With less than a month to go to the start of the new calendar year, it's important to not only reflect on what happened in 2017, but also what 2018 has in store and what you should be focusing on. While many do this from a personal perspective, if you have a self-managed superannuation fund (SMSF), it can be worth putting on your trustee hat and conducting a similar exercise.
Without a doubt, 2017 was a year of significant change for SMSFs, and super more generally. With a raft of changes taking effect from July 1, many trustees have spent considerable time reviewing their SMSF arrangements to ensure they comply with the new requirements.
The introduction of a "transfer balance cap", which limits the amount that can be held in an existing super pension, or used to commence a new pension, seems to have had a bigger impact in the SMSF sector than the rest of the super industry. This is partly because of the opportunity to claim relief from capital gains tax (CGT) on asset sales that might arise as a result of complying with the transfer balance cap rule and the transition to retirement income stream reforms.
To a large extent, 2018 could be a year to consolidate and embed last year's reforms. Many trustees are still dealing to the impact of those changes. If you have a SMSF, here are some of the items you should be thinking about.
Provided appropriate action was taken before the end of the 2016-17 financial year, your SMSF could be eligible for CGT relief. To claim this, you need to reset the cost base of assets in your SMSF to their market value as of June 30. This will possibly eliminate any unrealised gains to that point in time.
It is important that the identification of the assets earmarked for CGT relief and the setting of the new cost bases is completed by the time your SMSF's tax return is due to be lodged for the 2016-17 financial year. For many SMSFs, that will be in the first half of 2018. There is still time to do what's required but you want to make sure you don't leave it too late and miss out on the relief.
This might sound a bit crazy, but for SMSFs this is important because of changes introduced on July 1. From that time, if certain conditions are met, an SMSF is not able to calculate its tax liabilities using what's referred to as a segregated method. This means that, assuming certain conditions are satisfied, even though an asset belongs to a particular member who is drawing a pension, any tax associated with the asset may be subject to a proportionate level of tax. This could apply to super savings that are housed in a separate fund.
A well-run SMSF will usually have a professional administrator or accountant attending to the record-keeping and reporting requirements. As of July 1, super funds, including SMSFs, have new reporting obligations to the Australian Taxation Office about matters that have an impact on a member's transfer balance cap – which take effect when you start to receive a super pension.
SMSFs have been granted some relief about when these rules take effect, and how often reporting is required. However, you should be considering whether meeting the minimum requirements will be sufficient, or whether it is better for your fund to report relevant events to the ATO as soon as practical. This has the advantages of ensuring that nothing is missed, the ATO records are up-to-date and that as a member you can have confidence in the information you can obtain from the ATO at a later date. It also means your SMSF isn't playing catch-up.
New year's resolution
There are always a number of issues that SMSF trustees need to consider beyond those outlined above. Perhaps a simple new year's resolution can be to ensure that you commit to dedicating the right amount of time and effort to ensure your fund operates effectively into the future. Sharing personal resolutions with someone else can help keep you accountable to them. Your SMSF is no different.
By Bryan Ashenden
4 December 2017