Self-Managed Super Funds - What's new this year?

We are well into the new financial year and if you have a Self-Managed Super Fund (SMSF) there have some important changes for the 2021/2022 tax year to look out for.

Increase to Superannuation Guarantee (SG) rate

From 1 July 2021 the Superannuation Guarantee (SG) contribution rate has increased to 10% (up from 9.5). Make sure that your Accounting and Payroll software has been updated and is correctly accounting for this change.

Six Member Funds

Up until 30th June 2021, the SIS Act section 17A (1)(a) required an SMSF to have fewer than 5 members. A Bill has now been passed that has amended the SIS act and this section now requires an SMSF to have fewer than 7 members. In addition to changing the minimum number of members, the bill also amends how many trustees are required to sign documents. The legislation will require at least 50% of trustees or directors of a trustee company to sign documentation including Financial Statements, Trustee Representations, and other legal document executions.

Pooling superannuation assets with more members may create new opportunities inside an SMSF such as property purchases but there also could additional complications by adding additional members to your SMSF such as how you go about decision making. It is also important to find out if your SMSF’s current Trust Deed allows you to add more than 4 members, it may need to be amended.

The ATO’s system are now ready to accept the additional members but before you take advantage of this new legislation it would be prudent to speak to your Financial Adviser.

Changes to Contribution Caps

From 1st July 2021 the Contribution caps with increased for both concessional and non-concessional.

The concessional cap has increased from $25,000 to $27,500 per member. Concessional contributions include Superannuation Guarantee, salary sacrifice contributions or personal contributions that you are claiming a tax deduction for. If you have a salary sacrifice arrangement in place it may be worthwhile to review it with the additional cap now available in mind.

The non-concessional cap has increased from $100,000 to $110,000 per member. Non-concessional contributions are personal contributions that you are not claiming a tax deduction for. Bring forward arrangement amounts have also changed with the increase in the non-concessional cap. The ATO has produced a detailed explanation of Bring Forward arrangements and a handy table outlining the new amounts here - Bring-forward arrangements | Australian Taxation Office (ato.gov.au)

Reminder – For the 2021 financial year onwards individual over 67 will be required to meet the work test for the fund to accept contributions from the member. Watch this space though because in the May 2021 Federal Budget, the government announced it planned to repeal the current work test for making super contributions for people aged between 67 and 74. Whilst not yet law, this is expected to apply from 1 July 2022.

Indexation of Transfer Balance Cap

The transfer balance cap (TBC) is the limit on how much money an individual can transfer from their accumulation superannuation account into a tax-free retirement phase pension account. It is essentially the amount and individual can have in retirement phase. A single cap applies to an individual even if they have multiple pension accounts. The general transfer balance cap was indexed from 1 July 2021 to $1.7m, up from $1.6m.

Every individual will have their own personal transfer balance cap, somewhere between $1.6 and $1.7 million, depending on their circumstances that relate to the types and timing historical transfer balance cap events for that member. All Transfer balance cap events are required to be reported to the ATO.

If you exceed your personal transfer balance cap, you may have to either commute the excess from one or more of your retirement income streams or pay tax on the earning related to that excess.

Auditor Independence

Each year your SMSF needs to be audited by an ASIC registered SMSF Auditor. Whilst the Accounting bodies have always had rules in place to encourage independence, from 1st July SMSF Auditors will need to meet the requirement of an updated code of ethics that provides for a narrower definition of what constitutes Auditor independence. Essentially, the code has clearly defined what non-assurance services the auditor can provide to the trustee of an SMSF. This will ensure that SMSF audits can’t be done by members of the same network or within the same firm. Whilst this does not impact The Fox group clients as we use independent Auditors, it is an important change as it protects the integrity of the industry

Minimum Pension Limits

The minimum pension amounts were halved by the Government for the 2020 financial year when COVID hit and have since been extended to cover 2021 and 2022. At this point the minimum pension amounts are scheduled to increase back to normal levels on 1 July 2022. The current pension limits are as follows:

Age Rate (%)

Under 65 2%

65-74 2.5%

75-79 3%

80-84 3.5%

85-89 4.5%

90-94 5.5%

95 and over 7%

Non-arm’s Length Expenses

ATO ruling (LCR 2021/2) was recently released that deals with the issue of when transactions between a self-managed superannuation fund and another party potentially create non arm’s length expenses (NALE). These types of expenses happen when services are provided to the fund by a trustee of the fund. Examples include Real Estate Services, Financial Planning Services, Accounting Services, Building Services etc. This expense will be NALE if the two parties down deal on an arm’s length basis. If the trustee is a Real Estate Agent and they don’t charge their own fund to manage the funds property even though they use the same software and processes they do for other clients. The value of this fee would be NALE and the income from that property will be Non-arm’s Length Income (NALI) and taxed at 45% rather than 15%.

If an expense relates to all the assets of the fund rather than a specific asset such as bookkeeping fees and is determined as NALE, all the income of the fund will be taxed at 45%.

This can be a complex area, but it is important that a Trustee of an SMSF that is providing services understands that there is a difference between providing a service as Trustee and providing that service in another capacity. If you have any doubt you should speak with your Accountant to ensure that your fund continues to access the attractive 15% tax rate.