EOFY Action Checklist – Superannuation Trustees

Author: Emma Partenza, Manager, TAG Financial Services

With another end of financial year almost in sight, it is prudent for trustees to start planning and attending to matters requiring attention prior to 30 June.

This is to ensure there is sufficient time to obtain the required information for a smooth 2023 administration and audit process to be completed; as well as ensuring pensions are paid, and contributions taken advantage of, for the financial year – before it is all too late.

Pensions

One of the requirements of trustee’s in paying a pension to members of the fund is that a minimum pension must be paid annually. Adherence to the payment standards ensures that the pension does not cease, and earnings in respect to retirement phase pensions are exempt from tax (in the form of exempt current pension income deduction).

It is critical all pensions are paid well before 30 June 2023, to ensure earnings can remain exempt from tax.

As part of temporary COVID relief measures, the (previous) Federal Government again extended the 50% reduction in the annual pension payment to members through to 30 June 2023.

Payments of transition to retirement income streams have a 10% maximum capped amount on amounts that can be paid. These pensions do not enjoy tax exempt earnings until they enter the retirement phase, and they are not subject to the Transfer Balance Cap limits.

For members in receipt of TRIS’ it is prudent to determine whether they turned age 65 during the financial year, as their pension will convert into the retirement phase. The 10% maximum withdrawal restriction is removed; it is subject to the member’s TBC and ECPI can be claimed. We will be reviewing and contacting any of our clients in this situation.

In instances where members may have withdrawn amounts greater than their minimum pension requirement for the financial year (and have maximised their personal transfer balance cap), payments could be tax effectively classified as lump sums from accumulation or partial commutation from pensions – where members have instructions in place with the trustee on how to allocate payments taken in excess. Where there is no such direction in place, it may be beneficial for your client to put one in place for FY2023 for these payments to be automatically allocated in accordance with members’ instructions. Alternatively, a member is required to request a lump sum from the trustee prior to each payment.

Action required:

• • Review pensions paid to date for members. Ensure any remainder is paid immediately to ensure the reduced minimum is met.
  • Should the member put in place direction for the trustees in respect to the treatment of excess pension payments? Please contact us to discuss further.
  • Ensure appropriate documentation has been put in place for TRIS members who turned age 65 as their TRIS is now in the retirement phase. Please contact us to discuss further/assist with the documentation.

Commencement of pensions

Have members satisfied a condition of release during the financial year and can access their superannuation? Consideration should be given to the indexation of the transfer balance cap to $1,900,000 on 1 July 2023 Members not currently in receipt of tax free retirement phase income streams could benefit from delaying commencement of pensions until the new financial year to have a larger amount attributed to their retirement phase pension.

 TBAR reporting changes

On 1 July 2023, all superannuation funds (regardless of whether they were previously classified as an annual or quarterly lodger for TBAR purposes) will be required to lodge any transfer balance cap (TBC) events 28 days after the quarters end. This will include all events in the 2022-23 financial year (due by 28 October 2023). Consideration will need to be given to identifying and having access to events in a timelier manner.

Where accounts cannot be up to date on a quarterly basis, the ATO advise an estimate of the TBC event to be reported by the deadline and amend the event later when accurate information comes to light.

 Contributions

The 2022-23 financial year has brought into effect new streamlined changes to contributions. Many members may wish to maximise their contributions into super prior to the end of the financial year. Don’t leave payments to the last minute – all contributions must be received into the super fund’s bank account no later than 30 June 2023 to be attributed to the current year’s cap. Should amounts be received by the fund on 1 or 2 July 2023, they are a contribution in respect to the 2024 financial year.

Concessional Contributions 

Each member’s cap is $27,500 p.a.

Individuals aged 67 to 74 years (inclusive) will still have to meet the work test to make personal deductible contributions.

Where a member will make a personal concessional contribution (that is, claim a tax deduction in their personal income tax return), ensure the member has sufficient taxable income to claim the tax deduction. Where this is not the case, the contribution will become non-concessional, potentially causing implications for the member where they are ineligible or their non-concessional cap is nil.

Catchup contributions could be utilised this financial year where the member had a total super balance on 30 June 2022 of less than $500,000.

Be careful of contributions made in June 2022 that were reserved to be allocated to the member’s benefit in July 2022 as the member may already have utilised their annual concessional contribution cap.

Non-Concessional Contributions

Where a member’s total super balance on 30 June 2022 was less than $1,700,000, members are generally entitled to make a non-concessional contribution. The annual cap for FY2023 remains at $110,000. The work test has now been abolished in respect of any member making a NCC from age 67-75 from 1 July 2022 onwards.

