Your 2021-22 year end SMSF checklist

With the end of this 2021-22 financial year on our doorstep, SMSF trustees and members should take stock of what needs to be done before we move into the 2022-23 income year.
Here’s a 10 step checklist to assist with identifying what will need your attention before 30 June 2022.

1. Contributions

The timing of contributions is important from the perspective of acceptance rules; contribution caps and deductibility. Where a contribution is to be made the member must:

  • ensure that the fund trustee(s) can accept the contribution; then
  • consider which contribution cap it will count against and in which income year; and
  • where the contribution is made by the member and will be claimed as a personal income tax deduction, ensure that the relevant requirements have been met, including providing the notice of intent to claim to the trustee(s) and getting back the acknowledgement.
Tip: The contribution acceptance rules change on 1 July 2022, with the main change being the removal of the ‘work test’ for those aged 67 to 74. However, the ‘work test’ still applies for any contribution made up to 30 June 2022 for this age group.

The ATO provides their view of the ways in which funds are typically transferred and when the contribution is made in their Taxation Ruling (TR) 2010/1, at paragraph 13. Two common methods of transfer which have the potential to cause issues at year end are contributions via in-specie transfer or electronic transfer of funds (EFT).

Where a contribution is being made via an in-specie transfer of an asset, ensure that the fund is permitted to accept the asset where it is being transfer by a related party, e.g., an SMSF member, and that the transfer is regarded as being made in the 2021-22 income year. Again, you can refer to TR 2010/1 and paragraphs 18-25 regarding when the ATO considers an in-specie contribution to have been made. Also, consideration should be given to the SMSF’s investment strategy, ensuring the acquisition of the asset via an in-specie contribution is in accordance with the fund’s investment strategy.

Where a contribution is being made via EFT it is crucial that the transfer appears as a credit to the SMSF’s bank account no later than Thursday, 30 June 2022 to be considered a contribution made in the 2021-22 income year. Making the contribution on 30 June 2022 will likely result in the credit not appearing in the SMSF’s bank account until the next day, being Friday 1 July and is likely to be regarded as a contribution made in the 2022-23 income year.

June is also the month for a contribution reserving strategy. A contribution made to an SMSF must be allocated to the member within 28 days of the end of the month in which it is made. This allows for contributions to be made in June and claimed as an income tax deduction in 2021-22, but not allocated until July 2022 and so count towards the member’s 2022-23 contribution cap.

Tip: A contribution reserving strategy has important compliance reporting requirements for the SMSF. Refer to the instructions for the SMSF annual return to ensure correct reporting in the return and the additional document that needs to be lodged with the ATO for a reserved concessional contribution.

For further information on contributions refer to the following documents in the Accurium TechHub:

You can also use our Contributions Calculator to determine a member’s total available concessional and non-concessional caps for the 2021-22 income year and check whether they are within their relevant contribution cap.

2. Pension payments

Ensure pensions are paid by 30 June 2022 to have them count against the relevant minimum pension requirements in the 2021-22 income year. A pension can only be paid by cash, that is, it cannot be paid as an in-specie transfer of an asset or via a journal entry.

Tip: The most common method for paying a pension is via an electronic transfer of funds from the SMSF’s bank account to the member’s personal bank account. Consequently, make sure the pension payment shows as a withdrawal from the SMSF’s bank account no later than 30 June 2022 for it to count towards the minimum pension payment requirement for 2021-22.

Failure to pay the required minimum pension can mean a denial of claim for exempt current pension income (ECPI). There is an avenue for a pension to be treated as meeting the minimum pension standards, despite not paying the minimum pension amount, provided certain conditions are met. Refer to our TechHub article “Options for a shortfall in the minimum pension for an ABP”.

Tip: The minimum pension for an account-based pension, market-linked pension, and transition to retirement pension has been reduced by 50% for the 2021-22 income year. For the relevant minimums click here.

For a transition to retirement (TTR) pension that is not a retirement phase pension and consequently not eligible to claim ECPI, where the pension does not meet the minimum pension amount or exceeds the 10% maximum, this will mean that all payments from the TTR pension will be treated as lump sum benefit payments. As a TTR pension generally consists of preserved benefits this can cause the member to breach the preservation standard, which could lead to all the amounts paid from the TTR pension being taxed at the member’s marginal tax rate.

Tip: For a TTR pension being paid to a member under age 60, there will generally be a PAYG withholding and reporting requirements. Note that any PAYG withholding amounts for the June 2022 quarter, paid to the ATO in July 2022, will count towards the TTR pension minimum and maximum for 2021-22.

You can use our “Minimum pension payments report calculator” to determine the minimum and maximum payment requirements for an account-based, market-linked, and TTR pensions for 2021-22.

3. Investment Strategy

The lead up to 30 June 2022 is also a time to review the SMSF’s investment strategy. Generally, an SMSF auditor will assess the fund’s actual investments against any asset ranges included in the investment strategy at 30 June. The ATO notes the following events that should also prompt a review of the investment strategy:

  • a market correction
  • when a new member joins the fund or departs a fund
  • when a member commences receiving a pension. This is to ensure the fund has sufficient liquid assets and cash flow to meet minimum pension payments prior to 30 June each year.
Tip: The investment strategy must be reviewed at least annually. This should be documented, for example, as part of the annual trustee meeting minutes. These minutes can then be provided to the SMSF’s auditor as evidence of compliance with this requirement.

For further information refer to our TechHub article “The importance of a properly formulated Investment Strategy”.

4. In-house assets

Where an SMSF has in-house assets, there is a year-end test that will apply. This test requires the fund to calculate the fund’s ‘market value ratio’ of the fund’s in-house assets as at 30 June. The market value ratio is calculated as:

Market value of in-house assets
Market value of all fund assets

Where this ratio exceeds 5%, the trustee(s) must prepare a written plan to dispose of the excess in-house asset amount by the following 30 June.

