This SMSF end of financial year checklist contains a number of key items for trustees to review and action prior to 30 June 2020. This 2020 end of financial year is slightly different due to a number of specific items related to COVID-19.
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SMSF End of Financial Year Document Checklist
If you are looking for a checklist for the documentation you need to gather for us to complete annual SMSF accounts for 2020, please visit the following article in our help center: Accounts and Audit Support Documents Checklist
The 30th of June 2020 falls on a Tuesday this year, meaning that any contributions made directly to an SMSF via EFT transfer should occur on Monday 29th of June 2020 at the latest to ensure the contributions clear into the SMSF bank account prior to 30 June 2020.
If payment of a contribution is to be made by cheque or promissory note (not recommend) then the trustee must be in receipt of the cheque (dated on or before 30 June 2020) and the cheque must be cashed (cleared and deposited) into the SMSF bank account as soon as possible upon receipt, i.e. within a few business days following 30 June.
Contribution caps for the year ending 30 June 2020 are as follows:
|Type of Contributions||2020 Cap||Description|
|Concessional Contributions||$25,000||Personal contributions (where as tax deduction is claimed).|
SGC contributions from employment. Salary sacrifice amounts.
|Non-Concessional Contributions||$100,000||Personal after-tax contributions where no tax deduction is claimed.|
Total superannuation balance must be below $1.6m as at 30 June 2019.
|Non-Concessional Contributions (Bring-Forward Triggered)||$300,000||Available where a person is age 64 or under as at 1 July 2019.|
Maximum amount is impacted by total superannuation balance.
With concessional contributions, it’s essential any SMSF members liaise with their employer or payroll office to determine the timing of contributions. Many employers might pay contributions prior to 30 June 2020 to obtain a tax deduction for their business, even though they might not typically pay SGC employer contributions under after the end of the respective financial quarter.
When an individual is looking to claim a personal tax deduction for contributions made they need to ensure:
- They have the appropriate level of personal taxable income (super contributions cannot push an individual into a negative taxable income position)
- A s290-170 form (download PDF from the ATO) is completed the earlier of:
- The date of the lodgement of the individuals personal income tax return; or
- Before 30 June of the income year of which the contribution relates to (i.e. 30 June 2021 for the 2020 financial year)
The ATO has further information on this topic: Notice of intent to claim or vary a deduction for personal super contributions
Compliance Concession for Concessional Contributions 2019
The ATO has said they will not review the timing of the acknowledged notice of intent to claim form for concessional contributions relating to the 2019 financial year, provided these individuals obtain an acknowledgement from their fund before 30 June 2020 – even though they’ve already lodged their personal income tax return.
Typically these forms need to have been lodged with the superannuation fund receiving the contributions before the lodgement of the individuals tax return. This concessional is primarily relevant for members of APRA regulated funds rather than SMSFs.
Unused Carry Forward Concessional Contributions
30 June 2020 is the first SMSF end of financial year where members can take advantage of carry forward unused concessional contributions. The ability to carry forward concessional contributions applies from 1 July 2018, with 2019-20 financial year being the first year an individual can access their unused carry forward concessional amount.
If an individual has unused concessional contributions, i.e. they did not contribute the full $25,000 in 2018-19 or 2019-20, then they can carry forward these amounts for five years on a rolling basis if provided their total superannuation balance is below $500,000 on 30 June (of the year you intend to access the unused amount).
For example, if total concessional contributions in the 2018-19 financial year were $10,000 and the eligibility criteria is met, the unused $15,000 is carried forward. Higher deductible personal contributions of up $40,000 ($15,000 + $25,000) can be made in the 2019-20 financial year. This is useful if a large taxable capital gain is made during the year as it will reduce a persons taxable income and therefore their tax liability from the capital gain.
- Total superannuation balance must be below $500,000 on 30 June of the prior year before you utilise any carried forward amount (e.g. as at 30 June 2019 for the 2020 year); and
- In some cases, an additional 15% tax can apply (30% total) to concessional contributions made to super where income and concessional contributions exceeds certain thresholds ($250,000 in 2019-20). A persons income could be higher than usual in the year when you sell an asset for a capital gain.
Catch up concessional contributions are an excellent SMSF end of financial year strategy.
