A self managed super fund (SMSF) can be a great way to run your own superannuation investments and retain control over assets and decisions. However while there are a number of upsides for the right clients when it comes to running a SMSF, one of the downsides is that you – as the trustee – are completely responsible for the fund. This can become a little more complicated when there are changes to existing legislation, so it’s vital that you always remain aware of the rules and any amendments that occur. With the Federal Government’s budget repair strategy, there have been a number of key changes in the 2015 tax year that should be noted.
The age at which you can access your superannuation is known as the ‘preservation age’. In 1998 this was set at 55. For those who were born before July 1, 1960, preservation is applicable, however a phased increase in preservation age for the years after this is applicable. This means that if a person turned 55 after July 1 this year, their preservation age is 56. This means that they cannot access their superannuation benefits until the following year. It is extremely important to note this distinction as some members may incorrectly assume that they are entitled to access their benefit when they turn 55, which after this tax year is technically no longer the case.
Concessional contributions cap
In the previous financial year, the general concessional contributions caps were increased by $5,000 for pre-tax contributions and $30,000 for after-tax contributions for everyone. There were therefore no additional increases applied across the board in the 2015 tax year. It’s important to then not make the mistake of assuming that they increase each year. There will, however, be a temporary $5,000 increase on the cap for those aged over 49 at 30 June 2015, bringing it to $35,000 for the 2015/16 tax year.
In the 2014/15 federal budget, the government announced that anyone with contributions in excess of the non-concessional contributions gap (currently set at $180,000) will be permitted to withdraw the excess contributions, as well as 85% of the associated earnings. If they opt to do this, the associated earnings will need to be included in their assessable income so as to be taxed at the appropriate marginal tax rates (which have also increased). If the excess amount is not withdrawn, then the individual will be taxed on it and the super fund must release this tax payment.
Low rate cap
There have been some chronological changes to low rate cap amounts in recent years. For payments made to a member over 60, the low rate cap amount increased from $180,000 in 2013/14 to $185,000 in 2014/15, and will be around $195,000 in 2015/16. It’s important to note that this amount is reduced by any amounts previously applied to the total cap amount.
Terminal illness access
From 1 July 2015, if two doctors classify a member as terminally ill then they will be able to gain access to their superannuation. The definition of terminal illness has been changed to mean less than 24 months to live where the previous definition was 12 months.
Government co-contribution amounts
The government’s maximum co-contribution payment of $500 for eligible persons has increased over time, with the lower income threshold for 2014/15 being $34,488, and the higher income threshold at $49,488. For the 2015/16 financial year, these thresholds are $35,454 and $50,424 respectively.
Superannuation guarantee contributions
The mandated super contribution rates for employers have been increasing in recent years, but after the 2014/15 financial year they will remain fixed at the rate of 9.5% until 2021.
SMSF supervisory levy
Self managed superannuation fund levies have now been transitioned to be paid in the same year. The levy itself remains at $259, but has been phased in over the last two financial years from a timing perspective, so it is payable at the time of lodgement of the Annual Return.
There are just some of the main changes to be aware of for the recent and current tax years. Even if you have an adviser, remaining up to date with changes to SMSF legislation will ensure that you don’t encounter any surprises. Furthermore, the trustee of a self managed super fund is ultimately responsible for the administration and compliance of their fund in accordance with legislation and regulations so it is vital that you understand as much as possible