And now it’s July – with a new to do list

The start of the year means new opportunities and new things to do. While we might all make our personal New Year’s resolutions in January, the best time for planning when it comes to SMSFs is July.

So what should we be thinking about now?

First, there’s some administration it makes sense to do at the start of the year.

Does your fund have assets where there’s no publicly available market value? Good examples would be property, holdings in private companies and private trusts. But sometimes even public investments that aren’t listed on a stock exchange fall into this group. Your auditor will ask you for an up to date market value of all your assets as at 30 June 2022. It is usually much easier to get this “now” rather than leaving it until you’re asked.

The rules have become tighter and tighter here in recent years. For example, there was a time when trustees investing in property would just ask a real estate agent for a rough value and then use it for the next few years. These days, an auditor would expect to see either a formal valuation report or something less formal but supported by additional evidence. For example, an informal (kerbside) valuation by a real estate agent might be a good starting point for a residential property but it would need to be supplemented and supported by information about comparable sales in the area. Similarly, an informal valuation of a commercial property might need to be supported by information about the amount of income received from the property (does the yield look reasonable given the valuation?).

Sometimes SMSFs own assets where it’s difficult to prove that they actually exist and auditors will ask for extra information. Life is much simpler if you get this sorted out now. For example, imagine your fund owns something like gold bullion that is stored in a private deposit box in a bank. Your auditor might ask for a picture of it with something that evidences the date – such as a newspaper.

Next, check to see whether your pension payments need to go up. There’s no need to adjust payments immediately but your fund will need to have sufficient cash flow coming in to pay all minimum pensions. If you’ve had an important birthday your minimum draw down rate might have increased. For example, anyone turning 80 during 2021/22 will find that they have to take out 3.5% of their pension balance at 30 June 2022 rather than the 3% that applied last year. (Remember that these rates have been halved for one more year – they will return to normal levels of 7% and 6% respectively for 2023/24 and beyond.)

Often, SMSF members will actually take more than they have to out of their pension accounts – after all, it’s what most of us plan to live on when we retire. The amount we need won’t always be conveniently exactly the same as the minimum draw down rates. If you’re in that position, you might be aware that there are tax benefits to structuring these extra payments in particular ways rather than just bigger pension payments. For example, it is often better to treat them as “lump sums” from either an “accumulation account” (a member account you have in your fund that hasn’t been turned into a pension) or your pension account(s).

There is documentation you can put in place at the start of each year so that this happens automatically. Do that now.

It's a good time to review your fund’s investment strategy. Of course, there’s nothing magic about 30 June when it comes to investing – no doubt you’re thinking about your SMSF investments far more often than once a year. But one of the things your auditor has to do is double check that your fund is investing the way you’ve said it will be in your investment strategy. If you’ve changed your approach but haven’t updated your documentation, get that sorted out before your auditor asks to see it. Similarly, if you were temporarily investing outside of your strategy (eg you’re holding more cash than planned awaiting appropriate investment opportunities) at 30 June 2022, fill in the blanks for the auditor by documenting your reasons why.

1^st July is often a time when we start pensions – there’s no good reason other than it’s a convenient date because the trustee has to place a proper value on all the assets and member accounts at that time anyway. But there’s some important paperwork to do before starting a pension. If you’ve made personal contributions in 2021/22 that you intend to claim as a tax deduction, make sure you’ve formalised that by completing the “Notice of Intent to Claim” and acknowledging it as the trustee of your SMSF. If that’s not done until after the pension starts, unfortunately the deduction is denied. Similarly, if there were contributions in 2021/22 that you intend to “split” with your spouse (effectively move them from your super account to theirs), do that before starting your pension.

Get 2022/23 off to a great start by doing some of these things now while the year is still young.

This article was first published in the Australian Financial Review 7th July  2022.