Editorials

A quiet night

budget superannuation

The Albanese government's first full budget in May was a quiet affair for the superannuation sector barely addressing the issue of the proposed earnings tax but its silence also leaves unanswered questions around a timetable to resolve issues with legacy pensions and residency rules.

At the beginning of the last month, the Albanese government handed down its first proper budget. Prior to 9 May there was much anticipation as to what Treasurer Jim Chalmers would announce on the night, particularly around superannuation, however, none of it really eventuated.

For instance, ever since Canberra declared its intention to introduce a new tax on individuals with a total super balance above $3 million, there had been speculation other measures that would allow people to put more money into super would be postponed, if not entirely scrapped, given they would run contrary to this new initiative.

One such measure was the indexation of the general transfer balance cap that will allow individuals to include a larger amount of money in the pension account of their SMSF. In turn, the general transfer balance cap also determines the ability for a superannuant to make non-concessional contributions to their fund.

The high inflation rate currently being witnessed will see the general transfer balance cap jump from $1.7 million to $1.9 million from 1 July 2023, meaning people currently with a total super balance of $1.7 million will be able to put an additional $200,000 into their SMSF when the new income year commences.

Thankfully the budget did not restrict or prevent the indexation of the transfer balance cap so the associated strategic opportunities for superannuation fund members remain.

With regard to the new $3 million soft cap itself, it was expected more detail would be revealed on budget night, but this was not included in the papers either.

Other noticeable omissions included a proposed solution for legacy pensions and changes to the residency rules regarding Australian superannuation funds.

Both of these items have been kicked down the road and hopefully will not be forgotten along the way.

The lack of urgency shown by our elected officials over the legacy pension issue I suppose is partly understandable considering the number of SMSFs that have these income streams is not large. However, that fact alone should not be a reason to downplay the amount of angst being caused by having to deal with them and what a blight on the SMSF sector they have now turned out to be.

The modification of the residency rules should be given some priority, particularly as we emerge from the COVID-19 pandemic with a new approach to employment practices. Working remotely, as opposed to within an office, is now standard procedure and can mean situating oneself in another country.

As such it would make sense to extend the temporary period allowing trustees located overseas to satisfy the central management and control requirement beyond the current two-year period, as has been previously proposed, as soon as possible to incorporate more practical parameters in the superannuation system.

One inclusion in the budget was a modification to the penalty applying to the non-arm’s-length expenditure rules relating to general expenses. The language associated with this change was ambiguous, but it has been interpreted that the shortfall from market value will be multiplied now by two instead of five as the basis of calculating the final penalty.

This is a win of sorts, as a multiple of two is more agreeable than one of five, but still represents a very inequitable and egregious policy for SMSFs and I shall leave my comments on the subject for another day.

So all in all it was a quiet budget night for SMSFs, and even though I’m in favour of unnecessary change, there are still significant superannuation issues the government needs to address. Perhaps we’ll see it happen in the 2024 budget.

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