The work test, which required an individual to work for 40 hours in 30 consecutive days to be able to contribute to super, has now been eased. This means that anyone under the age of 75 will be able to make salary sacrifice and non-concessional contributions into super irrespective of their employment situation.

Members (up to age 75) may be entitled to the non-concessional cap bring forward rules (of up to $330,000 over 3 years) – however, proceed with caution here and ensure to evaluate their circumstances for eligibility (especially where they may have already triggered this).

Factor in reduced bring forward timeframes and amounts for members who have a TSB between $1,480,000 and $1,700,000:

A member can utilise the full 3 year bring forward NCC cap (provided they were not current in a bring forward period) just prior to their 75th Birthday (even though contributions cannot ordinarily be made post age 75).

Contribution caps remain unchanged for the 2023/34 year, the bring forward amounts will change, due to changes in total superannuation balance (TSB), as follows:

Action required:

• • Ensure any last contributions up to the Concessional or Non Concessional Contribution cap limits are made ASAP.
  • Ensure the notice of intent to claim personal contributions is prepared and provided to the superannuation fund at the time of making the contribution.
  • Where reserving a contribution (in June 2023) is involved, ensure a request to adjust the concessional contributions form is lodged with the ATO to avoid an excess concessional contribution being issued.

Careful planning is needed to avoid excesses either for FY2023 or future financial years.

Investment Valuations

Investments held by a superannuation fund must be valued at market value each financial year. You do not need to obtain an external valuation each year, however, every three years is a good rule of thumb, unless a significant event has occurred that has impacted its value in the interim. It’s timely to contact real estate agents to ensure an up-to-date valuation is obtained for 30 June 2023.

The ATO advises that when valuing real property, relevant factors and considerations may include:

• • the value of similar properties and recent comparable sales results
  • the amount that was paid for the property in an arm’s length market – if the purchase was recent and no events have materially affected its value since the purchase
  • independent appraisals from a real estate agent (kerbside)
  • whether the property has undergone improvements since it was last valued
  • the rates notice (if consistent with other valuation evidence)
  • for commercial properties, net income yields (not sufficient evidence on their own and only appropriate where tenants are unrelated).

Action required:

• • Obtain property valuations for 30 June 2023 from real estate agents.
  • Obtain rental appraisals for 30 June 2023 from real estate agents (for commercial properties rented by the member’s business).

Investment strategy

Trustees must formulate, regularly review and give effect to an investment strategy that has regard to the whole of the circumstances of the fund – per SIS Regulation 4.09.

Trustees must ensure the fund’s investments are in line with their strategy. Where this is not the case, the strategy must be updated. During the financial year, if the fund invested into other assets, such as property or entered into a limited recourse borrowing arrangement, that it had not in the past, it is now prudent to ensure this is reflected in the fund’s strategy. Additionally, the strategy needs to be reviewed where a member may have entered the pension phase during the financial year.

For funds investing in a sole (or predominantly sole) asset class, the lack of diversification needs to be addressed in the investment strategy together with the trustee’s evaluation of risk levels in respect to doing so.

Action required:

• • Trustees to review the fund’s current investment strategy to ensure it is in line with the fund’s current investment mix.

Estate planning

As part of any annual review, it is critical to ensure members have addressed their estate planning needs, including Wills, Enduring Powers of Attorney and Binding Death Benefit Nominations.

Death benefit nominations can now be made non-lapsing under SIS legislation, so they never expire unless revoked. Members who have had these in place for quite some time would be worth a review and potential update.

Action required:

• • Have members addressed their estate planning needs? Please contact us if you need any assistance or would like to discuss further.

Trust Deed

There have been significant changes to superannuation since 2007, which may or may not be expressly provided for in the fund’s deed. It is generally recommended trustees update the fund’s trust deed every 5-7 years, so it remains up to date and relevant to its members.

In some cases, a trust deed specifically details what is allowable (outside of SIS legislation), especially in relation to binding death benefit nominations, for example. An up-to-date deed will provide greater flexibility for members and important strategic opportunities for the fund.

Action required:

• • Review the fund’s current trust deed and consider updating it where it is ageing.

Any questions?
If you have questions or need any assistance, please do not hesitate to contact us on 9886 0800 or via email.

Join us for our Superannuation Strategies Seminar
We will be taking a deep dive into this topic at our upcoming Superannuation Strategies Seminar.

Specialist Advice
If you would like to discuss a project, please contact us. Our advice is quoted upfront for your approval before commencement.

Webinars On Demand
We have lots of informative webinars by our financial experts. Watch them any time on demand.

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2023. Please do not reproduce without the expressed written consent of the author.