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With the end of the financial year approaching (EOFY), now is the time for SMSF trustees to take stock of their assets and get their records in order for the income tax portion of their annual return. While the annual return is not due for a number of months, there are a series of strict tax requirements for SMSFs. These can be overwhelming and time-consuming, especially if you are relying on a combination of paper and digital statements, spreadsheet calculations and back-and-forth communications with your accountant. Keep reading to learn more about the requirements for SMSFs at tax time and how trustees can reduce tedious portfolio admin.
Take Stock of Your Assets
The first step in preparing your income tax statement is taking stock of your assets and sourcing all the necessary records in terms of trades, dividends and distributions for the financial year. At this point, the challenge many SMSF trustees face is the need to source various records from disparate places. For example, suppose you are managing investments across different asset classes, markets, currencies, share registries and even brokers. It can be quite a daunting task to retrieve all the relevant information required to record your capital gains, dividends and franking credits properly.
To make SMSF reporting easier, it is recommended that you track all of your fund’s assets in one place. Using a spreadsheet is one way to stay on track. However, it will require you to invest a lot of time in portfolio admin and manual calculations that may be subject to error. In this case, you may consider using a dedicated portfolio tracker like Sharesight. Sharesight allows you to automatically track the impact of capital gains, dividends, brokerage fees and foreign exchange rates on your portfolio’s returns, along with access to tax reporting tools built to ATO rules.
Calculate Your Investment Income
Once you have all your investments recorded in one place, it is time to look at your SMSF’s investment income for the financial year.
Dividends
Dividends (especially franked dividends) and distributions are an important source of income for many SMSF investors, making them a good place to start for your record-keeping. You will need to ensure all your records are accurate and up-to-date. If you have recorded all your dividend components in a spreadsheet or if they have been automatically recorded by your portfolio tracker, you should verify them against your statements from the relevant share registries.
Capital Gains
If you have sold assets throughout the financial year, there may be tax implications for any net capital gains you have made, depending on whether your SMSF is in the pension phase or the accumulation phase. To determine whether your fund has realised capital gains, you will first need to find the cost base of any assets sold and the price/quantity sold during the financial year. You can source this information from the broker or fund manager involved in these trades.
Once you have this information, you can calculate your capital gains by subtracting the assets’ cost base from their market value. In this case, a net capital gain is defined as a total capital gain for the financial year, less total capital losses for the financial year, the CGT discount (if applicable) or any other concessions.
Determining your CGT can be simplified by using a capital gains calculator such as Sharesight’s CGT report, which does all the calculations for you. It clearly breaks down your capital gains by short-term, long-term, discounted capital gain distributions and capital losses. It also allows you to determine the best possible sale allocation for each holding they have sold, helping you achieve your optimal tax position.
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Prepare Your Annual Accounts After EOFY
The income tax return is just one portion of an annual return, which also requires completing a number of other documents. For example, after the EOFY, SMSFs will need to start preparing annual financial statements and initiating an independent audit before submitting the annual return. All of this can mean more time spent chasing records and communicating back-and-forth with your accountant.
To avoid the paper chase, SMSF trustees should get in the habit of keeping good, consolidated tax and super records throughout the year. To simplify the process of preparing annual accounts, trustees may also consider using Sharesight’s historical cost report to compare the market value and historical cost of their investments over any selected period, broken down into various key components (including sale allocation method). This makes it easy to determine any unrealised capital gains or losses on your investments, helping you save time when preparing your annual accounts.
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Key Takeaways
Preparing your SMSF’s income tax return can seem like a daunting process, but trustees are advised not to leave it to the last minute. While the income tax return is now filed as part of an SMSF’s annual return, trustees are still advised to get their records in order at the EOFY to avoid an admin headache as the annual return deadline approaches. After all, being prepared at EOFY means less time spent chasing papers and more time spent focusing on your investment strategy and planning for retirement, just the way it should be.
To help you save time this EOFY, you may want to consider using a portfolio tracking tool such as Sharesight to automatically track your performance and investment income, evaluate your investing strategy and help meet your reporting requirements. Sign up for a free account to start tracking your SMSF investments today.
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