As you should all be aware, indexation will be introduced to the superannuation system on 1 July, with the transfer balance cap, the concessional contributions cap and the non-concessional contributions cap being the three elements of the framework to be affected.
Specifically, the transfer balance cap will increase from $1.6 million to $1.7 million, the concessional contributions cap will jump from $25,000 to $27,500 and the non-concessional contributions cap will rise from $100,000 to $110,000.
I have previously written in this column about the ridiculous level of complexity this process is about to add to the administration of SMSFs, mainly due to the indexation of the transfer balance cap being implemented on a proportionate basis.
However, there are opportunities also arising from this change that make the end of the 2021 financial year truly unique and one trustees should pay very close attention to. I’ll highlight three scenarios to demonstrate why this is so.
Firstly, the change to the transfer balance cap. If you are a trustee who has never held a retirement or pension-phase account in your SMSF, but are looking to do so in the immediate future, the timing of this move will be critical.
If you start a pension before 30 June, the maximum value of the income stream will be limited to $1.6 million. However, if you commence the pension after 1 July, then the maximum value available for the move will be $1.7 million and an extra $100,000 in tax-free mode is certainly better than a kick in the pants.
Similarly, should you be contemplating implementing a strategy to claim a tax deduction in 2020/21 for a contribution not recognised until the 2022 financial year, you will be able to claim an additional deduction of $2500 this year.
This can be achieved by making a concessional contribution using the higher cap of $27,500 before 30 June, but not allocating it to a specific member until sometime in July, provided it is within 28 days of the contribution being made.
Finally, if you are eligible to make a non-concessional contribution and fortunate enough to be able to take advantage of the three-year bring-forward provision, then holding off until after 30 June to do so is particularly advantageous this year end.
Triggering the bring-forward provision before 30 June would mean only being able to put $300,000 into your SMSF, but delaying the move until after 1 July would mean the contribution could be $330,000 instead. Again, an extra $30,000 in your super fund is nothing to be sneezed at.
These are very simple scenarios and of course do not take into account the intricacies of a member’s personal circumstances, such as whether their total super balance allows them to make non-concessional contributions. Nevertheless, they do show the importance of when to implement certain strategies in the coming months.
As they say in the classics, timing is everything, and nothing could be truer with regard to SMSF strategies for the 2021 financial year end.''