With the end of the financial year (EOFY) just around the corner, it’s important to ensure your SMSF meets its compliance obligations.
The rules around SMSFs are strict and if you don’t do things the right way, your fund could end up paying extra tax.
Here’s some key tasks trustees need to complete prior to 30 June 2022.
Check minimum pension drawdowns
Check that any members being paid an account-based pension have received the right amount for the current financial year.
Even though the government has extended its 50 per cent reduction in the minimum pension payment, underpayment can cause compliance problems for your SMSF. So ensure pensioner members have been paid at least their minimum percentage factor prior to 30 June. Documentation needs to be updated and minuted to avoid any problems with the fund’s auditor.
Trustees should also discuss with members receiving a super pension whether they intend taking advantage of the temporary extension in the coming financial year.
Stay within the contribution rules
An individual member’s annual cap may be different to these amounts, so check that members have verified their current position before accepting contributions. Otherwise, they may face tax penalties.
Legislation has now passed abolishing the work test from 1 July 2022 for contributions made by older SMSF members. For this EOFY, however, trustees still need to check whether contributing members aged between 67 and 75 meet the work test (or work test exemption) before accepting their contributions.
Verify bring-forward contributions
An important EOFY strategy for many SMSF members is using a bring-forward arrangement to access up to three years annual non-concessional contribution caps. For eligible fund members, this can be up to $330,000 in a single year.
SMSF trustees should remind members commencing a bring-forward arrangement they need to meet all the eligibility criteria and that their personal non-concessional cap may be lower if they already have a large Total Super Balance (over $1.48 million).
Although members aged 67 to 74 are unable to commence a bring-forward arrangement in 2021-22, your fund will be able to accept these contributions from older members once 1 July 2022 arrives.
Review the fund’s investment strategy
Other important trustee tasks prior to EOFY are checking the fund has a documented investment strategy and that it has been reviewed for its ongoing suitability.
Trustees are required to minute all investment decisions, including why an investment was chosen and whether all trustees agreed with the decision.
You also need to ensure your SMSF’s investments (such as real estate and collectibles) are valued at market value prior to EOFY. The valuation must be based on objective data with supporting documentation, so if a professional valuation is required, don’t leave it to the last minute.
Get the paperwork in place
Trustees are also required to consider whether members should be provided with life and Total and Permanent Disability (TPD) insurance, so ensure this has been reviewed and documented.
If your SMSF is required to hold insurance for members, check the current insurance policies provide adequate cover and all premiums are paid before 30 June.
Also check the SMSF’s recordkeeping is updated, fully documented and ready for inspection by the fund’s auditor or accountant. This includes minuting trustee decisions; collating bank, dividend and investment statements; and preparing details of any asset purchases or sales.
Review the capital gains position
If your SMSF has members in accumulation phase, review any capital gains made during the financial year and the period these assets have been held.
It may be worth considering whether to dispose of investments with unrealised capital losses if the fund made capital gains during 2021-22. The realised capital losses can then be offset against the capital gains to potentially reduce the fund’s tax bill.
Prepare for the audit
Trustees must have appointed an approved SMSF auditor no later than 45 days before you need to lodge your SMSF annual return. You need to have an auditor organised, even if no contributions or payments have been made during 2021-22.
SMSF auditors are required to examine both the fund’s financial statements and assess its compliance with super law, so ensuring all the fund’s records are in order and ready for review will streamline the audit process.
9 tips for SMSF trustees
- Ensure financial statements are signed in line with the 2021-22 rules. These require signatures from all trustees in SMSFs with two trustees, or at least half in funds with three or more trustees.
- Check all trustees have registered for a Director Identification Number (Director ID).
- Ensure any COVID-19 rental relief provided to tenants is fully documented using a signed trustee minute.
- Confirm member contributions are banked by the fund prior to June 30 so members can claim a tax deduction.
- Check any payments made on behalf of the SMSF (such as expenses, debt forgiveness or in-specie contributions) came from the fund’s bank account.
- Ensure the fund has fully documented all tax matters (such as deductions and capital gains and losses).
- Get a valid Notice of Intent to Claim or Vary a Deduction from any fund members planning to claim a deduction and commence an income stream.
- Check off-market transfers of personal shareholdings into the fund are completed well before June 30.
- Verify in-house assets have remained under 5 per cent of the fund’s value during the year.
If you would like help preparing your SMSF for the financial year-end, contact our office today.