Super Navigator News June 2022

‘Navigator ’ Newsletter

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June 2022

With the end of the financial year fast approaching, now is the perfect time to complete some final checks and ensure your SMSF is ready for June 30.

Take a moment to read through this important information. As always if there is anything you are unsure about, please contact us to discuss your specific circumstances.

Our team would like to thank you for your support and look forward to working together to identify opportunities to improve your financial future.

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TRACEY GORDIJN

Prepare for the end of the financial year

Contribution caps

Before 30 June, review contribution strategies to confirm eligibility and all planned contributions are completed and applicable caps are adhered to.

The current 2022 Financial Year Nonconcessional (after-tax) contributions are limited to $110,000 and concessional (before-tax) contributions are limited to $27,500.

Members aged under 67 can take advantage of bring-forward rules allowing them to contribute up to $330,000 in a single year (or over a three year period) subject to their total super balance on 30 June of the previous financial year.

For contributions to be included in the current financial year, monies must be received/deposited into Super Fund bank accounts by COB 30 June. This year 30 June falls on a Thursday, so it would be prudent to finalise contribution deposits by Friday 24 June.

Superannuation pensions

In 2020 the Government introduced a temporary 50% reduction to superannuation minimum pension drawdown rates in response to the economic impact of COVID-19. This measure has been extended to the 2023 financial year.

Where drawing a pension, members need to ensure they meet the reduced minimum pension withdrawal by 30 June.

The minimum pension is reset each year according to age and member super balance on 30 June.

Failing to meet these requirements, means a Fund will be subject to 15% tax on pension investments, losing its tax free status.

Co-contributions

If you meet the relevant work tests and earn less than $56,112, you may wish to consider making a nonconcessional contribution to qualify for a Government super co-contribution up to $500.

Carry-forward concessional contributions •

Was your total superannuation balance less than $500,000 on 30 June 2021?

• Are you under age 67 or between age 67–74 and worked at least 40 hours over 30 consecutive days during the financial year?

• Since 1 July 2018 did you contribute less than the annual concessional cap in any year?

• Do you have taxable income?

If you answer yes to these questions, you may be entitled to make additional concessional contributions and claim a higher tax deduction. Unused cap amounts can be carried forward for up to five years.

This initiative provides greater flexibility where you experience intermittent work, insufficient surplus funds to contribute or planning to offset personal tax events.

Tax offset for spouse contributions

If you have a spouse (married or de facto) who is earning a low income or not working, you may be able to claim a tax offset if you make an eligible contribution on their behalf.

Provided certain conditions are met, the tax offset is up to $540 per year for the income year you are claiming the tax offset.

SMSF fund expenses

For members in the accumulation phase, it is important that any expenses are actually incurred or paid before 30 June to be deductible in the current financial year.

How we can help

If you need assistance making decisions or help navigating the superannuation contribution rules before the end of the 2022 financial year, please contact us so we can work together to ensure you are maximising your fund to reach your financial goals. superanswers@phillipsons.com.au

New ‘Financial’ Year Resolutions Several key super changes which may impact your ability to contribute to your SMSF, are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members to grow their retirement savings.

What are the changes?

Originally announced in the 2021 Federal Budget, the following changes apply from 1 July 2022: • Individuals up to the age of 74, will no longer need to meet a work test to make voluntary, non-deductible, contributions • Individuals up to the age of 75, with a total super balance under $1.7 million, will have the opportunity to make large non-concessional contributions (possibly up to three years’ worth) in a single year • The minimum age to make downsizer contributions will reduce to 60, allowing more individuals to use the proceeds from the sale of their home, to fund their retirement

How can you benefit from these changes?

The Work Test Currently, if you are aged 67 to 74, you can only make voluntary contributions to super if you have worked at least 40 hours over 30 consecutive days in the financial year, or you satisfy the recently retired test. The work test must be met prior to contributing.

