It is fair to say that we weren’t expecting anything too dramatic when it came to superannuation and SMSFs in Federal Budget 2018 and the most part we were right. The Treasurer, Scott Morrison delivered a budget that looked to hand back some of the more than expected revenues generated since the mid-year economic report. Given that this was most likely the Government’s last opportunity to present a budget before the next Federal election, it was always going to have a few ‘sweeteners’ included. This extended to SMSFs too…
In this podcast, Aaron discusses the proposed measures from the Federal Budget that impacted superannuation and SMSFs more specifically. This included the:
- announcement to extend the membership of an SMSF from 4 to 6;
- expanding the work test for certain individuals 65-74 where their total superannuation balance is <$300k, tightening the integrity of claiming tax deductions for personal super contributions, and the change to tri-annual SMSF audits for funds with a clean bill of health and meeting their lodgement obligations.
A more detailed summary of these proposed measures are provided below:
This measure is to reflect the ability for the automatic reversion of TRIS to occur where a nominated reversionary beneficiary has not satisfied a condition of release with a nil cashing restriction to move or retain the TRIS in the retirement phase (as per 307-80 of ITAA 1997). This measure was previously released for consultation by Treasury and once legislated with have a 1 July 2017 effective date to ensure no unintended consequences.
Super work test exemption for retirees
This measure provides an exemption from work-test for non-concessional contributions (NCCs) for people 65-74 when the following conditions are both satisfied:
- is the first year that they don’t meet the work test; and
- member has a Total Super Balance (TSB) below $300,000 at beginning of the financial year
Importantly this measure does not required the TSB to be maintained at or below $300,000 during that income year to make additional NCCs.
The existing concessional contribution (CC) and NCC caps will continue to apply, that is, no extension to the bring-forward rule will apply beyond reaching age 65.
In addition to the extension to make NCCs, the individual will also have the ability to use unused CC cap amounts as well in that following income year.
These measures once enacted will take effect from 1 July 2019.
To better understand how these proposed measures are to work, let’s take a look at the following example:
At the age of 68, Gus retires from full-time work on 1 June 2020. As he would not meet the work test in the 2020-21 financial year, Gus would currently be prevented from making any voluntary super contributions after 30 June 2020.
As his total superannuation balance is $150,000 at the end of the 2019-20 financial year, Gus is eligible to make contributions under the work test exemption from 1 July 2020 to 30 June 2021.
As Gus had not reached his concessional contribution cap over the past 2 years, having contributed only $18,000 in 2018-19 and $12,000 in 2019-20, under the existing carry forward arrangements and new work test exemption Gus can contribute up to $45,000 at concessional tax rates in the 2020-21 financial year.
As a result of the work test exemption, Gus is also able to contribute up to $100,000 in non concessional contributions in 2020-21.
Improved integrity of claiming personal tax deduction for superannuation contributions
The Government will improve the process for a ‘notice of intent’ in claiming personal super contributions. Currently, some individuals receive deductions on their personal superannuation contributions but do not submit a NOI, despite being required to do so. This results in their superannuation funds not applying the appropriate 15% tax to their contribution. As the contribution has been deducted from the individual’s income, no tax is paid on it at all.
The additional funding from the budget will enable the ATO to develop a new compliance model, and to undertake additional compliance and debt collection activities. The ATO will modify income tax returns to alert individuals to the NOI requirements with a tick box to confirm they have complied. The ATO will also provide guidance to individuals on how to comply if they have not yet done so. This will ensure that any deductible contributions are appropriately taxed by superannuation funds and enable the ATO to deny deductions to individuals who do not comply with the NOI requirements.
Increase SMSF membership from 4 to 6
The Government will increase the maximum number of allowable members in new and existing self-managed superannuation funds and small APRA funds from four to six, from 1 July 2019. This will provide greater flexibility for joint management of retirement savings, in particular for large families. The measure is estimated to have no revenue impact over the forward estimates.
We did also see Minister Kelly O’Dwyer also announce the extension of Superstream to apply to SMSF rollovers, which will significantly streamline the transfer of rollover benefits to an SMSF. Further consultation is expected with industry throughout this year as part of expanding Superstream for SMSFs.
Preventing inadvertent concessional cap breaches by certain employees
The Government will allow individuals whose income exceeds $263,157 and have multiple employers to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018. The measure will allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap as a result of multiple compulsory SG contributions. Breaching the cap otherwise results in these individuals being liable to pay excess contributions tax, as well as a shortfall interest charge.
Employees who use this measure could negotiate to receive additional income, which is taxed at marginal tax rates. Due to this, the measure is estimated to have a gain to revenue of $2.0 million over the forward estimates period through the timing of income tax collection, which is collected sooner than excess contributions tax.
Three-yearly audit cycle for some self-managed superannuation funds
The Government will change the annual audit requirement to a three-yearly requirement for self-managed superannuation funds (SMSFs) with a history of good record-keeping and compliance. This measure will reduce red tape for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
This measure will start on 1 July 2019 and, to ensure smooth implementation, the Government will consult with stakeholders. The measure is estimated to have no revenue impact over the forward estimates period.
and finally… super exit fees will be gone, with the Government banning the ability to apply exit fees to a member’s super benefits.
To find out more visit budget.gov.au