An in-specie contribution is where an asset is transferred into an SMSF from a member of the fund at market value rather than a cash contribution. In-specie contributions made to SMSFs are limited to assets that are allowed to be acquired from members such as:
- Listed securities (shares, ETFs etc)
- Business real property (i.e. commercial property)
With the significant decline in equity markets across February and March 2020 due to COVID-19, individuals may be holding shares where it may be appropriate to trigger / crystallise a capital gain or loss by transferring them into their SMSF. Advice from a licensed financial advisers should always be sought prior to making these types of transactions.
In addition to in-specie contributions, SMSF members should be aware that the following will also be counted as contributions:
- Paying expenses on behalf of the SMSF
- Undertaking work to increase the value of an asset of the fund (e.g. ‘sweat equity’ on DIY property renovations)
- Forgiving a debit the SMSF owes a member or related party
- Paying a liability on behalf of the fund
- Providing services to an SMSF on less than market value
1 July 2020 Changes to Work Test Age to 67
Currently, where an individual is over the age of 65 at 1 July of a financial year, they need to meet the work test of 40 hours in a consecutive 30 day period to be able to make concessional or non-concessional contributions. This applies for the current SMSF end of financial year 2020.
However, regulations have recently changed that push the age where the work test is required to be met to age 67. This means persons currently aged 65 or 66 who don’t meet the work test will be able to make contributions after 1 July 2020 provide they are under age 67 at that date.
This change is extensively covered in our other recent article: Contribution and work test change for SMSF members aged 65 to 67
A common SMSF end of financial year strategy is for individuals to make non-concessional (after tax contributions). As per the above contribution caps, an amount of $100,000 per anum is able to be made, or $300,000 per individual where the bring-forward is triggered.
It’s important to understand that a persons total superannuation balance impacts the amount of non-concessional contributions that can be made to their SMSF:
|Total Superannuation Balance on 30/06/2019||Non-concessional cap available||Bring-forward period|
|Less than $1.4m||$300,000||3 years|
|$1.4m to $1.5m||$200,000||2 years|
|$1.5 to $1.6m||$100,000||1 year only (current)|
|More than $1.6m||$0||Not available|
It’s important to understand that the total superannuation balance is determined based on 30 June of the prior financial year, i.e. 30 June 2019 for the current SMSF end of financial year 2020.
There are many SMSF members who’s total superannuation balance has dropped significantly between 30 June 2019 and June 2020, however their reduce total superannuation (for example if it’s declined from $1.8m to $1.4m) won’t be relevant until the NEXT 2021 financial year.
Contributions splitting enables a person to transfer or rollover 85% of their concessional contributions for a financial year from their account to their spouses superannuation account.
The due date for splitting contributions made during the 30 June 2019 financial year is 30 June 2020.
If an individuals spouse earns a low or no income, they may be able to claim a tax offset if they contribute to their spouses super fund. The offset is calculated as 18% of contributions made of up to $3,000 where the spouses income is under $37,000.
More information on the spouse super contribution offset can be found here: ATO – Spouse Contributions
For an SMSF to claim a tax exemption on income and capital gains relating to assets that support a pension, it must meet the minimum pension requirements. Review pensions is a critical SMSF end of financial year action item for 2020.
50% Reduction in Minimum Pension for 2020
The Government has reduced the required SMSF minimum pension 2020 draw-down rates for all superannuation pensioners including SMSFs for the current financial year 2019-20 and the next financial year 2020-21.
Draw-down rates for account based pensions are normally 4% per annum for people under 65 an increase as pension recipients age. These rates have been halved for the 2020 financial year and the 2021 financial year to 2% for those people aged 64 or under and 2.5% for those between 65 and 74 years old.
The updated minimum pension drawdown rates for 2019-20 are as follows:
|% of Account Balance|
|65 – 74||5%||2.5%||2.5%|
|75 – 79||6%||3.0%||3.0%|
|80 – 84||7%||3.5%||3.5%|
|85 – 89||9%||4.5%||4.5%|
|90 – 94||11%||5.5%||5.5%|
The minimum pension reduction is covered in detail in the following article: SMSF Minimum Pension 2020 Drawdown Relief
And there are additional FAQs covered in the following article: FAQs SMSF Minimum Pension Reduction 2020-21
New Pensions Commenced
Where a new pension has been commenced during the 2019-20 financial year, the minimum pension amounts above are calculated as a pro-rata. Prior to 30 June is an ideal time to review SMSF member balances and ensure any new pensions have been correctly documented, transfer balance account reporting has been completed and minimum pension requirements have been met.
Any new pensions commenced during the month of June do not require a minimum pension to be taken prior to 30 June of that year.
