Whilst there has been very little change in legislation relating to SMSF’s lately, it is essential that trustees remain alert and vigilant going into 2021, as there is still much to consider when it comes to SMSF over the next 12 months.
Trustees will be faced with an array of issues that they may have to grapple with in 2021, whether it be potential changes to auditing, COVID relief measures or contribution caps and transfer balance caps.
Changes to quality and cost of advice
in 2021, the Australian government will review the necessary steps that are required of the industry and its regulators to improve access to good quality and equally affordable financial advice. This review intends to reduce the costs of SMSF advice without compromising on quality for trustees. Any changes made will hopefully make it simpler for advice to be scaled appropriately to the areas relevant to the advice, disregarding the need to invest in an expensive total advice package. This potential change could prove beneficial for those looking to invest in their SMSF but are hesitant due to the cost.
Increase to transfer balance caps (TBC)
Changes to concessional contribution caps
Potential changes are also on the horizon for concessional contribution caps, with an expected increase from $25,000 to $27,500 from July 1st 2021. In turn, non-concessional contributions cap will rise to $110,000 and the maximum two-year bring-forward amount will increase to $330,000. These possible changes could create new opportunities for some trustees from 1 July 2021 to make further contributions to their fund, without these being assessed as an excess contribution.
Increased SMSF auditor attention
In the wake of new guidelines released by the ATO, comes increased attention from SMSF auditors on investment strategies. It is important for trustees to ensure that they have properly considered their investment strategy when it comes to asset diversification, and whether the fund is effectively structured to meet investment objectives, and the funds liquidity and cash-flow needs.
This is particularly relevant to funds that have a large proportion of their investments in a single asset or asset class. Over 17,000 SMSF trustees received correspondence from the ATO in 2019, reminding them to ensure that they have properly considered the risks surrounding the particular strategy that sees over 90% of a funds assets invested in one asset or asset class. Although this strategy is not a breach of the rules, it is incredibly important to consider the pros and cons of this investment strategy. The letter also reminded trustees to properly construct their fund’s investment strategy by considering the fund’s investment objective, the benefits of investment diversification and the fund’s liquidity and cash flow needs.
Asset valuations are also likely to be under the eagle eye of SMSF auditors. This is due to the ATO’s recent update of the valuation guidelines for trustees to ensure that they can substantiate the value assigned to investments, such as property and other assets.
COVID-19 relief measures winding back
Whilst transitional rules apply, some trustees may discover that in 2021 they need to appoint a new auditor. SMSFs with property assets must ensure that they make the necessary lease adjustments with their tenants as COVID-19 release measures begin to be wound back.
This is especially important where there is a related-party tenant to ensure payments are consistent with a standard commercial lease arrangement where the tenant is unrelated to the fund’s trustees. This same principle applies where an SMSF has borrowed money under a limited recourse borrowing arrangement, where the lender is a related party.
Potential for six-member funds
Whilst yet to be legislatively passed, six-member SMSFs are also looking more likely in the new year, and possibly as early as April. This could create new opportunities for SMSFs made up of families, particularly when it comes to reducing fees and providing extra investment flexibility.
Here’s to hoping that 2021 proves to be a breeze in comparison to the storm that was 2020. Regardless of the nature of the year ahead, it pays for trustees to always remain alert and vigilant because as usual in the SMSF world, change is the only constant.
If you’re looking for assistance with any aspect of your SMSF, get in touch with one of our SMSFA Specialist Advisors™ today. Contact our office on (07) 5598 3800 or at firstname.lastname@example.org