with legislation and this includes ensuring it meets obligations legislated in recent years including:
• The $1.6 million transfer balance cap
• Concessional and non-concessional contributions caps
• High income tax thresholds for members, and
• Carry-forward concessional contributions.
4. Paying income streams
If you are paying a pension to members or they are transitioning to a retirement pension, it’s important to establish whether the minimum income drawdown has been paid from the fund and that the maximum income drawdown is not exceeded.
If the fund’s assets have declined in value, it may be difficult to ascertain this until the previous year’s financial reports are completed. Once values are established, you may need to stop paying yourself a regular income stream or take corrective action immediately if you have exceeded the maximum or not achieved the minimum.
Importantly, temporary COVID-19 measures that have halved the minimum draw down amount and increased access to super on compassionate grounds may also create further complication.
5. Seek advice
As a Trustee or Director of the SMSF Trust, you are ultimately accountable for managing your SMSF. There are many aspects of SMSF compliance and management that need to be considered. I strongly encourage you to liaise with your tax adviser, fund administrator, financial adviser, solictor and share broker to make the most of the flexibility that your SMSF has to offer.
In our experience, you should be prepared to work on your SMSF every week both to capitalise on the benefits an SMSF offers AND to avoid the urgency (and panic) in the days or weeks leading up to the EOFY. Ideally you should start your SMSF EOFY planning after Christmas, then get serious about preparations from the start of April.
Managing an SMSF is time consuming at any time, but current social distancing rules may cause more delays as they restrict face to face contact with the professional advisers that you would usually rely on for help with understanding issues and making decisions.
While there are many mundane tasks, there is complexity too. For example, did you know your accountant who may have advised you in the past may continue to give tax and administration advice, but they may no longer be authorised to give financial product advice on many matters relating to super or SMSF?
As we have highlighted here, managing an SMSF involves adhering to strict responsibilities and obligations and this often involves coordinating with a number of different professionals.
For assistance that includes providing financial advice that’s right for you and coordinating with your accountant and solicitor, so you can be well prepared for EOFY and enjoy beneficial taxation and retirement outcomes for your circumstances, please contact me on 0438 946 638 or email firstname.lastname@example.org.
Phillip Dibben is a financial adviser at Active Financial Management. Active Financial Management and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306 trading as Fortnum Financial Advisers.
This information does not consider your personal circumstances (including taxation) and is of a general nature only. You should not act on the information provided without first obtaining advice specific to your circumstances.