Condition of Release Triggered
Another pension related SMSF end of financial year action item for 2020 is to determine whether any members of the SMSF have triggered a condition of release.
For an individual aged between 60 and 65, a condition of release is triggered when cease an employment arrangement, so in light of the business impacts of COVID-19, many individuals may have effectively retired early and therefore can either access their super, or where they are drawing a transition to retirement income stream convert it into an account based pension.
The ATO has an excellent web page on conditions of release.
COVID-19 Early Release Payments
As part of it’s response to COVID-19, the Government enabled eligible persons to access $10,000 as a tax free lump sum from their superannuation.
The last day for eligible persons to make an application via their MyGov ATO account is 30 June 2020 (for the 2020 financial year) and 31 December 2020 for the 2021 financial year.
Details regarding the early release payments including eligibility are can be found in our article here: $10,000 Coronavirus Superannuation Payment
SMSF 2019 Annual Return Lodgement
The Australian Tax Office has announced (22 April 2020) an automatic deferral of SMSF annual return lodgments for the 2018-19 financial year to 30 June 2020. To be clear, where an SMSF had an original lodgement date of 15 May 2020, the 2019 SMSF annual return lodgment date is deferred to 30 June.
A key SMSF end of financial year item for 2020 is to ensure the prior 2019 SMSF annual return is lodged before (preferably well before) 30 June 2020. If lodgement is late, the ATO may remove the SMSF from Superfund Lookup, meaning it will not be eligible to receive contributions, rollovers or even open new bank accounts until the lodgements have been brought up to date.
Read more about this here: 2019 SMSF annual return lodgment date deferred to 30 June 2020
Leading up to 30 June is always a great time to undertake some housekeeping of your SMSF investments.
Also read: When to revalue SMSF property investments
A rule of thumb with property investments held by an SMSF is that a valuation will be required at least every three years. Residential properties are typically easier to value and we can often obtain an automated valuation through our system via RP Data. Commercial properties, or properties with limited comparative sales typically would require an independent valuation from a third party.
In general SMSFs are required to value their assets at market value. Depending on the situation, a market valuation may be undertaken by a:
- Registered valuer
- Professional valuation service provider
- Member of a recognised professional valuation body, or
- A person without formal valuation qualifications but who has specific experience or knowledge in a particular area, such as a real estate agent or even the trustees themselves if they are able to follow the ATOs asset valuation approach.
For real property, the valuation may be undertaken by anyone as long it is based on objective and supportable data. A valuation undertaken by a property valuation service provider, including online services or a real estate agent is acceptable.
However, where the value of the asset represents a significant proportion of the fund’s value or where the nature of the asset indicates that the valuation is likely to be complex, the use of a qualified independent valuer should be considered. We can assist with recommending valuers who can undertake SMSF valuations
In general, real estate does not necessarily need a formal valuation each year by a licenced valuer unless there is a significant event that occurs during the year which may affect the previous valuation. A significant event could be one that directly involves the property itself, the fund on a general level such as one of the fund’s members going into pension mode, or if the asset represents a significant portion of the fund’s value.
Where as commercial property is leased to a related party business, it’s also essential that a rental appraisal is undertaken every three years to ensure the lease arrangements is conducted on an arms-length basis – i.e. market rent is being paid.
Property Lease Agreements
In addition to market valuations of properties, ensuring the lease agreements for properties, especially commercial ‘business real property’ leases are up to date and enforce is an important SMSF end of financial year item for 2020. This is especially important where an SMSF leases a commercial property to a related party tenant.
Ensure the related party tenant is adhering to the terms of the lease and has made all appropriate rent and outgoings payments (except where rent relief if being applied – see below). Ensure the lease agreement has not expired and the terms of the lease are at arms length as per a rental appraisal.
As a result of the economic impact of the COVID-19 pandemic and government restrictions imposed causing the widespread and substantial revenue reduction for many Australian businesses, many tenants are seeking rental relief from the landlords. This includes tenants both related and unrelated to the SMSF.
Providing rent relief to tenants is a complex area, and specialist guidance should be sought.
The following Help Center article provides key information on calculating and applying rent relief and documentation templates:
Private Company and Unit Trust Valuations
A key focus area with the ATO, and therefore all independent SMSF auditors over recent years has been the valuation of unlisted assets including private company and unit trust investments. All SMSF assets must be valued at market value in the financial accounts of the fund, however as there is typically no active market for these assets (compared to listed shares) obtaining accurate valuations is more difficult.
