Federal Budget 2021
The 2021 Federal Budget has proposed some positive superannuation related changes which will simplify and add extra flexibility for retirement savings, as follows:
Removing the Work test for voluntary contributions
Previously the work test applied to contributions made by individuals aged 65 or older and this was recently amended to 67 or older.
The budget measure removes the work test for individuals aged 67 to 74 years and allows individuals to make non-concessional member contributions and salary sacrifice contributions (pre-tax contributions made by an employer), without having to work at least 40 hours over a period of 30 consecutive days.
Note that individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.
Please note that contribution caps still apply.
Reducing the age limit for downsizer contributions
Currently eligible individuals aged 65 or older can make downsizer contributions where certain conditions are satisfied, and this age criteria is reduced to apply to eligible individuals age 60 or older.
Please see your accountant for further details on the downsizer contribution eligibility criteria.
Removing the $450 per month threshold for Super Guarantee
Currently employers do not need to pay SG for employees earning less than $450 per month and this threshold will be removed.
Relaxing the Residency rules for SMSFs
Residency rules currently have two aspects to consider; the central management and control test and the active member test.
The safe harbour for the central management and control test is extended from 2 to 5 years (for members who are temporarily overseas) and the active member test will no longer apply.
Exiting legacy retirement products
Currently legacy pension products including market-linked, life-expectancy and lifetime pensions of an SMSF are restricted in their ability to be converted into modern retirement pensions.
There will be a two year period in which individuals will be permitted full access to all of the product’s underlying capital and reserves to enable transition.
Please see your accountant for further details.
Increasing the maximum releasable amount under the First Home Super Saver scheme from $30,000 to $50,000
Please see your accountant for further details on this scheme.
Please note that all of these proposed changes are still to be legislated and it is expected that they will apply from 1 July 2022.
2020/21 Federal Budget
“Your Future, Your Super” - “Reforms to make your super work harder for you”
The Government has stated that the Federal Budget Superannuation measures will save Australians $17.9 billion over 10 years with the focus on consolidating multiple super accounts, lowering fees, measuring fund performance, and making funds more accountable to members.
This is good news for the superannuation industry which has taken a hit in public confidence in recent years due to ever increasing complexity and frequent changes to legislation.
The good news for SMSFs is that there are no changes to contribution limits, franking credit rebates or taxes and Corporate trustees will formally be able to conduct virtual meetings and sign documents electronically.
Measures to increase accountability and transparency will affect all superannuation trustees.
From 1 July 2021 there will be a new trustee duty to act in the best financial interests of members, and trustees must demonstrate this in their actions and decision making.
Source: Your Future, Your Super Budget.gov.au
For ongoing updates on super and requirements for SMSFs please follow us on Facebook @jcmbconsulting.com.au
Coronavirus Special Update
Government’s Stimulus Package in response to the Coronavirus
Editor: What a changed world we are living in as we all try to navigate the challenges arising from the current Coronavirus Pandemic, including protecting the health and safety of our friends and family, and the viability of our businesses, employment and investments.
The purpose of this communication is to provide you with an update relating to the Government's Economic Stimulus Package in response to the Coronavirus.
The following is a broad summary of the key aspects of the Federal Government’s stimulus package in response to the Coronavirus, as recently announced and enacted.
These measures were implemented via various Bills introduced into Parliament, which very quickly received Royal Assent on 24 March 2020 (including the Coronavirus Economic Response Package Omnibus Bill 2020), so as to give effect to the Government’s stimulus package.
Income support for individuals
Various measures have been introduced so as to provide a 'safety net' for individuals who are financially impacted by the Coronavirus.
The new Coronavirus supplement
A new six-month 'Coronavirus supplement' of $550 per fortnight will be paid to individuals who are currently eligible for certain income support payments, including the:
■ Jobseeker Payment;
■ Youth Allowance; and
■ Parenting Payment (Partnered and Single).
Furthermore, it appears that this new (additional) supplement will be paid to eligible individuals as part of their existing income support payments (e.g., Jobseeker Payment and Youth Allowance).
