Big four firm outlines new financial year checklist for SMSFs

With end of financial year planning now out of the way, Deloitte Private partner Liz Westover outlined some of the areas that might need to be reviewed with SMSF clients for the 2019–20 financial year.

Minutes for withdrawals above the pension minimum

Speaking at a recent Chartered Accountants Australia and New Zealand event, Ms Westover said where clients are planning to withdraw more than the pension, there may be certain minutes that need to be made.

“If you’re above the minimum and you want to treat some of them as lump sums from accumulation and so on, then get your documents in place because the ATO has a view that they must be prospective, they can’t be retrospective,” Ms Westover said.

Update clients on the new rates and thresholds

SMSF professionals should also ensure their clients are up to date with the rates and thresholds for the 2019–20 financial year.

“The ATO released this months ago, but there are plenty of organisations that just have a two-page list of rates and thresholds that you might want to distribute to your clients,” she said.

Sort out data feeds

Ms Westover said using proper SMSF administration software can create a lot of efficiency for SMSF firms, but practitioners need to ensure that the data feeds are actually in place.

“Now is a good opportunity to get clients to sign authorisations to get those data feeds in place,” she said.

Contributions splitting

Contributions splitting is a good strategy for evening up the balances between spouses, she said.

If an SMSF client made contributions last financial year, then this financial year they can make an election to split up to 85 per cent of those concessional contributions to their partner.

“So, if I’m looking to bring my partner’s balance up, then that’s a great way to do it. It’s a bit of a slow burn, but if you’re talking to younger clients where they can benefit from that over time, contribution splitting can be a good way to build up that second person’s balance,” she explained.

Determining lodgement dates for 2019–20

If it’s a new fund, then the client’s lodgement date will be in February, or if there are funds that were late last financial year, then they will have an October deadline, Ms Westover explained.

“Most clients will generally be in that May–June bucket, but as you’re planning your work, if you just get a good sense of when funds are actually going to be due for lodgement, that can help you work through your workflows and make sure that nobody is late,” she said.

“The ATO has a very strong focus on non-lodgements at the moment.”

Individual versus corporate trustee

While the ATO’s statistics show that 81 per cent of funds are now being set up with a corporate trustee, she said, there are still a lot of funds around with corporate trustees.

“I won’t set a client up [in an SMSF] without a corporate trustee. Nevertheless, we are still in a situation where 59 per cent have corporate trustees and 41 per cent have individual trustees,” she said.

While the process of changing a fund with individual trustees to a corporate trustee is a lengthy process, she said, the new financial year may be a good opportunity to revisit this with clients that still have individual trustees and encourage them to switch to a corporate trustee.

“Everyone has a fresh mind in the new financial year, so that might be a great exercise to actually do,” she said.

Addressing potential residency issues

If SMSF professionals have clients that are heading off overseas on secondments, they will need to consider how this might impact the fund and whether it will jeopardise the fund’s residency status, Ms Westover warned.

“I had a client recently who joined his mum’s fund because he wanted to help her out in terms of the investment side, which was fine, but then he decided he was going to move overseas and semi-permanently, so we had some real issues around the fund in terms of residency and what we did,” she said.

“We talked him through what all the implications were, what he could actually do, and in the end we made the decision that we were going to get him back out of the fund, and in actual fact he was in a better position to help his mother with some of the investments out of the fund than he was being in the fund because he didn’t have control over then.”

One of the other options would have been to turn the fund into a small APRA fund, she said.

“He didn’t want to do that one, but it’s important to have those discussions with your clients. Are you moving overseas and what impact is it going to have on your fund?” she said.

Estate planning

Ms Westover said estate planning is probably the single biggest issue for SMSF clients, especially following the implementation of the super reforms on 1 July 2017.

Previously, it didn’t matter how much clients had in their income streams, she said, as they could just have a reversionary pension, and in their mind, it was sorted.

“Now we potentially have to pull a lot of money out of super as a result of the transfer balance cap provisions, so you need to be thinking about how to deal with the accumulation accounts. I might have a reversionary pension in place on the income stream account, but what about the accumulation account, do I need a binding death benefit nomination?” she said.

“I still see a lot of clients who do not understand that superannuation does not automatically form part of their estate and that their will won’t have any jurisdiction over their superannuation benefits. I’m actually quite astounded by the amount of times that I still see that.”

Miranda Brownlee
28 June 2019
smsfadviser.com