SMSF Update

• As we enter the 2025 Financial Year, there are a few matters you may want to consider for your SMSF.

Have you met your minimum pension requirements for the 2024 Financial Year?

We understand that the end of the financial year is usually a busy time, and some things can get overlooked. If you have not met your minimum pension requirements for the 2024 Financial Year by 30 June 2024, an exception may apply if you satisfy all of the following conditions:

1. It was an honest mistake and resulted in a small underpayment (less than one-twelfth of the minimum pension required) or there were matters outside of your control.
2. If the income stream was in the retirement phase, the ECPI exemption would have continued if you had made the minimum payment.
3. When you became aware the minimum payment wasn’t made, you:
   1. made a catch-up payment as soon as practicable (within 28 days after you become aware of the underpayment) in the 2025 Financial Year, or
   2. treated a payment made in the 2025 Financial Year as being made in the 2024 Financial Year.
4. If you had made the above catch-up payment in the 2024 Financial Year, the minimum pension standards would have been met.
5. You treat the catch-up payment, for all other purposes, as if it were made in the 2024 Financial Year.

If you have not applied the exception before, you can self-assess whether the above conditions have been met. If you do not meet some or any of the conditions, please reach out to your SMSF Advisor and they will assist in writing to the ATO to apply for the exception.

If the exception does not apply, the pension will be treated as having ceased at the start of the 2024 Financial Year for income tax purposes.

Changes to Non-Arm’s Length Income/Expense (NALI/NALE)

The proposed changes to the NALI provisions regarding NALE are now law and take effect from 1 July 2024.

The changes applicable are:

1. The NALE provisions are applicable from 1 July 2018. As the provisions are applied retrospectively, you will need to consider and report any NALE applicable from 1 July 2018.
2. The NALI amount arising from a non-arm’s length general expense is limited to twice the difference between the actual expense and the expected market rate of the expense. A win for SMSFs as previously the NALI would have included all income of the fund.

Limited Recourse Borrowing Arrangements (LRBA)

Are you paying too much interest?

If you have not reviewed your LRBA for some time, it may be worth reaching out to your bank, financial planner or mortgage broker to refinance. It’s important to note that the refinanced LRBA will have to comply with the current laws for LRBA and may count towards your total superannuation balance if certain conditions are met.

Arm’s length interest rate for related party borrowings

The safe harbour interest rate for related party LRBA for real property has increased to 9.35% for the 2025 Financial Year. The rate for listed shares or listed units has increased to 11.35%. We would have discussed this with you in the previous quarter during tax planning and your loan repayments for the 2025 Financial Year should have been updated to reflect this increased rate.

Please feel free to contact your SMSF Advisor if you are unsure about your related party LRBA loan repayments.

What happens to your superannuation in a divorce?

A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement. It’s important to be aware that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release) but it can be rolled over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as CGT being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property.

A Court order or Superannuation Agreement is required to give effect to the agreed split in the SMSF assets or to execute a rollover eligible for the CGT rollover concession.

If you have an SMSF and both spouses are members, it’s important to get advice to make sure that all the appropriate administrative issues are considered.

Where a divorce is not amicable, it’s important to keep in mind that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less and the fund members may seek compensation for loss or damage.

Can you protect both parties from divorce?

In a divorce, assets are split based on a multitude of factors such as earning capacity, maintenance of children, and the assets held pre-marriage. Many couples don’t go through their marriage with an equal view of how assets and income should be attributed until something goes wrong. If there is a disparity between the income levels of each spouse, there are a lot of benefits to the household in general of evening out how income flows through to the family.  If your partner earns less than you, there is a very real financial benefit to topping up their super as superannuation has preferential tax rates.

Please do not hesitate to contact Jin if you have any questions regarding your SMSF on (03) 9069 7700 or jsaw@mgidc.com.au