From 1 July 2022, this work test will only apply to you if you wish to claim a tax deduction for the voluntary contributions you make to your SMSF. If making personal deductible contributions, from 1 July 2022, you will be able to meet the work test at any time in the financial year.

This means that the work test will no longer apply to contributions you make under a salary sacrifice arrangement or for any personal contributions that you don’t claim a tax deduction for, such as non- concessional contributions.

Fund Trustees will no longer have to apply the work test at the time they accept the contribution from their members.

This includes when the member provides a Notice of intent to claim or vary a personal super contribution deduction.

For individuals 67 to 74 years old wishing to claim a personal superannuation deduction for their contribution, the ATO will be administering the work test at the time they lodge their income tax return.

Non-concessional Contributions

Currently, you can only access the ‘bring-forward’ rules if you were under the age of 67 on 1 July of the financial year.

From 1 July 2022, the cut-off age will increase to 75.

However, the total super balance thresholds still apply.

This means that if you are 74 on 1 July 2022 and you have a total super balance of less than $1.48m, you may be able to have one last boost to your retirement savings by making a $330,000 non-concessional contribution to your SMSF. The contribution simply must be made, no later than 28 days after the month in which you turn 75.

Downsizer Contributions

Currently, you can only make a downsizer contribution if you are 65 or older at the time of the contribution, having satisfied the other eligibility requirements.

From 1 July 2022, the minimum age will reduce to 60. All other eligibility rules remain unchanged. The maximum amount of downsizer contributions that can be made remains at $300,000 per person or $600,000 per couple.

The downsizer contribution is not included in your nonconcessional cap, meaning this could present a couple selling their home with a one-off opportunity to boost your retirement savings by $1.26m.

In addition to the above changes, we will also see a rise in the preservation age and the introduction of important obligations for directors of SMSF Corporate Trustees.

Preservation turns 59 on the 1st July 2022

The legislated rise in the superannuation preservation age continues this year. The minimum age you can access your superannuation rises again from 1 July 2022 to age 59 for those born after 30th June 1962 (this is up from age 58 for those born before that date).

The incremental increases in preservation age are important to be aware of, so Trustees don’t pay benefits to a member who is not yet eligible.

All contributions made by or on behalf of a member since 30 June 1999, plus all earnings are preserved benefits, meaning access is generally restricted to members who have reached preservation age and met a condition of release.

Trustees face penalties if payment rules are breached. If you are unsure of your eligibility to access your superannuation, please contact us.

BRENT BUTCHER superanswers@phillipsons.com.au

What is a Director Indentification Number?

Do you need one?

You may have heard about the new rules which require directors of Australian companies to obtain a Director Identification Number (director ID).

The new requirement to obtain a director ID also applies to individuals who have an SMSF with a corporate trustee, which is why we wanted to bring this new requirement to your attention. All directors of your corporate trustee will need to apply for their own director ID by the prescribed deadline.

An application for a director ID must be made individually and only by those who are applying for the director ID. As you are required to prove your identity as part of the process, our firm, or any other third party, is not able to apply for a director ID on your behalf.

What is a Director Identification Number?

A director ID is a unique identifier that directors need to apply for, like a tax file number. Directors of RENEE MATTSON multiple companies only need one director ID, to be will be used across all companies. A director ID is kept forever even if the director changes companies, resign from the director role(s), changes name, or moves overseas.

Why do directors need a Director Identification Number?

As part of the Government’s Digital Business Plan, it is rolling out a Modernising Business Registers program which includes the introduction of director IDs. The main purpose is to prevent the use of false or fraudulent director identities but it will also improve the efficiency of the system making it easier to meet registration obligations and trace director activity and relationships. By improving the integrity and security of business data it is expected to reduce the risk of unlawful activity.

