Author: Emma Partenza, Manager, TAG Financial Services
There were many superannuation announcements in 2023, many of which we are still awaiting consultation and/or Royal Assent.
Let’s hope 2024 can put to rest many of these matters and provide some certainty to the superannuation sector.
Here is a summary of where we are currently at:
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$3M Cap
Without a doubt, this was the biggest superannuation announcement of 2023.
As a recap to the proposed changes, please check out our previous blogs:
Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 was introduced for a relatively short consultation period in October 2023. It’s proposed to insert a new division 296 into the ITAA 1997.
This Bill is yet to pass both Houses of Parliament, and the Government have not made any further announcements in relation to it since a second round of consultation ended on 18 October 2023.
Unfortunately, the draft legislation has remained relatively unchanged from initial announcements, despite feedback from the industry and submissions from previous public consultations on the issues this Bill may pose for many superannuants.
Due to commence on 1 July 2025, we hope 2024 provides further clarity on numerous issues vehemently debated between the industry and the Australian Government. Especially in relation to numerous contentious issues it may deliver, such as taxing of unrealised capital gains and non-indexation of the $3m cap itself.
2024 needs to provide clarity so affected members and trustees may begin to plan accordingly for their situations and consider implementing strategies to minimise its impact on their superannuation benefits.
Non-Arm’s Length Expenses (NALE)
Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 (Cth) is currently before the House of Representatives (introduced on 13 September 2023).
The Bill proposes to fix issues that presented when the Non-Arm’s Length Income (NALI) rules were extended in 2018 to include expenditure and aims to ensure trustees cannot circumvent the non-arm’s length income rules by entering into schemes involving non-arm’s length expenditure.
The superannuation industry expressed concerns of the legislation’s harsh nature of the treatment of non-arm’s length expenses as NALI, especially for relatively minor breaches.
The intent of this Bill currently before Parliament, is to limit the amount of income (resulting from lower or nil incurred general expenses of the SMSF) classified and taxed as NALI at the highest marginal tax rate.
Another included proposed change in the Bill is the capacity in which the trustee/member acts and whether those actions constitute non arm’s length income consequences.
The proposals aim to rectify the disproportionate tax on relatively minor breaches in respect to general expenses.
However, for specific expenses incurred in relation to a specific asset of the fund, there is currently no proposed cap to limit exposure to these types of expenses and there is the potential for all future ordinary and statutory income to be taxed entirely as NALI. We will wait to see whether a similar cap may be imposed on such expenses to bring all expenditure into line, whether specific to an asset generating income, or the fund generally in generating income for its members.
More details are available in our previous blog:
Legacy pensions
Back in the May 2021 Federal Budget, the previous Government proposed an exit strategy for members currently receiving inflexible lifetime complying pensions, market linked pensions and life expectancy pensions.
Many in receipt of these pensions are nearing their life expectancy, have minimal balances remaining in them or are experiencing liquidity issues etc, raising the question of viability of SMSFs for their situation, which is now quite different to when they were commenced, many decades ago.
Currently, nothing can be done, and members are essentially ‘stuck’ in them until their death. However the member’s passing will not solve the issue for complying with lifetime and life expectancy pensions as any remaining balance will fall into a reserve of the fund, creating further issues regarding their access.
This matter has largely gone under the radar for the past few years, but a resolution to finish these types of complying pensions does need to be addressed for simplicity and to ensure no further adverse consequences arise in the future.
Objective of superannuation
The Government has been seeking to enshrine an objective of superannuation into legislation to strengthen and maximise the benefits of Australia’s super system.
The Superannuation (Objective) Bill 2023, was introduced to parliament on 16 November 2023 (post months of consultation) defines the objective of super as: to preserve savings to deliver income for a dignified retirement, alongside government support, equitably and sustainably.
The Government hopes that by legislating an agreed objective of super, it will provide stability and a guide to future governments, regulators, industry, and the wider community, that changes to superannuation policy will be aligned with the objective of super, thereby instilling greater confidence in the system.
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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 2024. Please do not reproduce without the expressed written consent of the author.