There have been many changes in superannuation in the last few years, especially those that recently came into effect on 1 July 2022. It can be hard to keep track of the best strategies to maximise your self-managed superannuation fund (SMSF).
These are the Top 10 strategies to utilise your SMSF.
1. Maximise SMSF Contributions with Personal Superannuation Contributions
When you make a personal contribution to your superannuation fund, you may be able to claim a tax deduction for those contributions. However, it would be best to contribute to your super from your after-tax income, for example, by directly contributing to your bank account into your superannuation fund.
Before claiming a deduction, you must submit a Notice of Intent to Claim a Deduction for Personal Contribution Form. You then receive a notification from your fund. The personal super contributions claimed as a tax deduction counts towards your concessional contribution cap. If you exceed the cap, you must pay extra tax and count into your non-concessional contribution cap.
Suitable for members who invest outside of their SMSF
2. Direct SMSF Property Investment
Buying an SMSF Property or investment property through an SMSF has become popular. Direct property investing can yield capital growth and rental income in a tax advantageous configuration. Rental income is taxed at 15%, and capital gains are taxed at 10% if you hold the property for over 12 months. However, if you hold the property until you have retired and commenced a pension, rental income and capital gains could become tax-free.
Suitable for people who enjoy property investing
3. Business Real Property
You can’t buy an SMSF property and live in it, or rent it to a family member, even on commercial terms. Yet, if you run a business, you can buy a commercial property using your SMSF and lease it to your own business.
Your business would pay rent at the market rate to your SMSF, which is a tax-deductible expense for your business. Therefore, rent is not a superannuation contribution. However, you can still make concessional and non-concessional contributions, conditional on your age and contribution caps.
Suitable for members who invest outside of their SMSF
4. Limited Recourse Borrowing Arrangements or SMSF Property Loans
SMSFs can borrow money to purchase an individual procurable asset such as a property or a collection of uniform assets with the same market value, such as a parcel of shares. You can achieve this via a limited recourse borrowing arrangement (LRBA).
This arrangement involves the lender’s recourse limited to a single asset. Borrowing via an SMSF is not without risk. However, various potential benefits exist, including tax advantages, leverage, and asset protection.
Suitable for experienced property investors with the capacity to service the loan in their SMSF.
5. Re-contribution Strategy
A re-contribution strategy involves withdrawing your super and re-contributing it back into super. There a several reasons why you may utilise this strategy:
- Estate Planning
- Tax Planning
- To utilise your and your spouse’s Transfer Balance Cap
- Maximise Centrelink Benefits
- To access government co-contribution and spousal contribution tax offset.
Suitable for members who have retired or are over 65 years old and eligible to make non-concessional contributions
6. Start an Account-Based Pension
When you reach preservation age and have met the applicable retirement conditions, you can allot up to $1.6 million to establish an Account Based Pension. An Account Based Pension transitions your accumulation balance into the “retirement phase”. In the retirement phase, earnings are tax-free.
Suitable for members who are over 65 years old and members who are retired – aged between preservation age and 64 years old
7. Spousal Contribution Splitting
This strategy involves one couple member splitting up to 85% of their concessional contributions, received within a financial year, with their spouse. Doing so provides an opportunity to equalise their retirement benefits, where one spouse is younger, earning a lower income or is not working.
Suitable for couples
8. Separate Investment Strategies/Segregated Assets
Circumstances may warrant different investment strategies, for example, parents with children in one fund. The children have a different investing profile than their parents. Under the new legislation, if funds have over $1.6 million in the pension phase, they are not entitled to segregate to determine tax-free earnings. However, there is a difference between tax and accounting segregation.
Suitable for funds with two parents and children
9. In Specie Transfers
Specie transfers involve contributing by transferring listed shares or real business property into your SMSF and not receiving cash proceeds. Although this triggers an SMSF capital gains tax event, this will allow future earnings to be made in a concessional tax environment. Subject to contribution caps.
Suitable for investors who hold investments in listed shares and real business property outside super
10. Downsizer Contribution
An older Australian who downsizes can contribute up to $300,000 to super regardless of employment status, Total Superannuation Balance, and non-concessional contribution cap. It involves a member 65 years old or older, selling their home and contributing within a prescribed period.
11. Carry-forward concessional contributions of unused caps over five years
Suppose your Total Superannuation Balance is less than $500,000 at the end of a financial year. In that case, you can start accumulating the unused portions of your concessional contribution caps from previous years (up to 5 years) in the following financial years. Doing this will allow you to catch up on concessional caps and contribute to your super. The concessional caps and contributions will count towards your unused concessional contribution caps.
Amounts carried forward that is not spent after five years will expire.
Suitable for members with balances less than $500,000 in superannuation
Vogue Advisory Group – helping you grow your SMSF
Contact one of our experienced SMSF Accountants who is well versed in helping new clients with SMSF setup and administration and can answer several SMSF property-related questions.