There have been so many changes in superannuation in the last few years, it can be hard to keep track with the best ways to maximise your self-managed superannuation fund.
Here are our Top 10 strategies to utilise your Self-Managed Superannuation Fund (SMSF).
1. Maximise Contributions with Personal Superannuation Contributions
If you make a personal contribution into your superannuation fund, you may be able to claim a tax deduction for those contribution. The contribution must be made from your after-tax income i.e. from your bank account directly into your super fund. Before claiming a deduction, you must submit a Notice of Intent to Claim a Deduction for Personal Contribution Form and receive an acknowledgement from your fund. Personal super contributions that are claimed as a tax deduction will count towards your concessional contribution cap (2018-19: $25,000). If you exceed the cap, you will have to pay extra tax and will count to your non-concessional contribution cap.
Suitable for members who are investors externally to their SMSF
2. Direct Property Investment
Buying an SMSF Property or investment property directly through an SMSF is becoming increasingly popular. Direct property investing can provide capital growth and rental income in a very tax advantageous structure. Rental income is taxed at 15% and capital gains at 10% if the property is held for more than 12 months. If you hold your property until you have retired and commenced a pension, both rental income and capital gains could become tax free.
Suitable for people who enjoy property investing
3. Business Real Property
Generally speaking, you cannot buy an SMSF property and live in it, nor can you rent it to a relative, even on commercial terms. However, if you run a business, you can buy a commercial property using your SMSF and lease it to your own business.
Your business would pay rent at market rate to your SMSF, which is a tax-deductible expense for your business. Since rent is not classified as a superannuation contribution, you can still make concessional and non-concessional contributions, subject to your age and contribution caps.
Suitable for members who are investors externally to their SMSF
4. SMSF Property Loans or Limited Recourse Borrowing Arrangements
SMSFs can borrow money to purchase a single acquirable asset such as a property, or a collection of identical assets that have the same market value such as a parcel of shares. This is achieved via a limited recourse borrowing arrangement (LRBA). This arrangement involves the lender’s recourse being limited to the single asset. Borrowing in an SMSF is not without risk although there are several potential benefits including leverage, tax advantages and asset protection.
Suitable for experienced property investors with the ability to service the loan in their SMSF.
5. Recontribution Strategy
A re-contribution strategy is where you withdraw your super and re-contribute it back into super. There a several reasons as to why you may utilise this strategy:
• Estate Planning
• Tax Planning
• To utilise you and your spouse’s Transfer Balance Cap (currently $1.6 million)
• To maximise Centrelink Benefits
• Access government co-contribution and spousal contribution tax offset.
Suitable for members who have retired or over 65 years old, and eligible to make non-concessional contributions
6. Start an Account Based Pension
Once you reach preservation age and have met the relevant retirement conditions, you can allocate up to $1.6 million to start an Account Based Pension. An Account Based Pension converts your accumulation balance into “retirement phase”. In retirement phase, earnings are tax-free.
Suitable for members over 65 years old and members who are retired – aged between preservation age and 64 years old
7. Spousal Contribution Splitting
This strategy involves one member of a couple to split up to 85% of their concessional contributions received within a financial year with their spouse. This opportunity provides an opportunity to equalise their retirement benefits in particular where one spouse is younger, earning a lower income or is not working.
Suitable for couples
8. Separate Investment Strategies/Segregated Assets
Circumstances may warrant separate investment strategies within one fund e.g. Parents with children in one fund. The children have a different investing profile to their parents. Under new legislation if funds have over $1.6 mil in pension phase, they are not entitled to use segregation to determine tax-free earnings. However, there is a difference between segregation for tax and segregation for accounting.
Suitable for funds with both parents and children
9. In Specie Transfers
This involves making a contribution by transferring listed shares or business real property into your SMSF and not receiving cash proceeds. Although this triggers a SMSF capital gains tax event, this will allow future earnings to be made in a concessional tax environment. Subject to contribution caps.
Suitable for investors who hold investments in listed shares and business real property outside super
10. Downsizer Contribution
An older Australian who downsizes can contribute up to $300,000 to super regardless of employment status, Total Superannuation Balance and non-concessional contribution cap. This involves a member 65 years old or older, selling their home and making a contribution within a prescribed period.
Suitable for members over 65 years old
**Bonus Strategy**
11. Carry-forward concessional contributions of unused caps over five years
From 1 July 2018, if your Total Superannuation Balance is less than $500,000 at the end of a financial year, you will have the opportunity to start accumulating the unused portions of your concessional contribution caps from previous years (up to 5 years) in the following financial years. This mechanism will allow you to “catch-up” on concessional caps and make contributions which will count towards your unused concessional contribution caps.
Amounts carried forward that have not been used after five years will expire.
The first year in which you can access unused concessional contributions is the 2019–20 financial year.
Suitable for members with balances less than $500,000 in superannuation
Our SMSF Accountant and Specialist, Leanne Tinyow
Speak to one of experienced SMSF Accountants in Sydney. Leanne Tinyow is Economos’ Head of SMSF Services and is in charge of the compliance and administration of over 400 Self-Managed Super Funds. She is also well versed in helping new clients with SMSF setup and sdministration and can answer several SMSF property related questions.