Read: Access full Federal Budget 2018-19 review here
Positive changes for superannuation
Small fund membership increased from four to six
This increase should provide greater opportunities for families to pool wealth in a common superannuation fund structure for investment. Families participating jointly in this way may access investment opportunities that would not otherwise be available, such as the ability to acquire a significant commercial property. It may also make it easier for families to maintain specific assets/investments in a superannuation fund structure, and transition those assets/investments to the next generation.
However, we note a decision to include children in a family superannuation fund may not always be the best approach. It is important to remember all fund members have an equal say in investment and other fund management decisions, irrespective of the size of their superannuation balance. We have also seen examples where members may want to pursue different investment strategies as they are at different stages of life, which is often better pursued in separate superannuation funds.
The measure may also provide a mechanism to reduce the tax impact of the proposed Labor policy of denying a refund of franking credits in SMSFs (i.e. by introducing further assessable superannuation contributions to the SMSF).
Three-yearly audit requirement
The requirement for annual audits will be changed to a three-yearly requirement for SMSFs with a good compliance record. To be eligible, SMSFs will need to have three consecutive years of clear audit reports and must have lodged all returns over that period within time.
The measure is stated to commence from 1 July 2019, however, it is not clear if the 2020 financial year will be the first year an audit exemption will be available. We welcome this measure, which will reduce the regulatory burden for SMSFs and associated compliance costs.
Superannuation Guarantee opt-out
Individuals who have multiple employment arrangements, and where those arrangements result in employer superannuation contributions exceeding the $25,000 concessional contribution cap, will be able to nominate to exclude earnings from the superannuation guarantee regime from 1 July 2018. If the opt-out option is used, then generally such superannuation contributions would (instead) be paid to the employee directly as ordinary income/earnings.
The measure should limit the excess contribution situations that can inadvertently arise today and which generally result in additional compliance costs and penalties outside of the taxpayer’s direct control.
Superannuation work test exemption for contributions by recent retirees
From 1 July 2019, the Government will introduce an exemption from the work test for voluntary superannuation contributions made by individuals aged between 65 to 74 in the first year the individual does not meet the work test requirement. The individual must also have a superannuation balance below $300,000 to qualify.
Currently, the work test restricts voluntary superannuation contributions from age 65 unless a person is gainfully employed for at least 40 hours in a period not exceeding 30 consecutive days in a financial year.
Opening up voluntary contributions to people in the first year of retirement is a welcome initiative, but we expect this measure to have limited application given how strict the eligibility requirements have been drafted.
Notice of intention to claim deductions
The Government announced measures aimed at improving the integrity of the personal contribution deduction process.
The deduction notice process is the mechanism that enables a superannuation fund to withhold contributions tax. The Government has highlighted its concern that some taxpayers are receiving the personal deduction but not paying contributions tax due to a failure to inform their superannuationfund of their intention to claim a tax deduction.
An additional $3.1 million of funding will be provided to the ATO to develop a new compliance model and for additional compliance resulting in an estimated $430 million in additional revenue over four years.
Additional superannuationmeasures designed to limit erosion of member balances
A number of measures have been announced to limit the unnecessary inadvertent erosion of member superannuationbalances from 1 July 2019. These measures include a 3% annual cap on passive fees on low balance accounts (less than $6,000); a ban on exit fees; changes to insurance arrangements for low balance accounts, members under 25 or accounts that have been inactive for 13 months; and requiring the transfer of all low balance inactive superannuation accounts to the ATO.
The measures appear to be well-intentioned, however, we highlight that there may be inadvertent consequences. For example, the insurance changes are likely to see fund members under age 25 not opting into insurance. The lack of insurance cover at a younger age may then have implications later in life. For example, it may be more difficult to obtain similar cover later in life or that cover would come at a higher cost. Therefore, it will be important for members to properly consider what these changes may mean, both now and in the future.