2018/19 Federal Budget Superannuation Brief
After a period of turbulence following the extensive changes announced in May 2016, Australians can breathe easy with a largely “superannuation-friendly” 2018/19 Federal Budget handed down by Treasurer Mr Scott Morrison. A combination of Labor policy announcements and Royal Commission revelations have also recently seen Self Managed Superannuation Funds (SMSFs) take a public battering but there are positive proposed measures which will hopefully win back some much needed confidence.
The key changes proposed for superannuation and SMSFs in the Budget are:
Expanding the SMSF member limit
Flagged in April 2018, it has been confirmed that the number of members allowed in a SMSF will be increased from four to six from 1 July 2019. While this may seem of little benefit to most existing SMSFs it does open the door for greater flexibility and planning opportunities in the future. This may especially be beneficial if future changes move to further limit the tax benefits of pension members.
Three-yearly audit cycle for SMSFs
In a seemingly positive move to reduce some of the red tape and cost involved with SMSFs, the Government will change the annual audit requirement for SMSFs with a good compliance history to only once every three years. This will apply from 1 July 2019 for SMSFs that have had three consecutive years of clear audit reports and timely lodgement of the annual return.
Work test exemption
The Government will provide more time for Australians aged 65 to 74 to boost their retirement savings from 1 July 2019, by introducing an exemption from the superannuation work test which currently applies to this age bracket.
This exemption will apply where an individual’s total superannuation balance is less than $300,000 and will permit voluntary contributions for 12 months from the end of the financial year in which they last met the work test.
Preventing inadvertent concessional cap breaches
Individuals whose income exceeds $263,157 and have multiple employers, will from 1 July 2018 be allowed to nominate that their wages from certain employers are not subject to superannuation guarantee (SG).
This measure will allow eligible individuals to avoid unintentionally breaching the $25,000 concessional contribution cap where their SG contributions from multiple employers would exceed this outside of their control. They will instead receive this extra income personally.
Life insurance to be opt-in
The default nature of insurance in large superannuation funds will be altered so that it is opt-in for individuals who are under 25 years of age or have account balances of less than $6,000. This is to ensure that smaller balances will not be eroded by unnecessary fees. Life insurance cover will also cease where no contributions have been made for a period of 13 months. This is a potential trap for where people have maintained superannuation balances in funds for the express purpose of retaining insurance cover. This will need to be monitored as it could result in people being uninsured when they don’t mean to be.
Protecting low balance superannuation
The Government will introduce a three per cent annual cap on passive fees charged by superannuation funds on accounts with balances below $6,000 and ban exit fees on all superannuation accounts. Inactive superannuation accounts where balances are less than $6,000 will also be transferred to the Australian Taxation Office (ATO) who will proactively look to transfer these on to member’s active accounts.
Older Australian Package
The Government has introduced the following measures to enhance the standard of living for older Australians:
- Increase to the Pension Work Bonus from $250 to $300 per fortnight.
- Amendments to the pension means test rules to encourage the take up of lifetime retirement income products.
- Expansion of the Pensions Loan Scheme to allow more Australians to use the equity in their homes to increase their incomes.
With this year’s Budget aimed at the upcoming election and therefore heavily focussed on personal tax cuts and big spending, it is a relief to see there has been no major tinkering to the superannuation system. The measures announced are reasonably peripheral and can only be seen as positive for the majority of Australians. The Government has also firmly positioned itself in contrast to the Labor Party’s policy to end franking credit refunds with the Treasurer stating “we will oppose unfair tax grabs on retirees and pensioners”. This fundamental difference will undoubtedly be one of the major campaign battles in the coming year.
As always, once these measures are moved to be legislated further detail will be uncovered which will provide opportunities for strategy and planning. We recommend you seek professional advice about how these announced measures may affect your personal circumstances.
Should you have any queries in relation to how the Budget announcements will affect you or your superannuation, please contact Clive Todd, Frances Hill or your usual Hanrick Curran advisor on 07 3218 3900.
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