The 2018 Federal Budget includes ‘integrity’ changes to superannuation which boost the Budget bottom line, makes small improvements to SMSFs, and revisits a change the Government announced and then dropped.
Superannuation changes in the 2018 Budget:
- Three-year audit cycle for SMSFs with good history
- One year exemption from Work Test for some
- Crackdown on claiming tax deductions for personal super contributions
- Increase in SMSF maximum members from 4 to 6
- Cap on super fund fees for some, ban on exit fees for all
- Government to take all inactive super, boosting Budget by $1.1 billion
- Insurance in super to move to opt-in, for some
- High-earning employees to be able to nominate to not receive SG
- More money for ATO to implement Single Touch Payroll
- Comprehensive Income Products in Retirement (CIPR)
Three-year audit cycle for SMSFs with good history
SMSFs with a “history of good record-keeping and compliance” will have an audit cycle of three years, instead of the current annual audits.
“This measure will reduce red tape for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner,” says the 2018/19 Budget papers.
“This measure will start on 1 July 2019 and, to ensure smooth implementation, the Government will consult with stakeholders.”
One year exemption from Work Test for some
The Budget includes a, partial, exemption from the so called ‘Work Test’, which limits the ability of older people to contribute to super.
If legislated, people aged 65-74 with superannuation balances under $300,000 would be exempt from the Work Test in the first year they don’t meet the requirements of the Work Test (gainfully employed for at least 40 hours in 30 consecutive days in a financial year).
This would apply from 1 July 2019 and is estimated to cost $10.0 million over the forward estimates.
“The work test exemption will give recent retirees additional flexibility to get their financial affairs in order in the transition to retirement,” says the Budget papers.
The Government had announced a complete repeal of the Work Test in the 2016/17 Budget, but this was dropped to offset the cost of other subsequent changes.
Crackdown on claiming tax deductions for personal super contributions
The Government will crackdown on claiming tax deductions for personal super contributions, tasking the ATO with improving the Notice of Intent (NOI) system.
“Currently, some individuals receive deductions on their personal superannuation contributions but do not submit a NOI, despite being required to do so. This results in their superannuation funds not applying the appropriate 15 per cent tax to their contribution. As the contribution has been deducted from the individual’s income, no tax is paid on it at all.”
“The additional funding will enable the ATO to develop a new compliance model, and to undertake additional compliance and debt collection activities.”
Increase in SMSF maximum members from 4 to 6
As earlier announced, the Government will increase the maximum number of members an SMSF can have from four to six, from 1 July 2019.
“This will provide greater flexibility for joint management of retirement savings, in particular for large families,” says the Budget papers.
The Budget papers indicate this will also apply to small APRA funds, which wasn’t part of the earlier announcement.
Details are not given on potential changes that may be required in State trust law.
‘Protecting Your Super’ Package raises money for Budget
The Government has labelled three measures its ‘Protecting Your Super Package’, which it says will “protect individuals’ retirement savings from undue erosion, ultimately increasing Australians’ superannuation balances”, but also boosts the budget bottom line by more than $863 million. These policies are a cap and ban on some fees, collecting inactive super and moving to opt-out insurance in super for some people.
Cap on super fund fees for some, ban on exit fees for all
The Government will cap “passive” superannuation fees at 3% for accounts with under $6,000, and ban exit fees for all super accounts.
Government to take all inactive super, boosting Budget by $1.1 billion
The Government will also require all inactive super accounts with balances under $6,000 to be transferred to the ATO, saying this will “strengthen the ATO-led consolidation regime”. Inactive accounts above $6,000 are already required to be transferred to the ATO, where they only earn CPI.
The ATO will expand data matching to “proactively reunite these inactive superannuation accounts with the member’s active account,where possible”. The ATO will also be able to proactively pay superannuation it holds.
It is estimated this will improve the Budget by $166.6 million in fiscal balance terms and $1.1 billion in underlying cash balance terms over the forward estimates.
“This difference reflects the expected time taken to reunite accounts with members,” says the Budget papers.
Related: ASFA welcomed reuniting people with lost super, but wants this to be done without transferring the money to the ATO.
Insurance in super to move to opt-in, for some
Insurance in superannuation will move to an opt-in basis for some people:
- members with balances under $6,000
- members under the age of 25
- members with accounts that haven’t received a contribution in 13 months and are inactive
“These changes will protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies they do not need or are not aware of,” says the Budget papers.
“The changes will also reduce the incidence of duplicated cover so that individuals are not paying for multiple insurance policies, which they may not be able to claim on. Importantly, these changes will not prevent anyone who wants insurance from being able to obtain it — low balance, young, and inactive members will still be able to opt-in to insurance cover within super.”
The change would take effect on 1 July 2019, with super fund members having 14 months to decide to opt-in or the cover will cease.
This is estimated to improve the Budget by $697.0 million over the forward estimates.
High-earning employees to be able to nominate to not receive SG
Employees who earn over $263,157 and have multiple employers will be able to nominate that wages from particular employers will not be subject to Superannuation Guarantee, from 1 July 2018.
“The measure will allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap as a result of multiple compulsory SG contributions. Breaching the cap otherwise results in these individuals being liable to pay excess contributions tax, as well as a shortfall interest charge.”
“Employees who use this measure could negotiate to receive additional income, which is taxed at marginal tax rates. Due to this, the measure is estimated to have a gain to revenue of $2.0 million over the forward estimates period through the timing of income tax collection, which is collected sooner than excess contributions tax.”
More money for ATO to implement Single Touch Payroll
The ATO will get $15 million over three years to “support the modernisation of payroll and superannuation fund reporting” – supporting the inclusion of small businesses with fewer than 20 employees in Single Touch Payroll.
Comprehensive Income Products in Retirement (CIPR)
The Government will amend the SIS Act to “introduce a retirement covenant that will require superannuation trustees to formulate a retirement income strategy for superannuation fund members”. The Corporations Act will be amended to “introduce a requirement for providers of retirement income products to report simplified, standardised metrics in product disclosure to assist customer decision making”.