A very benign May budget was handed down by the government, compared to last years, with very few changes to super. We have highlighted the significant changes that will impact SMSF trustees and members in this article.
The government has proposed that from 1 July 2019 the ATO will assist with identifying lost super accounts with less than $6,000 in value which will be forwarded to the ATO by retail and industry funds. The ATO is further proposing to consolidate lost super funds to this value with the already active funds in the market using data matching for active member accounts. This will result in an increase of around $6 billion in super being matched with 3 million active super accounts.
First Super Saver Scheme(FHSSS)
Members who make voluntary super contributions( salary sacrifice) up to $15,000 per member per financial year into their super fund, will be able to withdraw a maximum amount of $30,000 per member or $60,000 per couple to help fund the purchase of a first home. The concessional tax treatment of super (15% rate) makes this initiative very attractive for first home savers and this become available from 1 July 2018.
From 1 July 2018, the use of Limited Recourse Borrowing Arrangements (LBRA’s) will be included in a member’s total super balance and transfer balance cap. The outstanding loan will now be included in a member’s total super balance, which will be reported to the ATO. This is not a significant deterrent or disadvantage for SMSF property buyers, but it will limit higher income individuals who are close to retirement from buying a property with a loan and commencing a pension where a loan will count towards the $1.6 million transfer balance cap per member.
The repayments of the principle and interest of a LRBA or SMSF Loan from a member’s accumulation account will be credited and debited from the member’s transfer balance account.
Members with low super balances below the value of $300,000
Will be given a one-year exemption from the work test for voluntary contributions to super for people aged 65-74. This will enable many older Australians the opportunity of contributing more funds to super to maximise their retirement. This measure commences from 1 July 2019
John retires on the 1st of June 2020 with only $150,000 in super. He does not meet the work test. Under the new rules, he could put $45,000 at concessional rates (using the carry forward arrangements) and $100,000 in non-concessional contributions.
Examples provided in the budget work papers
Number of SMSF Members
SMSF’s will be allowed 6 members in a fund from 1 July 2019 which represents an increase of two (2) people from the current maximum of four (4) persons allowed in an SMSF to cater for larger families
Division 293 – High income earners
Those of you that earn over $263,157 with multiple employers will be able to nominate which contractors or employers are exempt from Superannuation Guarantee payments from 1 July 2018. This measure is intended to reduce the number of people who breach the $25,000 cap on concessional contributions and it further, allows these high-income earners the ability to negotiate a higher income without impacting their super contribution levels.
SMSF’s with a clean up to date tax history extending to
- Individual tax returns
- Company’s; Trusts,
Will be allowed to be audited every (3) three years instead of annually where the fund has a clean audit history. This will not result in a reduction in audit costs as auditors will need to review activities in the fund over three years.
Claiming Concessional Contributions:
members who are PAYG , who wish to claim a tax deduction for salary sacrifice contributions
must notify your SMSF administrator or accountant and lodge a NAT71121 form with the provider or accountant
The administrator or accountant must confirm that they have received this notice in writing.
You can give a valid notice to your fund if all of the following apply:
- you are still a member of that fund
- the fund still holds the contribution. Note that special rules apply for full or partial voluntary rollovers, and situations where there has been a successor fund transfer or a MySuper transfer
- the notice does not include all or part of an amount covered by a previous notice.
- the fund has not begun to pay you a super income stream based in whole or in part on the contribution.
- you have not lodged an application (which hasn’t yet been dealt with by the fund) to split the contribution for which you intend to claim a deduction.
- you have not yet requested a release of FHSS amounts
- the notice does not include all or part of an FHSS amount that you have recontributed to your super fund(s).
This deduction can only be claimed via a individual tax return lodgement (ITR)
More Details: https://www.ato.gov.au/Individuals/Super/In-detail/Growing/Claiming-deductions-for-personal-super-contributions/?anchor=Howtomakeaclaim#Howtomakeaclaim
New Tax Rates and thresholds:
|Taxable income V super tax and savings|
|Taxable Income||Tax Rate*||Tax in super||Tax benefit|
|$0 to $20,542*||0%||0%**||NIL|
|$20,543 to $37,000||21%||0%**||21%|
|$37,001 to $87,000||34.50%||15%||19.50%|
|$87,001 to $180,000||39%||15%||24%|
|$180,001 to $250,000||47%||15%||32%|
|*include low income offset|
|** low income super offset|
NOTE: From I July 2024 the 39% tax bracket will be removed
Pension Loan Scheme
From 1 July 2019 You may qualify if:
- You are of age pension age 60 -65 and are a qualified resident
- You own a home with a mortgage and you have available equity
- You receive less from the age pension due to failing the income or assets test, but not both.
You receive one of the following types of pensions
- Age Pension /Bereavement Allowance/Carer Payment / Disability Support Pension/ Widow B Pension / Wife Pension
Loan Interest rates are 5.25% and the payments are not taxable, and the amount of the loan will be determined based on what is required, equity in your property and a few other variables.
So,overall a very easy budget to digest and its certainly enhanced the attractiveness of SMSF’s.
Warning: This is general information only. Seek tax, legal and financial advice before implementing any of these measures