How to apply for a Director ID Step 1: Set up myGovID. If you do not already have a myGovID you will need to before you can apply for your director ID online. You can find information on how to setup your myGovID by downloading the app https://www.mygovid.gov.au/set-up

Step 2: Gather your documents You will need information that the ATO already knows about you to verify your identity. You will need your tax file number, your residential address held by the ATO and information from two of the following documents: • Bank account details • ATO notice of assessment • Super account details • Dividend statement • Centrelink payment summary • PAYG payment summary Most of this information can be downloaded from your myGov account so it may be worthwhile linking to this service ahead of applying for your director ID. Note: myGovID is different to your myGov account. Your myGov account allows you to link to and access online services provided by the ATO, Centrelink, Medicare and more, while myGovID is an app that enables you to prove who you are and to log in to a range of government online services, including myGov.

Step 3: Complete your application Once you have a myGovID and information to verify your identity, you are ready to apply for your director ID. You can click on the following link to start the application process. The application process is quick and should take you less than five minutes. https://abrs.gov.au/persons/ui/secure/start/applyForDirectorID?action=applyfordirectorid Further information about the application process, and step-by-step instructions, can be found here: https://www.abrs.gov.au/ director-identification-number/apply-director-identification-number.

Deadline is 30 November Reach out to us if you need further information. Although we are unable to apply for a director ID on your behalf, we would be more than happy to guide you through the process. superanswers@phillipsons.com.au

Start with the end in mind There's a lot to know when you start a business.

Setting yourself up properly — legally and financially — is key, so you can focus on making your business a success without constantly back tracking to firm up your strategy.

However, we often see new business owners put their own personal financial plans on the back burner – choosing to focus on the short term hurdles and preferring to worry about longer term matters once they get settled in their business.

The more time you have to save the better the outcome and the easier it will be to achieve. Time gives you the basis to smooth out your budget, and ride through the inevitable highs and lows of investing.

To that we say – give your own Super front burner priority.

Superannuation is an obligation for employers, but not self employed – business owners must be self disciplined and ensure that during their journey they build options for their retirement.

Make super a priority

Superannuation may not be at the top of your list when you start your business but it's important to think about it early.

Super is the most tax-efficient way to build retirement assets.

While your focus is on the here and now, it is easy to relegate super to a tomorrow problem.

There are two very important reasons why you must think about Super today.

The first is that any business concept must be capable of supporting a Super contribution strategy for owners active in the business. If the venture can not provide you with a sufficient return to cover Super in addition to your income, then you should seriously question the financial viability of the venture. An employment scenario will provide SG superannuation in addition to wages income – your business venture should be able to stack up against that comparison.

DARREN JENNINGS

Next generation has it all - or does it?

Many nearing or already in the drawdown phase of their Super, look back and see with the benefit of hindsight, what they could have done with another 5, 10 or 20 years in accumulation.

If you identify with this, and your own children, family or friends are among the next generation, with time on their side, make sure you share the wisdom of hindsight. Especially if they operate their own business – chances are they are not maximising their retirement planning while they have the time to do it comfortably.

Another reason you should focus on Super sooner not later is due to the most fundamental of investment philosophies.

Latest Super Stats

As a member of a Self Managed Super Fund, you are in good company - and the sector is growing.

Here is the latest ATO information from the 2021 income tax lodgement and trends for member balances.

New SMSF Windups Net Growth Total SMSF SMSF Members 2021 ATO Data 25,312 2,187 23,125 597,900 1,114,529

Average asset balance per member

2019–20 $695,757

2018–19 $690,656

2017–18 $657,543

2016–17 $627,471

2015–16 $577,159

Contact us:

Phone: 03 5144 4566 Email: superanswers@phillipsons.com.au Web: www.phillipsons.com.au To unsubscribe: queries@phillipsons.com.au

Tracey Gordijn, Brent Butcher and Darren Jennings are representatives of Phillipsons Financial Planning Pty Ltd (AFSL No: 332836).

In preparing this information, Phillipsons has not taken into account any particular person’s objectives, financial situation or needs.

Investors should, before acting on this information, consider the appropriateness of this information, having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision. superanswers@phillipsons.com.au