Expanding access (and eligibility) to certain income support payments
For the period that the Coronavirus supplement is paid, the Government will also expand access to certain income support payments (e.g., the Jobseeker Payment, the Youth Allowance Jobseeker and the Parenting Payment) for eligible individuals.
For example, a new category of Jobseeker Payment and Youth Allowance Jobseeker will become available for eligible individuals financially impacted by the Coronavirus.
According to the Government, this could include, for example, permanent employees who are stood down or lose their employment; sole traders; the self-employed; casual workers; and contract workers who meet the income tests, as a result of the economic downturn due to the Coronavirus.
Additionally, asset testing for the JobSeeker Payment, the Youth Allowance Jobseeker and the Parenting Payment will be waived for the period of the Coronavirus supplement. Income testing will still apply to the person’s other payments, consistent with current arrangements.
Tax-free payments of $750 to eligible recipients
The Government will be providing two separate $750 tax-free payments (referred to as ‘economic support payments’) to social security, veteran and other income support recipients and to eligible concession card holders.
The first $750 payment will be available to individuals who are residing in Australia and are receiving an eligible Government payment, or are the holders of an eligible concession card, at any time from 12 March 2020 to 13 April 2020 (inclusive). This payment will be made automatically to eligible individuals from 31 March 2020.
The second $750 payment will be available to individuals who are residing in Australia and are receiving one of the eligible Government payments or are the holders of one of the eligible concession cards on 10 July 2020 (except for those receiving an income support payment that qualifies them to receive the $550 fortnightly Coronavirus supplement). This payment will be made automatically to eligible individuals from 13 July 2020.
Each of the $750 payments will be exempt from income tax and will not count as income for the purposes of Social Security, the Farm Household Allowance and Veteran payments.
Early access to superannuation benefits
The Government will introduce a new compassionate ground of release that will allow individuals to access their superannuation entitlements where those benefits are required to assist them to deal with the adverse economic effects of the Coronavirus, but only where one or more of the following requirements are satisfied:
■ The individual is unemployed.
■ The individual is eligible to receive the Jobseeker Payment, Youth Allowance for jobseekers, Parenting Payment (which includes the single and partnered payments), Special Benefit or Farm Household Allowance.
■ On or after 1 January 2020 either:
– the individual was made redundant; or
– the individual’s working hours were reduced by at least 20%; or
– if the individual is a sole trader – their business was suspended or there was a reduction in the business’s turnover of at least 20%.
Under this new compassionate ground of release, eligible individuals will be able to access (as a lump sum) up to $10,000 of their superannuation entitlements before 1 July 2020, and a further $10,000 from 1 July 2020 (subject to a six-month time frame).
Eligible individuals who are looking to access their superannuation entitlements under the above new ground of release will be able to apply directly to the ATO through the myGov website (at www.my.gov.au) and certify that the relevant eligibility criteria is satisfied.
Editor: Importantly, such lump sum superannuation withdrawals under this new compassionate ground of release will not be taxable to the recipient (i.e., they will be tax-free). Also, according to the Government, the amount withdrawn will not affect Centrelink or Veteran’s Affairs payments.
Reducing the minimum drawdown amounts for superannuation pensions
The Government will be temporarily reducing the superannuation minimum drawdown amounts for account-based pensions and similar products by 50% for the 2020 and 2021 income years.
Editor: This basically means that the total minimum annual pension amount that a superannuation fund is otherwise required to pay to a member receiving a pension from the fund (e.g., an account-based pension) will be reduced by half for these two income years.
Reducing social security deeming rates
From 1 May 2020, the Government will be reducing both the upper and lower social security deeming rates by a further 0.25 percentage points. This is in addition to the recent 0.5 percentage point reduction, resulting in an overall reduction to the social security deeming rates of 0.75 percentage points.
On this basis, as of 1 May 2020, the upper deeming rate will be reduced from 3% to 2.25%, and the lower deeming rate will be reduced from 1% to 0.25%.
Editor: These reductions reflect the low interest rate environment and its impact on the income from savings. Broadly speaking, the social security deeming rates apply (for ‘income test’ purposes) to determine the amount of income that an individual is ‘deemed’ (or taken to) earn from financial investments (e.g., cash deposits and listed securities), irrespective of the actual amount of income (e.g., interest income and dividend income) earned by the individual. In most cases, the deeming rates apply for the purposes of applying the Age Pension ‘income test’.
Cash flow assistance for businesses
The Government is also providing cash flow assistance for eligible businesses in the form of two separate measures.
Boosting cash flow for employers
Small and medium-sized businesses and not-for-profit entities, with an aggregated annual turnover of less than $50 million (usually based on their prior year’s turnover) that employ people, may be eligible to receive a total payment (in the form of a refundable credit) of up to $100,000 (with a minimum total payment of $20,000), based on their PAYG withholding obligations in two stages:
Stage 1 payment (credit)
Commencing with the lodgment of activity statements from 28 April 2020, eligible employers that withhold PAYG tax on their employees’ salary and wages will receive a tax-free payment equal to 100% of the amount withheld, up to a maximum of $50,000.
Eligible employers that pay salary and wages will receive a minimum (tax-free) payment of $10,000, even if they are not required to withhold PAYG tax.
The tax-free payment will broadly be calculated and paid by the ATO as an automatic credit to an employer, upon the lodgment of activity statements from 28 April 2020, with any resulting refund being paid to the employer. This means that:
■ quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 and June 2020; and
■ monthly lodgers will be eligible to receive the payment for the March 2020, April 2020, May 2020 and June 2020 lodgments.
Note that, the minimum payment of $10,000 will be applied to an entity’s first activity statement lodgment (whether for the month of March or the March quarter) from 28 April 2020.
Stage 2 payment (credit)
For employers that continue to be active, an additional (tax-free) payment will be available in respect of the June to October 2020 period, basically as follows:
■ Quarterly lodgers will be eligible to receive the additional payment for the quarters ending June 2020 and September 2020, with each payment being equal to 50% of their total initial (or Stage 1) payment (up to a maximum of $50,000).
■ Monthly lodgers will be eligible to receive the additional payment for the June 2020, July 2020, August 2020 and September 2020 activity statement lodgements, with each additional payment being equal to a quarter of their total initial (or Stage 1) payment (up to a maximum of $50,000).
Again, the ATO will automatically calculate and pay the additional (tax-free) payment as a credit to an employer upon the lodgment of their activity statements from July 2020, with any resulting refund being paid to the employer.
Editor: It should be noted that eligibility for the above payments is subject to a specific integrity rule that is designed to stamp out artificial or contrived arrangements that are implemented to obtain access to this measure. In particular, if an employer or an associate enters into a scheme with the sole or dominant purpose of obtaining or increasing any of the above payments for a particular employer, for a period, the employer will not be eligible for any such payments for the relevant period.
Wages subsidies for apprentices and trainees
Employers with less than 20 full-time employees, who retain an apprentice or trainee (who was in training with the employer as at 1 March 2020) may be entitled to Government funded wage subsidies.
These will be equal to 50% of the apprentice’s or trainee’s wage paid during the nine months from 1 January 2020 to 30 September 2020.
The maximum wage subsidy over the nine-month period will be $21,000 per eligible apprentice or trainee.
Employers can register for the subsidy from early April 2020.
Increasing the instant write-off threshold for business assets
Broadly, the depreciating asset instant asset write-off threshold will be increased from $30,000 (for businesses with an aggregated turnover of less than $50 million) to $150,000 (for businesses with an aggregated turnover of less than $500 million) until 30 June 2020.
The measure applies to both new and second-hand assets first used or installed ready for use in the period beginning on 12 March 2020 (i.e., the date on which this measure was announced) and ending on 30 June 2020.
Small Business Entities (‘SBEs’)
Editor: These are businesses with aggregated turnover of less than $10 million.
SBEs will be able to claim an immediate deduction for depreciating assets that cost less than $150,000, provided the relevant asset is first acquired at or after 7.30 pm on 12 May 2015, by legal time in the ACT, and first used or installed ready for use on or after 12 March 2020, but before 1 July 2020.
Additionally, SBEs will also be able to claim an immediate deduction for the following:
■ An amount included in the second element of the cost of (i.e., an improvement to) a depreciating asset that was first used or installed ready for use in a previous income year. The amount of the second element cost must be less than $150,000 and the cost must be incurred on or after 12 March 2020, but before 1 July 2020.
■ If the balance of an entity’s general small business pool (excluding current year depreciation) is less than $150,000 at the end of the 2020 income year, a deduction can be claimed for this balance.
Medium Business Entities (‘MBEs’)
Editor: These are businesses with turnover of at least $10 million and less than $500 million.
MBEs can immediately deduct the cost of an asset in an income year if the asset has a cost of less than $150,000 and it was first acquired in the period beginning at 7:30pm, by legal time in the ACT, on 2 April 2019 and ending on 30 June 2020, and the taxpayer starts to use or have the asset installed ready for use for a taxable purpose in the period beginning on 12 March 2020 and ending on 30 June 2020.
Additionally, MBEs can also claim a deduction for certain amounts included in the second element of the cost of a depreciating asset, where the amount of the second element cost is less than $150,000, and is incurred on or after 12 March 2020 but before 1 July 2020.
The threshold will generally be applied to the GST-exclusive cost of an eligible asset (i.e., assuming the relevant business is entitled to an input tax credit for any GST included in the acquisition cost).
Importantly, this increased threshold also continues to operate on a ‘per asset’ basis, which means that eligible businesses can immediately write-off multiple assets (as long as each of the assets individually satisfy the relevant eligibility criteria).
Currently, the instant asset write-off threshold is due to revert to $1,000 for small businesses (i.e., those with an aggregated turnover of less than $10 million) from 1 July 2020.
Accelerating depreciation deductions for new assets
Broadly, a new time-limited 15-month investment incentive (available for eligible assets acquired from 12 March 2020 up until 30 June 2021) will also be introduced to accelerate certain depreciation deductions for businesses with an aggregated turnover below $500 million.
The amount that an eligible entity can deduct in the income year in which an eligible depreciating asset is first used or installed ready for use is:
■ 50% of the cost (or adjustable value where applicable) of the asset; and
■ the amount of the usual depreciation deduction that would otherwise apply (if it were calculated on the remaining cost of the asset).
Different rules will apply where an SBE is using the general small business pool (i.e., for assets not qualifying for the instant asset write-off). In this case, an SBE may deduct an amount equal to 57.5% (rather than 15%) of the business-use portion of the cost of an eligible depreciating asset in the year is it allocated to the pool.
Unless specifically excluded, an eligible asset is a new asset that can be depreciated under Division 40 of the ITAA 1997 (i.e., plant and equipment and specified intangible assets, such as patents), where the asset satisfies all of the following conditions:
■ The asset is new and has not previously been held (and used or installed ready for use) by another entity (other than as trading stock or for testing and trialling purposes).
■ No entity has claimed depreciation deductions (including under the instant asset write-off) in respect of the asset.
■ The asset is first held, and first used or installed ready for use, for a taxable purpose, between 12 March 2020 and 30 June 2021 (inclusive).
Note that a depreciating asset is not an eligible asset where a commitment to acquire or construct the asset was entered into before 12 March 2020.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
2019/20 Federal Budget
From a superannuation perspective, the budget was all positive, particularly to members age 65 and 66 who will be able to continue to contribute without meeting the work test, effective 1 July 2020.
The following extract is from the NTAA Budget Summary:
Removing the work test for those aged 65 and 66 years
The Government has announced that it will allow voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 years without meeting the work test from 1 July 2020 (ie the 2021 income year).
Currently, people aged 65 to 74 years can generally only make voluntary contributions if they satisfy the work test (ie a person is gainfully employed for at least 40 hours in a consecutive 30-day period in the year in which the contribution is made)
Access to the bring forward rule for those aged 65 and 66 years
The Government has announced that it will allow those aged 65 and 66 to make up to 3 years of non-concessional contributions under the bring-forward rule (without satisfying the work test).
Under current law, broadly those aged 65 and over cannot access the bring-forward arrangements.
Increasing the age limit for spouse contributions
Individuals up to and including the age of 74 will be able to receive spouse contributions (with those 65 and 66 no longer needing to meet the work test).
Currently, those aged 70 and over cannot receive spouse contributions.
For the full analysis of the budget please refer to the attached NTAA summary, link below:
2018 Wrap Up
It seems that 2018 has been the year of litigation – there have been many high-profile cases involving banks, advisers, insurers, trustees etc.
The good news is that this has put the financial services industry under scrutiny and has exposed weaknesses and risks that we may not have considered in the past. The not so good news is that we are left wondering who we can trust when it comes to safeguarding our super.
The result will be a further tightening of the regulations and requirements around the qualifications, training and ongoing provision of service within the financial services industry and it will be your responsibility to ensure that you are using the services of properly qualified, trained and registered advisers.
As trustees of self-managed superannuation funds, it is essential that you understand your role and your obligations. The ATO website is a valuable source of information on obligations for trustees.
These responsibilities cannot be outsourced to your tax agent, accountant, financial planner or auditor; however, your service providers can assist you in meeting these obligations and answering your questions.
Super has been in the news lately – and it hasn’t all been good!
There has been a lot going on in the superannuation industry of late; more legislative changes, scandals involving the big banks, and scams run by people who are purporting to invest client funds in legitimate investment opportunities – so much so that super and SMSFs seem to be in the news every other day!
With so much being written about advisers acting in their own, rather than their client’s interests, it can justifiably be of concern to SMSF Trustees and lead you to question whether your super is in safe hands.
It is always prudent to ensure that your advisers are properly qualified and to ask questions about any new person, product or investment opportunity that is presented to you for consideration.
The independent audit process also provides comfort that there are no apparent material discrepancies or contraventions in your SMSF in the year of audit, and I encourage you to carefully read the letters and other information that I send you as part of my audit to further understand this process.
If in doubt, please do not hesitate to ask your accountant, adviser or myself; as we are all here to ensure that your SMSF continues to comply with the legislative requirements and that you continue to enjoy the benefits of saving for retirement in a concessionally taxed environment.
Be careful not to exceed the 10% limit when paying a TRIS!
The main advantage of paying a transition to retirement income stream (‘TRIS’) is that a TRIS (unlike a standard account based pension (‘ABP’)) can commence to be paid as soon as the member has reached their preservation age, even if the member is still working.
However, the disadvantage of paying a TRIS is that, unlike an ABP, a TRIS is subject to a maximum annual draw down limit, which is basically 10% of the member’s pension account balance as at 1 July (or the commencement day of the TRIS for the income year in which the TRIS commences).
This 10% maximum annual limit should be observed when paying a TRIS, because if this limit is exceeded in any income year, then the following key consequences will arise:
- Pension entitlements rolled-back to accumulation phase – the member’s pension interest (or capital) is effectively “rolled-back” into accumulation phase, and the tax-free and taxable components of the member’s accumulation entitlements would need to be effectively recalculated (according to the type of benefit subsequently paid from the fund).
- Tax treatment of benefit payments – Any benefits paid to the member during the year will generally be fully assessable to the member and taxed at their marginal tax rates (e.g., any payment made to a member aged 60 or more will not be tax free as it otherwise would be under the superannuation legislation).
The above consequences are similar to those that arise where an SMSF fails to pay the correct minimum annual pension amount (for an ABP or a TRIS).
Once a member receiving a TRIS satisfies another condition of release (such as ‘retiring’ for the purposes of the superannuation legislation or reaching the age of 65), the 10% payment limit restriction (and the commutation restriction) that normally applies to a TRIS ceases to apply.