2018 Federal Budget

The 2018 Federal Budget proposes a number of changes that will impact the superannuation system in some way.

Triennial SMSF audits

From 1 July 2019, Self managed superannuation funds (SMSFs) with a history of “good record-keeping and compliance” will only need to have their funds audited every three years.

We will have to wait to see the legislation and ATO interpretation, but conceptually this is a positive change as most SMSF’s appear to comply with the rules. However from 1 July 2019 the auditors may have to check what has happened in the previous 36 months (currently 12 months).

Personal Super Contribution Tax Deduction Administration Changes

Since 1 July 2017, individuals have been able to claim a deduction for their personal superannuation contributions (subject to the cap limits & age/work test). Some individuals do not submit notices to their superfund, despite being required to do so. This can result in their superannuation funds not applying the appropriate 15 per cent tax to their contribution.

The government  has  recognised  the integrity problems in the administrative paper war and says it will provide additional funding to the ATO to ensure greater compliance and will alter the process for personal income tax returns.  This process starts in July 2018.

Work Test Concession for those aged at least 65 but under 75 with lower balance super 

From 1 July 2019, members aged between 65 and 75 with a total superannuation below $300,000, will be able to make voluntary super contributions in the first year they do not satisfy the annual work test (at least 40 hours of work in less than 30 consecutive days).

This rule will apply in the following ways:

  • Individuals will only be eligible if their total superannuation balances is less than $300,000 at the end of the financial year in which they last met the work test,
  • It applies to personal deductible, salary sacrifice and personal after-tax contributions.  The new carry forward unused concessional contribution cap rules will also be available.

Super Guarantee for high income earners – opt out provision

Higher income earners (income of at least $263,157) with more than one employer will be able to opt out of the Super Guarantee from July 2018 for income amounts greater than that threshold.  The idea is to ensure these taxpayers do not receive compulsory contributions higher than the $25,000 concessional contribution cap.

Relevant employees will need to negotiate this change with their employers (subject to existing contracts, industrial agreements, awards or enterprise agreements).

Increase in Maximum Number of SMSF Members (from four to six)

The government confirmed their pre budget announcement that SMSFs will be permitted to have six members. This change will apply from July 2019.  Practically, this measure can only apply to SMSFs with a corporate trustee due to existing State and Territory laws.

Protecting smaller super balances

There are three measures here – all applying from 1 July 2019:

  • Smaller super account balances – defined as $6,000 or less – will have a maximum fee of 3% of the account balance.  This will create administrative complexity for funds charging percentage, flat dollar fees and/or transaction based fees
  • A ban on all exit fees – some funds will need to restructure how they handle an allowance for such transaction processing costs
  • Insurance in super – currently members can be automatically signed up for insurance even if they don’t want it; the system will move to an opt-in basis for super fund members that satisfy 1 of 3 criteria – be aged under 25, have an account balance under $6,000 or not have had contributions for at least 13 months; those impacted by this change will have 14 months to decide if they will opt-in or have their insurance automatically switched off.

The government will grant more powers the ATO to reunite smaller lost balances with active accounts.

The government also says it “will consult publicly on ways in which the current policy settings could be improved to better balance the priorities of retirement savings and insurance cover within super”.

New Retirement Income Product – Developments Announced

Currently there are no obligations on superannuation fund trustees to consider the retirement income needs of their members. Changes are proposed which will require funds to offer “Comprehensive Income Products for Retirees” (CIPRs). These products are designed to provide protection from the risk of the individual outliving their capital. This is not just requiring funds to provide account-based pensions, but rather imposing an obligation to offer products like deferred annuities.

Self managed superannuation funds (SMSFs) are not currently permitted to offer CIPRs so we do not expect this change will apply to them.