2 April 2019

The Federal Treasurer, Mr Josh Frydenberg, handed down the 2019/20 Federal Budget at 7:30 pm (AEDT) on 2 April 2019.

Mr Frydenberg said the Budget is “back in the black”, announcing a budget surplus of $7.1b, and forecasting a surplus of $11b in 2020/21, $17.8b in 2021/22 and $9.2b in 2022/23. The budget focuses on “restoring the nation’s finances”, further strengthening the economy to create more jobs and to “guarantee the essential services”.

The full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au.

The superannuation highlights are set out below.

• Members of regulated superannuation funds will not have to meet the work test after 1 July 2020 if they are 65 or 66 years of age.
• The restrictions on claiming the spouse contribution tax offset will be eased from 1 July 2020, giving 70 to 74 year old spouses eligibility.
• The calculation of exempt current pension income will be simplified for superannuation funds from 1 July 2020, allowing a preferred method of calculation and removal of some actuarial certificates.
• Transitional tax relief for merging superannuation funds will become permanent from 1 July 2020.
• SuperStream will be expanded from 31 March 2021 to include electronic ATO requests for release of superannuation funds and SMSF rollovers.
• An expression of interest process will be undertaken to identify options to support establishment of a Superannuation Consumer Advocate.

 

Acceptance of superannuation contributions allowed for 65 and 66 year olds

Members of regulated superannuation funds have zero restrictions for making voluntary contributions prior to reaching 65 years of age. However, from 1 July 2020 the government intends to increase this age limit and allow 65 and 66 year olds to contribute.

Under the current SIS Regulations, members over 65 years of age must declare they have met the work test. This self-reported declaration must state that the member has worked for 40 or more hours in any 30 consecutive day period during that financial year.

The changes to the contribution rules apply to both concessional and non-concessional contributions. As no restrictions will apply for 65 and 66 year olds, this also means the three-year “bring-forward” contributions will be allowed. Therefore, more members will be entitled to make up to three years of non-concessional contributions in one financial year.

It is important to note, however, that individuals are currently eligible to make bring-forward contributions for part of the year they are 65. As long as an individual is 64 at the beginning of the year, they may make a contribution after turning 65 (as long as they meet the work test). The extension of this rule by two years may mean an individual who is 66 at the beginning of 1 July 2020 would be eligible for bring-forward contributions.

 

Spouse contribution tax offset eligibility extended

Restrictions relating to an individual claiming a spouse contribution tax offset are proposed to be reduced from 1 July 2020. The easing of the rules is by giving spouses aged 70 to 74 eligibility if they meet the work test. Also, in line with other budget measures, spouses aged 65 and 66 will not need to meet the work test at all.

Although eligibility criteria has been extended for some spouses, there is no change announced to the:

• amount of the offset
• income limits of the spouse
• restrictions relating to the spouse’s contributions caps, or
• non-refundable attribute of the offset itself.

 

Exempt current pension income calculation streamlined for super funds

Superannuation fund trustees will be allowed to calculate exempt current pension income (ECPI) on a preferred method basis from 1 July 2020.

Currently, some superannuation funds have a restriction on whether they can use the segregated method or proportionate method when calculating the ECPI. Also, funds which stop using the segregated method in an income year cannot go back to using it. From the 2020/21 financial year, all superannuation funds have the option to choose a preferred method of calculation.

Also, from 1 July 2020, an actuarial certificate will not be required for superannuation funds which have solely retirement phase accounts.

 

Merging super funds to have permanent tax relief

Since December 2008, tax relief has been available for qualifying superannuation funds that have merged. This allowed a deferral of capital gains or losses, similar to other scrip-for-scrip rollovers.

This tax relief will be made permanent from 1 July 2020, which moves the rules from the Income Tax (Transitional Provisions) Act 1997 to the Income Tax Assessment Act 1997.

 

SuperStream to be expanded

SuperStream will be expanded to include the transfer of information and money between employers, superannuation funds and the ATO. This change will take effect from 31 March 2021.

Currently, SuperStream is used as an information reporting mechanism between employers and superannuation funds. The most common transactions used in SuperStream are for employer contributions and member rollovers between funds. From 31 March 2021, the ATO will have the ability to send electronic requests via SuperStream to superannuation funds for the release of money from a member’s account. A number of superannuation payment arrangements may be affected.

To coincide with this change, SMSF rollovers in SuperStream will be delayed until 31 March 2021 as well.

 

Superannuation Consumer Advocate

The government will undertake an expression of interest (EOI) process to identify options to support the establishment of a Superannuation Consumer Advocate.

This EOI would assist the government in understanding whether the advocate would be necessary, as well as whether industry bodies have capacity to assist in the role. The Advocate would assist in superannuation policy discussions by acting on behalf of superannuation consumers (or members). Additionally, the Advocate would be given financial assistance to be a leader in the superannuation system by providing education and assistance to members as they navigate the superannuation system.

 

Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.