However, from a tax perspective, the extent to which this new tax will deter high-income earners, who are currently paying tax at the highest marginal rate of 47% (including Medicare levy), from investing in super remains to be seen.

So, while SMSF trustees wait to learn the fate of this proposed new tax, it is important to recognise that 1 July 2024 is fast approaching. Below are some important pointers for fund trustees to consider:
 

1.  Understand the different types of trustees structures

Over the years, there has been a steady trend for newly registered SMSFs to be set up with a corporate trustee structure, as opposed to an individual trustee structure – 85% of SMSFs established in 2022/23 chose a corporate trustee [1]. 

For the 30% of the total SMSF population still opting for an individual trustee structure, 2024/25 could be the year they consider switching to a corporate trustee [2]. Under a corporate trustee structure each member of the SMSF must be a director of the corporate trustee. All the directors need to have a Director ID prior to setting up the SMSF, which can serve as added protection from fraudulent activity. Investors will also incur some initial costs to set up a company and ASIC fees. The SMSF Association considers that the benefits of a corporate trustee structure outweigh these costs.

For instance, assets held under a corporate trustee are in the name of the company, which can potentially simplify the management of asset titles when there are changes to the SMSF’s membership – for example, on the death of a member or when a new member joins the fund.
 

2. Review Death-benefit Nominations

A new financial year is a good time to review death-benefit nominations to account for changes to an investor’s personal circumstances. For example, an investor who has gone through an amicable divorce and still wants to provide for their ex-spouse. In this scenario, there may be a number of considerations the investor has to work through, such as: 

• How an ex-spouse may benefit from the SMSF. According to the super laws, the ex-spouse is no longer a ‘dependant’ and is typically no longer eligible to be paid a death benefit directly from the investor’s SMSF, even if there is a ‘binding’ nomination in place.
• Has the investor ensured their death-benefit nomination deals with contingencies? For example, has the investor thought about what happens if their nominated beneficiary pre-deceases them?
• Is the investor sure their nomination is permitted under the trust deed and has been crafted with as much care as their Will?

Making uninformed choices about one’s superannuation can potentially lead to higher taxes for heirs. For instance, it may be more tax-efficient for an investor to pass super on to their financially independent children through their estate, to avoid Medicare Levy, for example, as opposed to having it paid to them directly from their fund.

Expert advice from a legal professional is invaluable here. 
 

3. Consider optimising superannuation contributions

If an investor’s total superannuation balance was under $500,000 at 30 June 2023, they may be eligible to unlock unused concessional contribution cap amounts from the past five years. 

[Editor’s Note: The ATO has information on differences between concessional and non-concessional contributions. Concessional contributions are ‘before tax’ contributions and non-concessional contributions are ‘after tax’ contributions.]

If able to unlock these amounts, this can allow them to make additional concessional contributions before 30 June 2024, providing them with the ability to claim a higher personal income tax deduction in 2023/24 – provided they execute a valid notice of intent to claim a tax-deduction form.

For those unable to take advantage of this opportunity in 2023/24, any unused concessional contribution cap amounts that accrued in the 2018/19 financial year will expire after 30 June 2024. But don’t despair, as 2024/25 presents its own opportunities to save towards retirement.

From 1 July 2024, the superannuation guarantee (SG) rate increases from 11% to 11.5%. So, if an investor intends to make concessional contributions in 2024/25, they will need to factor this increase into their arrangements to avoid exceeding their concessional contribution cap.

From 1 July 2024, the Stage 3 tax cuts also take effect so an investor might find a boost to their after-tax cash flow – presenting an opportunity to use some of this extra money to make additional concessional or non-concessional contributions to superannuation.

Thankfully, the concessional contribution cap will increase to $30,000 from 1 July 2024 [from $27,500]. More information on changes to concessional contribution caps is available here.

And, for anyone able to unlock unused concessional contribution cap amounts accrued from 2019/20 to 2023/24, as discussed earlier, this could result in them having a concessional contribution cap as high as $162,500 in 2024/25.

Another reason for investors to keep a close eye on their total superannuation balance, leading into 30 June 2024, is to allow an opportunity to maximise their ability to make non-concessional contributions in the 2024/25 financial year.

On 1 July 2024, the annual non-concessional contribution cap will also increase to $120,000 [from $110,000 in FY2023-24]. More information about non-concessional contribution caps is available here. But if an investor is eligible to access the bring-forward rules, they may be able to make maximum non-concessional contributions of up to $360,000 in 2024/25 – depending on their total superannuation balance and contribution history.

On the other hand, if the investor’s total superannuation balance is approaching $1.9 million, then 2023/24 may be the last year for them to make any non-concessional contributions.

4.  Consider valuing SMSF assets at market value and reassessing investment strategy

The Australian Taxation Office (ATO) has consistently emphasised the need for SMSF trustees to value fund assets at market value when preparing annual returns.

Recently there has been increased focus on market valuations, with the ATO highlighting that around 16,500 funds had not updated the value of fund assets for three years.

The SMSF Association considers that SMSF trustees should treat this as a cautionary prompt when preparing a fund’s financial accounts for 2023/24. Also, expect SMSF auditors to closely scrutinise the valuation of the fund’s assets.

With increased scrutiny from auditors and the ATO on SMSF asset valuations, it’s also potentially a timely opportunity for investors to review their fund’s investment strategy to ensure it remains relevant and reflective of the fund’s actual investment objectives.

Quite aside from any regulatory pressures, as all SMSF members well know, superannuation is a long-term game, so thinking ahead is important.

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[1] Source: ATO SMSF statistical overview 2021-22 – Table 14. Columns C and then B

[2] ibid

DISCLAIMER

The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While the SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.