If you are above the preservation age on 1^st July 2010 then you commence an income stream from your self managed super fund.

You can be retired (working less than 10 hours per week) or working full time to access superannuation under the transition-to-retirement pension (TRIP) rules. Preservation age is 55 for anyone born before July 1, 1960.

Preservation age gradually increases for those born on or after July 1, 1960, with the preservation age reaching the age of 60 for anyone born on or after July 1, 1964.

If you are taking a TRIP, assets supporting the pension within the fund will not pay any tax on income or in other words the earnings on assets financing the income stream will be tax-free to the fund.

There are rules on the amount you must withdraw as an income stream. If you are less than 65 years old, you must withdraw a minimum of 4%, however, for the year ended 30^th June 2011 you may withdraw 2% of the fund balance as on 1^st July 2010 to ensure that your fund is paying a complying pension.

This withdrawal must be done at least once and must be before 30^th June 2011 and in cash. If the member is below 60 years old, any income stream is included in their income, however 15% pension rebate can be claimed.

For example Jack is 57 year old and has $300,000 in his self managed super fund on 1^st July 2010. If he commences a pension on 1^st July 2010, he must withdraw 2% of $300,000 before 30^th June 2011 or $15,000. This withdrawal will be included in his income.

Assume before this pension withdrawal, Jack's income is $40,000, which means that after this withdrawal, his income will be $55,000.

Any income between 37,000 to $80,000 in the financial year ended 30^th June 2011 is taxed at 30 cents per dollar but due to the pension rebate of 15%, Jack will have to pay only 15 cents per dollar on the income stream of $15,000 from his superannuation Fund or $2,250.

However, the super fund would not pay any income tax on assets supporting this pension. If $300,000 earned 6% or $18,000, the super fund will save 15% tax on this income or $2,700. Note that if Jack was over 60 years old, he will not be required to include income stream of $15,000 in his taxable income.

Hence to commence a TRIP on 1^st July 2010 will depend on how much you have in super, income of the fund, age and marginal tax rate of the member etc.

Year End Checklist for SMSFs

It is worthwhile taking the time to look at your SMSF to ensure that you are on top of all superannuation matters, below is a check list on what you need to consider before 30 June 2011.

1) Contribute before 30 June 2011

If contribution is to be made to claim a tax deduction for financial year ended 2011 or for Government co-contribution, the money should be deposited in your fund's bank account before 30 June 2011. Sometimes electronic transfers done on 30 June show as a deposit only until 1 July.

Please look at TR 2010/1 for contributions, Paragraph 164 for in-specie contributions, P172 for payment of fund expenses by trustees, P175 for debt forgiveness if the member has lent money to the SMSF under Sec 67A of SISA. P188 SMSF must have received cheque from the contributor by 30^th June which must be honoured to be considered as a contribution.

2) Retirees are entitled to Government Co Contribution

Personal non-concessional contributions are matched dollar for dollar by the Federal Government up to the maximum co contribution amount of $1,000. Retirees with less than $32, 000 income aged over 60 years to 71 are also entitled to co-contribution as long as at least 10% of total income is either or both of employment related activities or the carrying on of a business. For example: Cleaning business with $1000 income (with $8500 of dividend income) will qualify as long as the pensioner lodges a tax return (Note: due to low income rebate, no tax will be payable on additional income).

3) Contribute to claim Spouse Contribution

An individual is entitled to maximum tax offset of $540 for superannuation contributions made on behalf of a low income ($10,800) or non working spouse. The maximum tax offset is based on 18% of a maximum $3,000 non concessional contribution by an individual for their spouse.

4) Do not exceed your Concessional Contributions Cap

There are severe tax penalties, ranging from 46.5% to 93%, for exceeding the concessional cap. New funds should check if contributions of June 2010 quarter were received by the previous fund in July 2010 (prior to roll over) and are to be reported as contributions for the year ended 30^th June 2011 from the rollover information.

5) Do not exceed your Non Concessional Cap

Review the previous two income years to ensure that bring forward rule has not been triggered. Anyone aged 64 or less on 1 July 2010 can utilise the 'bring forward rule', provided it has not been previously triggered in the 2008/09 or 2009/10 income years. Bring forward rule is automatically triggered when a Non Concessional Contribution of more than $150,000 is made.

6) Work test for members over 65 & older when making a contribution

When a member of a fund is of age 65 at the time of contribution, they must first satisfy the 'work test' in the income year in which the contribution is made. The 'work test' requires an individual to have been 'gainfully employed during the income year for at least 40 hours in 30 consecutive days. Remember 48 hours get over on 2^nd July in any year and contributions on 1^st July could be reported. To be reasonable, deposit by the member should be in 2^nd week of July.

7) Do not contribute more than $150,000 in a single contribution for those aged 65 & Over

Where a fund receives a contribution in respect of a person aged 65 or more, that contribution cannot be more than $150,000 in a single deposit, otherwise the fund is required to refund the excess over $150,000. If a member is 64 years old on 1^st July and wants to contribute $450,000 in the year after he turns 65 but before 30^th June, ensure that not more than $150,000 is deposited each time to make up to $450,000. Also limit bring forward rule to contributions to $448,000 for opportunities to contribute $1000 each in the next two years for any future government co-contribution receipts.

8) Claim a personal contribution as a tax deduction?

The rule for personal superannuation contribution as a tax deduction changed on 1 July 2009. The 10% rule requires a person to include 'reportable superannuation contributions' and for most will mean that they will not qualify.

9) Pay the minimum pension

If no cash (pensions cannot be paid in-specie) is paid as pension, the fund will not be able to claim exempt pension income as the pension becomes a non-complying pension. Journal entries to accrue pension payments are also not acceptable. No minimum amount is required to be paid if the pension commences in June of any year.

10) Do not pay more than 10% maximum for Transition to Retirement Pension

The maximum pension that can be paid is 10% of the pension balance as at 1 July or purchase price of pension, if the pension commenced during the year.

Make sure that your trust deed is up to date with the current legislation