What Federal Election means for Super and SMSFs

Apr 18, 2019 8:00:48 PM

Tracey Scotchbrook, SMSF Specialist Advisor and Director of Superology, discusses what impact the Federal Election will have on Self-Managed Superannuation Funds and Superannuation. Tracey will present a seminar and interactive workshop on Pension Planning: The Long and Short Run, at the 5th Annual Small Business Tax Essentials and SMSFs: Risks and Opportunities Conference on 11 June.

The Federal Election has finally been called. Voters go to the polls on 18 May 2019 after Parliament was officially dissolved on 11 April 2019. What does the dissolution of Parliament mean for SMSFs and superannuation?

Lapsed Bills

A number of Bills were still before the House of Representatives and the Senate when the Parliament was dissolved and the election called. As a result, any outstanding bills officially lapsed, including Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018[i]. The measures included in this bill were:

Superannuation guarantee amnesty: 12 month amnesty to encourage employers to self-correct SG non-compliance
Superannuation – Employees with multiple employers: To allow individuals to avoid unintentionally breaching their concessional contributions cap when they receive superannuation contributions from multiple employers.
Non’s arms length income of superannuation entities: application of NALI to non-arms length expenses
Limited recourse borrowing arrangements: To amend the total superannuation balance test so that it takes into account the outstanding balance of limited recourse borrowing arrangements

Amended Bill

Treasury Laws Amendment (2019 Measures No. 1) Bill 2019[ii] included the provisions to increase a SMSF’s membership size from a maximum of four to up to six members. In February this measure was referred to the Economics Legislation Committee which handed down its report on 26 March 2019.

The ‘Committees View’ published in the final report supported the measure as it provided “increased flexibility for Australians, particularly those with larger families to manage their superannuation savings.”[iii] The final report also noted additional comments from Labor Senators who did not support the measure. In their opinion ‘the Government has not provided an adequate or compelling policy rationale’ [iv] and that ‘no detailed analysis has been provided by the government, nor has any formal public consultation been conducted’.[v]

The measure became politically, very sensitive. In order to ensure the passage of the other matters included in the bill the Government agreed on 2 April 2019 to amend the bill to remove the amendments to SISA s.17A to allow six member funds. This allowed for the passage of the remaining items on the bill.

I did note a number of colleagues celebrating the passage of the bill which included extended support for craft brewers with concessional beer excise!

2018 Budget Proposal Not Proceeding

The proposed three year audits announced in last year’s budget, despite going to public consultation in the latter half of last year, has failed to see draft legislation released. The expectation of industry is that this proposal no longer has any carriage and has lapsed. As such it is not expected to be revisited by either the of the major parties.

Budget Measures[vi]

Superannuation and SMSFs thankfully did not feature significantly in this year’s Federal Budget. The Government did however propose some beneficial measures for ‘improving flexibility for older Australians’ and ‘removing red tape’. The key Budget proposals are:

From 1 July 2020 members aged 65 – 66 will be able to make contributions:

a. Without having to satisfy the work test

b. Three bring forward rule for non-concessional contributions to be extended to this age group

Aligning the work test with the eligibility age for the Age Pension (scheduled to reach 67 from 1 July 2023)
Spouse contributions: Increase in the age of the recipient spouse to age 74
Removal of red tape for exempt current pension income (“ECPI”). The Government has responded to the feedback to industry in regards to previous changes affecting the calculation of ECPI for SMSFs. These measures are proposed to commence from 1 July 2020 and include:

a. Allow trustees to elect which method they wish to adopt for the calculation of ECPI in a financial year

b. Remove a redundant requirement for funds to acquire an actuarial certificate where the fund is fully in pension phase for the entire financial year.

The expansion of SuperStream to SMSF rollovers scheduled to commence on 30 November 2019 to be delayed until 31 March 2021.

On 16 April 2019, Prime Minister Scott Morrison pledged his “guarantee to older Australians is no new taxes or higher taxes on superannuation – not now, not ever.” Déjà vu or ghosts from elections past?

Labor Policy

Of the proposed Labor policies the removal of refundable franking credits has received significant attention. It has become an issue that has polarised segments of the community. Until we see draft legislation it remains to be seen exactly how this measure will work in practice.

Initially concerns were raised on the impacts for pension funds whose members don’t receive any age pension benefits. Analysts are now talking about potential impacts to accumulation funds.

Are the numbers around this policy flawed and a case of policy based on old data (e.g. pre transfer balance cap)? The ATO recently noted that the 2018 SMSF annual return lodgements are still in progress. The final data will not be available until this has concluded.

A year ago Labor released their ‘National Platform’. From a superannuation perspective Labor remain steadfast. The proposed measures include[vii]:

Reduction of the non-concessional contribution cap to $75,000 pa
Removal of the catch-up concessional contributions
Removal of personal deductible concessional contributions for employed persons
Removal of the $450 minimum monthly threshold for purposes of calculating employer superannuation guarantee amounts
Limited recourse borrowings to be prohibited
Reduction in the income threshold for Division 293 tax or additional contributions tax for higher income earners to $200,000

Recent statements from Shadow Treasurer Chris Bowen have suggested that a reduction of the transfer balance cap to $1,500,000 and a capping of tax free superannuation benefits to $75,000 p.a. may feature in future Labor policies. A return of the 2% Budget Repair levy has also been suggested.

Conclusion

With so many different proposals and announcements made in this and last year’s Federal Budgets, some policy never legislated and now distractions from all sides with the Parties in election mode, it can become very confusing. With so many articles appearing in the media, announcements can often be mistaken as law by our clients. Good client engagement is particularly important at these times. Important too are clear warnings when advising clients where that advice may be impacted by future changes.

Until we have a result from the election and start to see draft legislation will we have a clear understanding of the details and operation of these proposals. It will also be interesting to see what the composition of the Senate will be and what impact that too will have on the elected Government.

Tracey Scotchbrook is a SMSF Specialist Advisor and Director of Superology Pty Ltd with 15 years’ experience. Early in her accounting career Tracey had the opportunity to work with self-managed superannuation funds, setting her on the pathway to specialisation. She is actively involved in the SMSF Association (“SMSFA”) and is the former WA Chapter Chair and National Membership Committee Member. Her accreditations include: SMSF Specialist Advisor (SSA) with the SMSF Association, CA and CPA SMSF Specialist, and Charted Tax Advisor with the Tax Institute. Tracey is a regular presenter to industry professionals and trustees, commentator, educator, and writer. In 2009 Tracey was awarded the Praemium Scholarship by the SMSFA. Contact Tracey at tracey@superology.com.au or connect via LinkedIn or Twitter