2021-22 Federal Budget Update – A strong Budget for SMSFs
As expected, this year’s Federal Budget has a strong emphasis on job growth and women’s security. From an SMSF perspective, there were some welcome surprises for SMSF trustees, the key measures that you should be aware of are outlined below.
All measures outlined below, other than the proposed changes to legacy retirement products, are expected to commence from 1 July 2022, once they have received Royal Assent.
Repealing the work test for voluntary contributions and extending the bring forward to age 74
Individuals aged 67 to 74 (inclusive) will be able to make non-concessional (including under the bring-forward rule) or salary sacrifice contributions without meeting the work test, subject to existing contribution caps and existing total superannuation balance limits. This change does not apply to personal concessional contributions so the work test will continue.
Reducing the eligibility age for downsizer contributions
The eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60 years of age. All other eligibility criteria remain unchanged, allowing individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000, per person (or $600,000 for a couple), from the proceeds of selling their home. These contributions can be made no matter how much money each person already has in super.
Relaxing residency requirements for SMSFs
SMSFs and small APRA funds will have relaxed residency requirements through the extension of the central management and control test safe harbour from two to five years. The active member test will also be removed, allowing members who are temporarily absent to continue to contribute to their SMSF.
Removing the $450 per month threshold for superannuation guarantee eligibility
The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer.
Legacy retirement product conversions
Individuals will be able to exit a specified range of legacy retirement products, together with any associated reserves over a two-year period. The specified range of legacy retirement products includes market-linked, life expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution cap.
Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds. Amounts commuted from reserves will be taxed as an assessable contribution but will not count towards an individual’s concessional contribution cap or give rise to excess contributions.
This measure will take effect from the first financial year after the date of Royal Assent of the enabling legislation.
Increasing the amount that can be withdrawn under the First Home Super Saver Scheme
The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000. Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released. This measure is designed to ensure the FHSSS continues to help first home buyers in raising a deposit more quickly and is expected to commence from 1 July 2022.
Overall, the uptake of this scheme in SMSFs has been quite low given it is generally unusual for individuals to establish an SMSF before they buy their first home and only “voluntary” contributions can be accessed and at most only $15,000 of the contributions in any one year can be included in the withdrawal.