As expected, this year’s Federal Budget strongly emphasised job growth and women’s security. From an SMSF accountants’ perspective, there were some welcome surprises for SMSF trustees. The key measures that you should be aware of are outlined below.
All measures outlined below, other than the proposed changes to legacy retirement products, are expected to commence from 1 July 2022, once they have received Royal Assent.
Repealing the work test for voluntary contributions and extending the bring forward to age 74
Individuals aged 67 to 74 (inclusive) can make non-concessional (including under the bring-forward rule) or salary sacrifice contributions without meeting the work test, subject to existing contribution caps and total superannuation balance limits. This change does not apply to personal concessional contributions so that the work test will continue.
Reducing the eligibility age for downsizer contributions
The eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60. All other eligibility criteria remain unchanged, allowing individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person (or $600,000 for a couple) from the proceeds of selling their home. No matter how much money each person already has in super, these contributions can be made.
Relaxing residency requirements for SMSFs
SMSFs and small APRA funds will have relaxed residency requirements by extending the central management and control test safe harbour from two to five years. The active member test will also be removed, allowing members who are temporarily absent to continue to contribute to their SMSF.
Removing the $450 per month threshold for superannuation guarantee eligibility
The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer.
Legacy retirement product conversions
Individuals will be able to exit a specified range of legacy retirement products and any associated reserves over two years. The specified range of legacy retirement products includes market-linked, life expectancy and lifetime products, but not flexi-pension products or lifetime products in a large APRA-regulated or public sector defined benefit scheme.
Currently, these products can only be converted into another like product, and limits apply to allocating any associated reserves without counting towards an individual’s contribution cap.
Social security and taxation treatment for new products commenced with commuted funds will not be grandfathered. Amounts commuted from reserves will be taxed as an assessable contribution but will not count towards an individual’s concessional contribution cap or give rise to excess contributions. This measure will take effect from the first financial year after the enabling legislation’s Royal Assent date.
Increasing the amount that can be withdrawn under the First Home Super Saver Scheme
The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000. Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount released. This measure is designed to ensure the FHSSS continues to help first-home buyers raise a deposit more quickly and is expected to commence from 1 July 2022.
Overall, the uptake of this scheme in SMSFs has been relatively low given it is generally unusual for individuals to establish an SMSF before they buy their first home and only “voluntary” contributions can be accessed, and at most only $15,000 of the contributions in any one year can be included in the withdrawal.
Should you have any questions about the above issues, do not hesitate to contact your client manager.
Correct as of 26 May 2021
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
