Whilst there had been a lot of ‘talk’ about potential changes to superannuation in Labor’s version of the Federal Budget for 2022-23, the actual outcome was minimal in respect to changes impacting the SMSF sector.
It’s not to say that Labor doesn’t necessarily foresee changes to superannuation, but the likelihood is that they have decided to hold off on any announcements until May 2023.
Within this blog post, we share with you what we did actually get announced by Labor that impacts the SMSF industry, along with a number of items that the Government has remained silent on.
What was announced:
The following announcements were made by the Government as part of the Federal Budget:
|Confirmation of 3 year audit policy not proceeding||In the 2018/19 Federal Budget the Government had proposed to introduce a 3 year audit cycle for SMSFs, on the basis that certain criteria had been met.
It’s fair to say that this measure was met with a strong response from within the SMSF sector (in particular auditors). Given the role that the annual audit process plays in maintaining the integrity of the SMSF sector, this 3 year audit cycle never proceeded beyond this announcement, albeit it was never officially taken off the table either – until now, and that’s a relief.
|Deferral on the relaxation of the residency rules||Within the 2021-22 Federal Budget, the former Government proposed changes within the residency rules for SMSFs:
These measures were intended to commence from 1 July 2022, however to date there had been no consultation, nor legislation dealing with the proposed change.
The Government has now deferred the commencement of these measures to the income year commencing on or after the date of Royal Assent of the applicable legislation.
Whilst this topic has not progressed in any meaningful way, it is a positive that it remains on the Government’s radar.
|Penalty unit increase||The Government will increase the Commonwealth penalty unit from $222 to $275 from 1 January 2023. The amount will continue to be indexed every three years in line with CPI as per the existing schedule.
It should be noted that Indexation is scheduled to occur on 1 July 2023.
The increase in the penalty rate will have a direct impact on the SMSF sector, in particular through the use of administrative penalties. For example, a breach of the lending to members – section 65, SISA, will see the 60 penalty units increase from $13,200 to $16,500.
|Expansion of the downsizer contribution rules||An announcement in the budget that’s already in progress? This change is proposing to reduce the qualifying age for downsizer contributions from 60 years of age to age 55.
Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 was introduced in parliament on 3 August 2022. Once passed, it is intended to take effect from the first day of the first quarter after it receives Royal Assent – that is, the earliest it may commence is 1 January 2023.
|Incentivising pensioners to downsize||Pensioners looking to downsize their family home will see the sale proceeds exempt from the asset test extended from 12 to 24 months.
It is important to note that this exemption only applies to the principal home sale proceeds which a person intends to use to purchase a new principal home.
Furthermore, for income test purposes, only the lower deeming rate (currently 0.25%) will apply to these asset test exempt principal home sale proceeds for the 24-month period.
The intent of this measure is to reduce the financial impact on pensioners looking to downsize their homes in an effort to minimise the burden on older Australians, and free up housing stock for younger families.
|Commonwealth Seniors Health Card threshold increases||Another announcement that’s already well advanced in Parliament, this change will increase the income thresholds to:
to qualify for the CSHC.
Social Services and Other Legislation Amendment (Lifting the Income Limit for the Commonwealth Seniors Health Card) Bill 2022 was introduced into Parliament on 27 July 2022, with the effect of these changes intended to have started with payments from 20 September 2022.
|Further funding for Modernising Business Registers (MBR)||The Government will provide additional funding of $166.2 million over 4 years from 2022/2023 to continue the delivery of the Modernising Business Registers (MBR) program.
This will see over 30 business registers consolidated into the new registry platform, and also includes additional funding for the operation and regulation of the Director Identification Numbers regime. It should be noted that laws have recently passed to delay the transfer of registry functions from ASIC to the new register until 1 July 2026.
What wasn’t announced:
There were a number of items that the SMSF industry remained hopeful on the Government looking to announce that continue to remain unresolved, or were rumoured to introduce:
|Freeze on indexation of the transfer balance cap||With the transfer balance cap likely to index as high as $1.9 million from 1 July 2023 due to inflation, there was some concern that Labor may look to put a freeze on cap indexation that would allow for individuals to increase the amount of super that can be moved into the retirement phase.
No announcement was made in respect to this issue. Whilst we will know the level of indexation for the transfer balance cap early in 2023, the Federal Budget in May 2023 could still introduce a freeze on this indexation that would apply for the next financial year.
|NALI / NALE amendments||After the former Coalition Government acknowledged issues with the Commissioner’s views set out in LCR 2021/2, the superannuation industry had remained hopeful that the Labor would look to announce amendments to the operation on s.295-550 of the ITAA 1997 – that is, where the fund incurs expenses (or does not incur expenditure) that is not on commercial terms and is connected to all of the fund’s ordinary and statutory income.
The budget gave us no indication of how Labor intends to address this non-arm’s length expenditure (NALE) issues, which means the clock continues to countdown on the ATO’s current compliance relief to 30 June 2023 in respect to the the impact of general expenses issue for the purposes of the non-arm’s length income (NALI) provisions.
|SMSF legacy pension conversions||Whilst the budget gave us some insight to the Government’s commitment to amending the residency rules, no such similar commitment was given to the other previous measure announced in the 2021-22 federal budget – a 2 year amnesty for SMSFs to unwind legacy pensions, including defined benefit income streams and market linked pensions.
Just as the Government has given commitments to the continuation of cessation of other measures, it would be beneficial for the industry to get clarification about whether this will proceed or not.
|Super cap for high balances||The topic of adequacy and super tax concessions has been topical since the release of information within the Retirement Income Review (RIR).
There has been ongoing commentary within the media about whether the Government will introduce restrictions on member account balances – such as a $5 million threshold, where excess amounts would either need to be withdrawn or a different tax rate would apply.
With a further budget available to consider this before the next financial year, it will be interesting to follow what may transpire.
Ultimately, the Federal Government has decided to not pull the trigger on any super changes, arguable trying to stay true to messaging within their election campaign. However, with economic conditions changing rapidly, it be a brave Government to think that superannuation would remain immune to change. Next year’s Federal Budget in May 2023 is likely to be very interesting indeed.
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