Government moves on Budget Changes
The Federal Government announced a number of proposed changes to super and SMSFs in this year’s Federal Budget (2021-22).
Many of these were lauded as positive for superannuation – expanding contribution opportunities, along with addressing long overdue SMSF issues with legacy pensions and the inequities in the existing residency rules.
There was some thought that the introduction of these changes would be deferred until after the Federal election in the first half of next year.
However, the Federal Government introduced Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021 into Parliament on 27 October 2021.
The Bill includes the following measures:
Removing the $450 SG threshold for an employee earning salary and wages.
The measure will start from 1 July 2022, unless Royal Assent is received after this date, where it will apply from the beginning of the following quarter.
Increasing the amount eligible to be released from the First Home Saver Super Scheme (FHSSS) from $30,000 to $50,000.
This measure will apply to requests made after 1 July 2022 for the Commissioner to make a FHSSS determination. No change applies to the limit on voluntary concessional and non-concessional contribution in any one financial year that can be released (being $15,000).
Reduces the eligible age from 65 to 60 years for an individual to make a downsizer contribution from the proceeds of the sale of their home.
This measure will apply to downsizer contributions made on or after 1 July 2022. All other existing qualifying conditions remain to be eligible to make the downsizer contribution.
Repeals the ‘work test’ for individuals 67 – 75 years of age for non-concessional contributions (incl. bring forward rule) or salary sacrifice contributions, subject to existing contribution caps.
Work test will continue to apply to personal deductible contributions. Shift in application of the ‘work test’ from SIS Regulations to ITAA 1997 for purposes of claiming a tax deduction on personal contributions. Bring forward rule extended from 67 to 74 years of age, however will be transitioned out as individuals reach age 75 where ordinarily a member in ineligible to make further non-concessional contributions.
Provides ‘choice’ in respect to determining ECPI for an income year where a fund has both segregated and unsegregated periods during an income year.
This measure will apply to the 2021-22 income year and later income years. The default position will be the current law when the trustee does not make a ‘choice’ – i.e. using the segregated method where the fund is fully in retirement phase for periods of the year. This election will occur before submission of the SMSF Annual Return and is not a formal election (i.e. does not require any ATO submission).
There are two budget announcements that impact SMSFs that do not form part of this Bill – these are:
Legacy pension conversions – allowing for the conversion of defined benefit pensions and market linked pensions to account based pensions and/or accumulation, within the confines of the member’s transfer balance cap.
Changes of the residency rules for SMSFs – removal of active member test and changes to the safe harbour from 2 to 5 years where the absence is temporary.