Budget Summary for SMSFs
Updated: Apr 24, 2020
On 2 April 2019, the Government handed down the 2019-20 Federal Budget. The focus of the 2019-20 Budget is a plan for a stronger economy and securing a better future.
In last year’s Budget, the Government commented that just as most households have had to tighten their budgets over the recent years, the Government was committed to doing the same. With the Budget returning to a surplus position much sooner than anticipated, it is now seeking to give back to Australians.
With a strong focus on delivering personal taxation benefits for individuals, as well as a focus on increased spending for infrastructure and essential services, at first glance there would appear to be minimal impacts for Self-Managed Super Fund (SMSF) trustees.
However, with some announcements being made in relation to superannuation, there are important considerations for SMSF trustees.
Following is a summary of some of the superannuation related measures proposed and how they may affect SMSF trustees.
Extending the contribution eligibility rules
Currently, contribution rules differ depending on the age of the recipient. The rules for those under 65 are relatively straightforward – a member can contribute at any time up to their annual contribution caps, currently $25,000 for concessional contributions and $100,000 for non-concessional contributions (provided their total superannuation balance on the previous 30 June is below $1.6 million).
For those aged 65-74, they must satisfy a Work Test, which requires that they work a minimum of 40 hours over any 30 day period during the financial year, in order to be eligible to make additional, voluntary personal contributions to super.
From 1 July 2020, individuals aged 65 and 66 will be able to make voluntary contributions, both concessional and non-concessional, without having to meet the Work Test. This will align the Work Test with the eligibility age for the Age Pension, which is gradually increasing and scheduled to reach 67 from 1 July 2023. It will also allow individuals of this age who are no longer working, only working one day a week or volunteering, to be able to make additional contributions to their super.
Extending the eligibility age for the non-concessional contribution bring-forward arrangements
The bring-forward arrangements currently allow individuals aged less than 65 years to make up to three years’ worth of non-concessional contributions to their super in a single year. From 1 July 2020, access to these arrangements will be extended to those aged 65 and 66, effectively allowing these members to contribute up to $300,000 in a single year to their super under the current contribution caps.
Note: the total amount an individual will be able to contribute under this arrangement will depend on their total super balance as at 30 June of the previous financial year.
Increased age limit for spouse contributions
In addition, from 1 July 2020 the age limit for spouse contributions made to a spouse’s account will increase from 69 to 74 years of age.
The existing $1.6 million total super balance, and the Work Test requirements, will continue to apply in determining eligibility to make spouse contributions.
Reducing red tape through simplifying pension income calculation
From 1 July 2020, the Government will streamline administrative requirements for the calculation of exempt current pension income (ECPI). This will allow super fund trustees with interests in both accumulation and retirement phases, during a financial year, to choose their preferred method of calculating ECPI i.e. proportionate or segregated methods. The proposal will also remove the need for super funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are in the retirement phase for the whole financial year.
What actions do SMSF trustees need to take?
Currently, these changes are proposals only. To become law, they will likely require the Coalition’s re-election and then the successful passage of legislation. As a result, there is no immediate change required by SMSF trustees at this time. However, SMSF trustees may want to consider the following:
If the laws were to change, would there be a requirement to update the terms of the SMSF’s Trust Deed?For example, if the Trust Deed specifies contribution rules including eligible ages and these are not updated in accordance with any changes to legislation, trustees may be prevented from accepting a contribution.
Ensure contributions being received are made in line with the existing rulesWhen changes are announced, occasionally a member may make a contribution based on the rules that have only been proposed. It is the trustee’s responsibility to ensure that only valid contributions are accepted in line with current legislative obligations.SMSF trustees are encouraged to seek professional advice to ensure their SMSF Trust Deed has been appropriately updated for other measures that have come into effect in the last 12 months or for other proposed changes (such as the proposed increase in SMSF membership to a maximum of six members).
Originally published by BT, April 2019.