Federal Budget 2019 – the Superannuation angle
Thank you to our guest blog, Tax & Super Australia.
The Treasurer Josh Frydenberg’s first budget, released on 2 April, 2019 included a few changes to Superannuation, impacting individuals along with details that payroll managers would benefit from understanding in order to address questions from their company’s employees.
Removal of work test for certain members
The current superannuation work test will be removed for people aged 65 and 66 from 1 July 2020. This will enable an estimated 55,000 individuals to make concessional and non-concessional voluntary superannuation contributions even if they are not working. Under current rules, they can only make voluntary contributions if they meet the work test, which requires that they work a minimum of 40 hours over a 30-day period.
By removing the work test, fund members in this age bracket who are no longer working, only working a few hours per week, or only undertaking volunteer work will, should this proposal be implemented, be able to contribute to superannuation and enjoy the concessional tax treatment that it provides.
Extending eligibility for bring-forward cap
Access to the bring-forward cap will be extended from 2020-21 for taxpayers aged less than 65 years of age to those aged 65 and 66. This will enable these taxpayers to make up to three years’ worth of non-concessional contributions, capped at $100,000 a year, to superannuation in a single year.
This will give older pre-retirees greater flexibility to save for retirement. Those in this age bracket will be able to contribute large lump sums that they have on hand into superannuation more quickly; bringing forward the accompanying tax concessions, rather than $100,000 per year under the current rules that apply.
Increase to age limit for spouse contributions
The age limit for spouse superannuation contributions will be increased from 69 to 75 years, from 2020-21. This provides pre-retirees with a greater ability to contribute on behalf of their spouse.
Making spouse contributions is particularly useful where for instance:
- the contributing spouse has already reached their own $1.6 million total superannuation balance restriction
- where the recipient spouse is significantly older, as they can access a tax-free superannuation income stream whereas the younger spouse may not have yet met a condition of release, or
- the contributing spouse is eligible to claim a spouse tax offset of up to $540 as their spouse is a low-income earner.
Reducing red tape for super funds
Superannuation funds that have both an accumulation and retirement interests during an income year can choose their preferred method of calculating exempt current pension income (ECPI) from 1 July 2020.
There is also a proposal to remove a redundant requirement for superannuation funds that are 100% in pension phase for all of the income year to acquire an actuarial certificate when calculating ECPI using the proportionate method.
The ability to choose between the segregated method or proportionate method to work out ECPI will simplify superannuation reporting for SMSFs. Removing the requirement to obtain an actuarial certificate should reduce SMSF costs.
Tax relief for merging super funds
The current tax relief for merging superannuation funds, which is due to expire on 1 July 2020, will be made permanent from that time. Superannuation funds will be able to continue to transfer revenue and capital losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets.
This will continue to encourage superannuation funds that are contemplating merging (including SMSFs). There should be no adverse consequences of mergers moving forward. Merging can reduce costs, manage risks and increase scale, leading to improved retirement outcomes for members.
Super insurance opt-in rule delayed
The government confirmed that it will delay the start date from 1 July 2019 to 1 October 2019 for ensuring insurance within superannuation is only offered on an opt-in basis in respect of members with accounts with balances of less than $6,000 and new accounts belonging to members under age 25.
The changes seek to prevent the erosion of super savings through inappropriate insurance premiums and duplicate cover. Affected members can still obtain insurance cover within their superannuation by electing to do so (that is, opting-in).
To find out more about the Federal Budget, visit our articles on each of these topics: