SMSF Legislation Update – Oct 2021

Author: Emma Partenza, Manager, TAG Financial Services

This year’s Federal budget saw the following proposed measures impacting SMSFs and their members:

    • Removal of work test
    • Extension of bring forward rule for non-concessional contributions
    • Downsizer contribution reduction in eligibility age
    • Residency requirements relaxed
    • Legacy pension conversions
    • Removal of the $450 per month threshold for superannuation guarantee payments
    • Changes to FHSSS

These proposals have now been introduced to Parliament and upon receiving royal assent, members will be able to take advantage of these new measures from 1 July 2022. The Government hopes to see this achieved by Christmas.

Work test removal for voluntary contributions

Individuals aged 67 to 74 currently need to meet the work test – working 40 hours in a consecutive 30-day period, to be eligible to make a voluntary contribution into superannuation.

Under the proposal, these individuals will no longer have to meet the work test in respect to making non-concessional contributions (including any bring forward contributions) or receiving salary sacrificed amounts into super.

The measure does not include repeal of the work test for personal concessional contributions, so a work test will still need to be met in respect to these contributions.

The bring forward rule is proposed to be further extended to members aged 75 or less.

This proposal will simplify the current contribution rules and have a significant benefit for older individuals for greater flexibility and provide opportunities in being able to make contributions into their super, and greater opportunity around “re-contribution” strategies.

Downsizer contributions – reduction in eligibility age

The downsizer contribution allows for a one-off tax-free contribution into super of up to $300,000 from the proceeds from selling the family home. Presently the eligibility age (amongst other criteria) for being eligible to make a downsizer contribution into super is age 65. It is proposed to reduce eligibility to age 60; with all other criteria remaining the same.

It has been a popular strategy of recent years and has enjoyed significant take up. Reduction in eligibility age will allow greater flexibility for individuals to top up their superannuation.

Removal of $450 per month threshold for Superannuation Guarantee payments

Employers are not currently required to make superannuation guarantee payments for employees who earn less than $450 per month. Is it proposed to remove this threshold so all employees (no matter their income, or employment status) will be entitled to be paid superannuation guarantee to build their retirement savings.

First Home Super Saver Scheme (FHSSS)

The FHSSS is a strategy to empower individuals to save a deposit to purchase their first home.

The proposal will increase the maximum releasable amount of voluntary contributions from $30,000 to $50,000 (gross of contribution tax). Voluntary contributions could be made from 1 July 2017 of up to $15,000 per year. These amounts contributed previously will count towards total amounts that can be released under this measure.

Exempt Current Pension Income (ECPI)

A further addition to this legislation saw a budget announcement from the 2018-19 federal budget.

Trustees will be provided with a choice of method in applying ECPI where the fund has segregated and unsegregated periods during a financial year.

Prior to the reforms in 2017, standard industry practice was to obtain an actuarial certificate and apply ECPI to the income and expenses of the fund for the full financial year (regardless of segregated and unsegregated periods during the financial year).

A choice in method allows trustees to revert to this approach. The choice can be made when preparing the annual return of the fund. However, determining the appropriate approach for the fund is crucial as these methods will produce different tax outcomes.

What wasn’t included:

Disappointingly, two federal budget proposals have not made it into the introduced legislation:

    • Legacy pension conversions
    • Relaxation of residency requirements

Legacy pension conversions

It has been proposed to allow members to exit these legacy pension products (including their associated reserves) during an amnesty period of 2 years via a full commutation. Applies to pensions initially commenced prior to 20 September 2007 (even if commuted to a market linked income stream post this date). There is no proposed requirement for these commuted legacy products to be put into an account-based pension; they may remain in accumulation or withdrawn as a lump sum, providing full flexibility with respect to such benefits.

The assets test exemption status of these legacy pensions will not be grandfathered. Should a new pension be commenced, it will be re-assessed for Centrelink purposes.

Relaxing residency requirements

The central management and control test allows for temporary absences from Australia for up to two years, without breaching this requirement. It is proposed to extend the current safe harbour test from 2 to 5 years. To qualify, the absence from Australia must be temporary and there must be the intention to return to Australia after a work contract, for example.

The active member test is also proposed to be removed due to its complex nature. This will allow for members overseas temporarily to continue contributing into their fund whilst overseas. Previously this was not possible and instead the member had to either not contribute during that time or open an APRA fund for contributions made whilst away.

If you have any questions about these changes, please contact us on 03 9886 0800 or via email.

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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 2021. Please do not reproduce without the expressed written consent of the author.