Tip: For calculating the market value ratio, the market value of all fund assets refers to gross assets. That is, any fund liabilities, for example a loan under a limited recourse borrowing arrangement (LRBA), is not taken into consideration when calculating the market value of all fund assets.

For information on how the year end in-house asset test applies to a lease that is an in-house asset, refer to our TechHub article “Leasing property to a related party and the IHA rules”.

5. Transfer Balance Account Reporting

An SMSF is required to report certain events that affect a member’s transfer balance cap (TBC). These events must be reported to the ATO within a specified time frame. Currently, an SMSF with retirement phase pensions will be either an annual or quarterly reporter for transfer balance account (TBA) purposes. In the lead up to 30 June it’s prudent to review what TBA reportable events have occurred during the income year and whether they have been reported and if not, when they are due (or were due) to be reported.

Tip: Reporting TBA event soon after the event, regardless of whether the SMSF is an annual or quarterly TBA reporter and the relevant due date, helps the member to be aware of how much of their personal TBC has been used via their MyGov account.
Tip: Review any SMSFs that were paying a non-retirement phase TTR pension to a member who turned 65 during 2021-22. Attaining age 65 automatically moves the TTR pension into retirement phase and is a reportable TBA event. Whilst a non-retirement phase TTR pension is not assessed against the member’s personal TBC, the value at age 65 will be applied as a credit to their personal TBC, and used to assess whether they have exceeded their personal TBC.

For further information on transfer balance account reporting, refer to our TechHub article “Frequency of transfer balance account reporting”.

You can also use our “Transfer balance account calculator” to determine an individual’s personal TBC.

6. PAYG Reporting requirements

The trustee(s) of an SMSF will have a PAYG Withholding obligation in respect of a superannuation benefit payments paid to members who are:

  • under 60 years old and the benefit is an income stream (pension) or a lump sum;
  • under 60 years old and the death benefit is a pension which is a capped defined benefit income stream where the deceased was 60 years old or over when they died;
  • 60 years old or over and the benefit is a pension which is a capped defined benefit income stream.

Where an SMSF has a PAYG withholding obligation for 2021-22, the trustee(s) must ensure they have:

  • Registered for PAYG Withholding;
  • Obtained a tax file number (TFN) declaration from the member;
  • Calculated the rate of withholding that applies;
  • Paid withheld amounts to the ATO and lodged the relevant activity statement;
  • Issued the relevant PAYG payment summary (superannuation income stream or lump sum) to the benefit recipient, generally within 14 days of a lump sum benefit and by 14 July 2022 for a pension;
  • Lodged a PAYG withholding payment summary statement with the ATO, generally by 14 August 2022.

For further information you can refer to the ATO’s webpage “PAYG withholding obligations”, (QC 42475).

7. Review the fund’s CGT position

Where an SMSF has sold assets during the 2021-22 income year that produce an overall capital gain position, consider other fund assets that may be in an unrealised capital loss position. Whilst advice may be sought on whether to continue to hold such assets, a disposal prior to 1 July 2022 that give rise to a capital loss can offset the crystallised capital gains.

Tip: Beware of “wash sale arrangements” and the potential for the ATO to apply the anti-avoidance rules in Part IVA of the tax act. Refer to Taxation Ruling (TR) 2008/1.
Tip: Be aware of any capital gains or losses realised on assets in 2021-22 which claimed CGT relief in the 2016-17 income year due to being impacted by the TBC or TTR reforms, and treat the capital gain appropriately

8. Gather evidence for 30 June market values

SIS regulation 8.02B requires that assets are disclosed in the SMSF’s annual financial statements at ‘market value’. For many asset categories, e.g., listed securities and managed funds, it’s not difficult for the trustees to determine and substantiate 30 June market value, however, for other assets, including real property, now is the time to consider what evidence will be needed to supply to the SMSF’s auditor to support the value used in the 2021-22 annual financial statements.

It is worthwhile discussing the ongoing compliance and audit requirements for different asset categories at the time SMSF trustees are contemplating investing or acquiring an asset so they are aware of what evidence they will need to provide for the annual audit, each and every year.

Tip: Check with the SMSF auditor for what evidence they will require to substantiate the market value of assets in the annual financial statements. They may provide a checklist for the different asset categories.

You can refer to the following ATO guidance:

9. Related party loan under an LRBA

For an SMSF that acquired an asset under a limited recourse borrowing arrangement (LRBA) and the loan was from a related party, to avoid application of the non-arm’s length income (NALI) rules, the ATO provide safe harbour terms on which the SMSF can structure their LRBA to be consistent with arm’s length dealing. These safe harbour terms are outlined in Practical Compliance Guidelines (PCG) 2016/5.

The safe harbour variable interest rates for real property and listed securities are changing from the 2021-2022 income to the 2022-23 income year as follows:

Asset under LRBAVariable interest rate for 2021-22Variable interest rate for 2022-23
Real property5.1%5.35%
Listed securities7.1%7.35%

Affected SMSFs should ensure that their loan repayments are adjusted accordingly from the July 2022 monthly loan payment.

Tip: An SMSF can fix the interest rate for a period of up to 5 years in respect of real property and up to 3 years for listed securities. Check the loan terms to ascertain if the interest rate was fixed and is still within the fixed rate term. If so, no change to the interest rate will be required until the fixed rate term ends.

10. Attend to prior year matters raised by the Auditor

Prior to submitting the SMSF’s 2021-22 financial statements to the SMSF auditor, review the prior 2020-21 audit management letter and audit report for any contraventions or other matters raised that need to be dealt with. The auditor will review to ascertain if there are any prior year outstanding issues that have not been dealt with to date.

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