The method of valuing the private company shares or units in a private unit trust will vary depending on the exact nature of the investment – for example a unit trust holding real estate would base the valuation of the issued units on the underlying property, whereas shares in a private company operating a business could look at recent arms-length share sales / trades between shareholders or the valuation of the underlying business.
At the end of the financial year if an SMSF has these private / unlisted assets the relevant company or trust should be contacted to obtain an indicative valuation or at least copies of the financial statements to enable a valuation to be completed. If a valuation is not able to be determined, the independent auditors would likely need to qualify the audit report of the SMSF.
Valuation of Precious Metals, Artwork and Crypto-Currency
Similar to private / unlisted investments, SMSF trustees need to provide evidence of the ownership and valuation of non-standard assets such as precious metals (gold, silver, platinum), artwork and collectibles and also crypto-assets including bitcoin etc.
Artwork and Collectibles
Artwork and collectibles should typically be valued every three years by a qualified valuer. Some SMSF trustees may also want to take the opportunity to simplify the administration of their SMSF by either personally buying the artwork from their SMSF at market value, or by transferring it to themselves via an in-specie lump sum payment (if they are eligible to receive a lump sum). For either of these transactions to occur an up to date valuation must be obtained beforehand.
Precious Metals: Gold and Silver Bullion
In regards to precious metals, where any physical metals are held by a third party such as Perth Mint or with a secure storage provider such as Reserve Vault, those providers should provide a holding report and sometimes also an audit report that can be relied upon by the SMSF auditor. Where a trustee of an SMSF stores the physical bullion at their residence, they need to document an inventory, which can be done via taking photos of the relevant bullion (showing serial numbers if possible) together with a 30 June newspaper to help confirm the exact physical holdings as at the end of financial year.
Cryptocurrency reporting is improving, however it’s recommend on or soon after 30 June, SMSF trustees who hold crypto assets as part of their investment strategy download holding a valuation reports, and if necessary a screen shot to confirm the crypto holdings as at the end of the financial year. This applies to both online wallet and broker account as well as offline cold storage wallets. In addition the public keys of all SMSF coin wallets should be provided to enable the independent auditors to review transactions via the various blockchain explorers available.
A useful piece of housekeeping to ease the future administration of an SMSF is to check to ensure your accountant or administrator has all data feeds for the funds underlying bank and investment accounts active. Ensuring everything is turned on prior to 30 June will ensure the following year administration will be more efficient.
Review Capital Gains Position
As per of the investment strategy review (see below), its recommended that SMSF trustees and their advisers determine whether there are any tax advantages of re-balancing the investment portfolio prior to 30 June. It’s important that any such transactions are not ‘wash sales’ to deliberately reduce or eliminate capital gains tax buy selling and then re-purchasing the same investments to crystalise a capital loss, but are part of a legitimate review and adjustment to the investment strategy of the fund.
Investment Strategy Review
Trustees are required to ‘regularly review’ the fund’s investment strategy. We recommend that trustees review the strategy and document the review at least annually or when the circumstances of the fund change.
Where an SMSF has entered into a borrowing arrangement to acquire an asset, trustees should seek advice to structure insurance cover either inside or outside the SMSF to assist in meeting the on-going obligations of the debt repayments. The fund’s ability to meet the on-going debt repayments can be severely jeopardised where one member of the fund dies, as the fund may have needed to utilise contributions that were being made for that member to meet the repayments. Such a scenario could result in the fund having to sell the property.
SMSF Insurance Review
SMSF trustees need to consider the need for insurance cover for the fund members when formulating and reviewing the fund’s investment strategy.
Superannuation funds are only able to offer or take out new insurance cover where the definitions are consistent with the death, terminal illness, permanent incapacity and temporary incapacity conditions of release under the Superannuation Industry Supervision Act.
It’s important that you review insurance inside your SMSF not just for compliance with the law but also effectiveness. An important issue to consider is how any insurance inside your fund should be structured; that is, from where the premiums are paid from the fund and what account any policy proceeds will be paid to inside the fund.
Correctly structuring insurance inside your fund can be complex. We recommend that SMSF Trustees seek the advice of their financial adviser to achieve the most tax effective outcomes for insurance proceeds, especially on the death of a member.
SMSF End of Financial Year Summary
We’ve attempted to make this SMSF end of financial year guide as comprehensive as possible, however if you have any questions or feedback, please contact us or your adviser.