This article has been prepared for the specific readership of Australian readers, but may be of interest to others. There is also information on SMSF costs here
Self-managed super funds (SMSF) are increasingly becoming popular options when it comes to Australians preparing for their retirement. This is partly due to the flexibility the fund allows the SMSF’s trustees, which enables them to invest and in the process increase their members’ retirement funds. However, at the end of each financial year, there are always some important considerations to keep in mind, especially if your Self-Managed Super Funds institution has invested in properties, an often lucrative option. Here is an outline of a few:
1. Make sure your records are up to date and that the ATO has all the correct info
The Australian Taxation Office (ATO) requires SMSF institutions to keep detailed records of certain aspects of the business if they are to be considered compliant. This includes everything from the contract signed by your members giving you consent to act as their fund’s trustee to minutes of meetings where you have discussed specific investments or investment strategies. Basically, you’ll be accounting for the investments you’ve made and why the decision to invest in that particular asset was made. It’s critical to be sure that you’ve kept the records current throughout the year, so all of that information is readily available for the reporting process. That also helps to ensure that in the future, no unnecessary conflict in the chronology of events will occur. These records should also include your annual operating statements and your SMSF’s financial position.
2. Evaluating your fund’s assets
When doing your property valuation, by law you’ll need to make sure that you value your immovable assets according to their current market value. According to the ATO, this means that if the property-value was to be reasonably settled upon through an ‘arm’s length” deal, with the sale involving the proper marketing of the property and both parties being knowledgeable in property-sales, the value would be relatively close to the estimated one. You must also make sure that the information used to come up with your valuation is based on objective and reliable data.
3. You can input assets instead of cash
While most people tend to think of SMSF properties as investment pools that have been grown solely through salary sacrifices and personal contributions, it is also good to incorporate ‘in-specie’ contributions. These allow members to transfer some of their personal assets directly into the SMSF. This has obvious benefits, in that the asset values can appreciate over the years in a friendlier tax environment. However, there are some important things to consider if this is a strategy your SMSF has employed in the financial year. First and foremost, the asset has to generally fit into the fund’s general investment plan. Second, and perhaps more limiting is that the asset’s value, again measured according to current market value counts towards the particular member’s concessional contributions. If that particular member’s cap for concessional contributions is exceeded for the financial year, then instead of the preferential tax rate of 15%, the fund will be taxed 46.5%. In most cases, it would be smarter to bring in the asset in the next financial year.
4. Have an independent auditor evaluate your information
SMSFs are legally required to appoint an independent auditor each year before turning in their annual return. It’s best to do this as early as possible as you’ll use information from the audit to complete your return. Moreover, the auditor can flag potential issues, which you’ll want to know about as soon as possible so as to manage the situation in time. Another factor is that when finding your auditor be sure that he or she is registered with the Australian Securities and Investments Commission and has an SMSF auditor number (or SAN), which will appear on your annual return. The auditor may look at some of your records, including your meeting minutes and investment strategy, which is why it’s so important to keep those up to date. It’s important to make sure that your investment strategy and the assets you’ve acquired, especially properties match up.
5. Take time to evaluate your current plans and see where there’s room to grow
The end of the financial year is a great time to review your investment and financial plans and see if there are any areas where you should make changes. When you’ve already got all your records out and are reviewing the previous year, you’re in a good position to work with the SMSF’s trustees and work out a new investment plan. Depending on the types of properties you’ve already invested in, it may be worthwhile to see if you can diversify in terms of zoning or location to make your portfolio stronger.
Author Bio: Rowan Hemsley is a Licensed Valuer and the director of Qwest Valuations, a boutique property valuation and consultancy firm in Perth, Western Australia providing independent and impartial property advice to a range of clients. Contact Rowan on Google+ for assistance with your end of financial year planning.