Author: Emma Partenza, Senior Manager & SMSF Specialist
As another year draws to a close and we wind down into a well-deserved holiday period, we have been reflecting on the superannuation year that was – there were certainly a few big-ticket items causing quite the stir.
$3m Super Cap – Division 296
Last week the Australian Government had their final parliamentary sitting days for 2024. Fortunately, the proposals around the Division 296 “$3m super cap” didn’t get passed through the Senate under their guillotine measures on the last day of sitting, and the superannuation industry’s Christmas present is the deferral of this contentious matter.
Not only has this legislation been deferred, but it has also been split into its own separate Bill – now known as: Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023, so other provisions in the same Bill could get voted into law.
Senate sittings resume in February 2025; however, we have a Federal election looming which needs to be held before 17 May 2025. We await with bated breath as to when this is called, and whether there is any time for Division 296 to be tabled for debate in the new year.
All outstanding Bills not voted into law are null and void on announcement of an election.
Early next year will be an interesting time to see what happens next with this contentious matter.
Should this new Bill go through early next year, we have little time to act before it could become law on 1 July 2025. Its critical trustees stay informed and ensure strategies remain adaptable to potential changes in the superannuation landscape. Have a plan in place that can be executed if and when the time comes.
Read our previous updates here: $3M Super Tax Clears Lower House Despite Push for Amendment, Senate Showdown Awaits – TAG Financial Services TAG Tips
Legacy Pensions can now be commuted in full without penalty
With little fanfare, on 6th December 2024, the Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024 were approved by the Governor-General. They were presented as a legislative instrument by Financial Services Minister Stephen Jones as this legislation purely alters existing superannuation and tax legislation.
This applies to all complying pensions (market linked, lifetime expectancy and lifetime complying pensions) from 7 December 2024, so we now have a 5-year amnesty in place whereby trustees and members can exit these inflexible arrangements and fully commute them (including any associated reserves) without penalty (or excess contributions tax from applying).
Complying pensions can now be fully commuted into an accumulation benefit for the member or used to commence an account-based pension (subject to the member’s transfer balance cap), or commuted and withdrawn from superannuation altogether).
Impacts on commutation on a member’s transfer balance cap are yet to be known (i.e. special value used in calculation of the member’s TBC).
As this is a legislative instrument, rather than the granting of Royal Assent on a Bill, it’s important to note that it still could be disallowed when Parliament resumes in February 2025, as the instrument is required to be tabled in both houses of parliament. If a member has not submitted a motion by 14th April 2025 to disallow it, then this will be law.
It’s time to start planning and preparing for members’ exits from these pensions – 2025 might finally be the time we can begin to unravel these into simpler, more effective solutions for affected members.
Read more on this matter: New Draft Regulations Unveiled to Facilitate Exits from Legacy Pension Products – TAG Financial Services TAG Tips
Non Arm’s Length Expenditure (NALE)
This year saw the Federal Government finally pass the long-awaited Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 just prior to the end of the 2024 financial year. This legislation contains changes to the non-arm’s length expense provisions (Schedule 7).
The passing of this legislation has brought no changes to what was proposed in relation to NALE. It’s important to note this legislation only addresses general expenses of an SMSF, and not specific expenses – an area of which can still be detrimental to a fund if not on an arm’s length, commercial basis.
Read more about NALE:
Objective of Superannuation
Last but not least, the Superannuation (Objective) Bill 2023 was just passed, cementing the objective of superannuation: “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.” This objective ensures superannuation is purely for retirement purposes.
The concept of an objective of super was first tabled by previous Liberal Governments but nothing was legislated under their leadership. With Labour now legislating this, Parliament will need to ensure legislation addresses these objectives when considering future changes to the superannuation sector.
If you’d like to explore the most trending topics in 2024 for our clients, read more here. We look forward to sharing updates about our annual seminar in the first quarter of next year.
If you have questions or need any assistance, please do not hesitate to contact us on 9886 0800 or via email.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2024. Please do not reproduce without the expressed written consent of the author.