26 June 2019

David Lloyd

Manager - SMSF

With 30 June only a few days away, we want to remind you to finalise any outstanding EOFY transactions and draw your attention to the below important considerations.

 

Minimum Pensions

If you are in pension phase, ensure that you have drawn your minimum pension before 30 June 2019. If you fail to do so, the pension account will cease and all assets supporting the pension will be deemed not to be in retirement phase for the entire financial year. As a result, your fund will lose its tax exemption on investment earnings.

 

Contributions

Before 1 July, you may want to consider taking advantage of concessional (pre-tax) or non-concessional (after-tax) contributions. The current concessional contributions cap is $25,000 and the current non-concessional contributions cap is $100,000. It is important to note that individuals with a balance of or in excess of $1.6 million are not eligible to make non-concessional contributions. (Please note: If you are aged 65-74, you must be working for a minimum of 40 hours in any 30 consecutive day period to make contributions to superannuation.) Alternatively, you may want to consider downsizing contributions (if eligible) which could enable you to make a contribution of up to $300,000, outside the usual non-concessional contributions cap.

 

Protecting Your Super Package Act

From 1 July 2019, the Federal Government’s ‘Protecting Your Super Package Act’ will come into effect, designed to protect Australians’ super savings from unnecessary erosion by fees and insurance costs. The legislation includes changes to fees, the transfer of inactive low-balance accounts to the Australian Tax Office (ATO), and ceasing insurance for inactive members.

In an insurance context, while the policy intent of the reforms has merit for certain demographics where insurance cover is not needed, the unintended impact for certain members will be that if proactive action is not taken by the member themselves, their Life, TPD and Income Protection insurance cover owned within that super account may be cancelled.

The trigger for the reforms to impact a member’s insurance is typically if there has been no activity in the super account for 16 months (e.g. a contribution). Women (and men) on extended parental leave after the birth of a child are an obvious example as contributions are likely to have been paused while they are not working. The key issue is that if a member’s health or financial circumstances have changed since the cover was put in place or assumed to be held/retained, a member who loses their insurance cover may not be able to replicate that cover in the future as they may need to be re-underwritten.

If you have any questions in relation to the above, or your self-managed superannuation fund more broadly, please get in touch.

 

Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.