The Labor Government as part of their election promise stated that it would not make any ‘major changes’ to superannuation in their first term of Government, other than to define what superannuation should exist for.
The reality is that we have seen some key announcements by the Government, including the controversial proposal to introduce Division 296, a new tax on earnings of high balance members (> $3.0m). Whilst the Government is currently ramming this poorly designed legislation through both houses of Parliament, it will argue that it’s not a new tax in the first term of Government – it is proposed to commence after the next Federal election (from 1 July 2025).
The near finalisation of the Superannuation (Objective) Bill also provided an opportunity for the Government to consider further change, in particular around access for housing purposes (First Home Super Saver Scheme) and tightening access to preserved monies for things like weight loss surgeries and more. Therefore, it would have been reasonable to expect budget night having had a few items for SMSFs and superannuation… the reality was (almost) ‘crickets’, arguably setting up superannuation as a key policy item coming into the next federal election.
So, what did we see announced?
Deeming rates frozen for 12 months
The government will continue to freeze social security deeming rates for financial investments at their current levels until 30 June 2025. These deeming rates are currently:
| Situation | Deeming – lower rate | Deeming – higher rate |
| Single | 0.25% on first $60,400 of investments, plus | 2.25% on investment assets over $60,400 |
| Couple | 0.25%of first $100,200 of combined investments, plus | 2.25% on investment assets over $100,200 |
This will benefit around 876,000 income support recipients, including around 450,000 Age Pensioners.
Superannuation on paid parental leave
This item was announced earlier this year and confirmed within the budget, where the Government will pay superannuation on Commonwealth government-funded Paid Parental Leave (PPL) schemes for births and adoptions on or after 1 July 2025. Eligible parents will receive an additional payment based on the Superannuation Guarantee (12% of their PPL payments), as a contribution to their super fund.
What is most interesting for the SMSF sector about this announcement is the ‘politics’ that sits behind it – the Greens having demanded the change to provide passage for the Labor Government’s Division 296 tax passage. You can read about this via the Green’s media release (Sept 2023):
https://greens.org.au/news/media-release/pay-super-ppl-proposed-super-tax
Whilst the Greens have previously indicated that this measure would give Labor passage within the Senate to finalise the Division 296 laws, their dissenting report within the recent Senate Committee Report may suggest otherwise, with further demands being tabled including:
- Reducing the large super balance threshold from $3.0m to $2.0m; and
- Repealing the LRBA legislation for SMSFs.
You can read the report from the link below:
https://www.aph.gov.au/Parliamentary_Business/Tabled_Documents/5866
More funding to target fraud
The Government has announced $187 million in funding for the Australian Taxation Office (ATO) to better protect taxpayer data and Commonwealth revenue against fraudulent attacks on the tax and superannuation systems. The funding will upgrade the ATO’s information and communications technologies and increase their fraud prevention capabilities. This will ensure the ATO has dedicated resources to manage increasing risk, prevent revenue loss, and support victims of fraud and cyber crime.
What did we want to see?
For SMSFs, two previous budget issues remain outstanding which the Government has indicated their commitment to legislating – they are:
- the 2 year legacy pension conversion
- relaxing the SMSF residency rules
The legacy pension conversion would have been timely in light of the proposed Division 296 tax changes from 1 July 2025 – albeit some excessive pensions can already convert from capped defined benefit income streams (CDBIS) under the current law. Draft regulations in respect to defined benefit pensions will make these legacy pensions most complicated and expensive to manage, so an avenue to exit these was the industry’s preferred path.
The other former announcement was the relaxation of the residency requirements for SMSFs and SAFs by extending the central control and management test safe harbour from two to five years for SMSFs, and removing the active member test for both fund types. See our previous blog posts that have covered this topic:
- https://smartersmsf.com/2023/05/is-it-the-calm-before-further-super-reform/
- https://smartersmsf.com/2022/10/federal-budget-stays-silent-on-a-number-of-areas-for-smsfs/
- https://smartersmsf.com/2021/05/how-smsfs-fared-in-the-federal-budget-2021/
Where to from here?
With a federal election needing to be held on or before 27 September 2025, it becomes very clear that next year’s budget will be much more expansive on policy commitments towards tax reform, which you would expect will incorporate a level of change to superannuation as well.
The next 12 months will see finalisation of the objective of super, many SMSFs contemplating the impact of the Division 296 measures, further consultation about superannuation in retirement, and arguably more headwinds within the economy.
With the battlelines in super already drawn by Labor and the Coalition (in particular with housing), it will be interesting to see what transpires.
