More questions than answers

SMSF NALE $3 million superannuation earnings tax

The current year has thrown up more questions than it has provided answers with regard to the myriad superannuation policy changes on the table.

The end of a calendar year is often anticipated and celebrated with reflection on what has happened over the previous 12 months and if we apply that process to the superannuation industry for 2023, I think it can be summed up by saying it was a period of change where more questions were raised than answers supplied.

Interestingly, it is often expected when the draft bills detailing how policy will be implemented are released, that most of the questions raised when the relevant measure was first announced are answered. Sadly this has not been the case in 2023.

I do acknowledge the non-arm’s-length expenditure (NALE) rules will potentially only affect a small number of individuals reading this editorial, but what is happening with the draft bill relating to that policy pretty much sums up what we have had to endure this year.

It was introduced into parliament in September and the longer it awaits finality, the more concerns grow as to how the new provisions and their enforcement will play out once the legislation is enacted.

Of most concern is whether the ATO’s amnesty on policing breaches of the NALE rules will continue for the period between 1 July 2023 and the time the bill is passed, as the regulator did state all bets were off after 30 June this year. And while the industry has only raised this issue recently, there is certainly no inkling of a solution to this anomaly.

But of course that’s just one example of what the current calendar year has served up.

I don’t think a superannuation discussion goes by without the subject of the proposed 15 per cent tax on total super balances over $3 million being part of it.

In similar fashion to the NALE situation, a draft bill for this measure was introduced to parliament, but this time in October. And in similar fashion, the more time that passes subsequent to the release of this draft bill, the more questions are being asked about its operation. At least in this instance there is a positive note.

At a recent industry conference it was acknowledged the methodology behind calculating the new tax may offer many superannuants a ray of light as exactly how an individual’s total super balance is determined is set to change from its current form.

Interestingly, the opportunity that might present itself has nothing to do with the $3 million soft cap. Instead, there is a good possibility the new way of calculating a person’s total super balance might result in a lower figure.

This in turn will potentially open up other strategies previously thought to be inapplicable. For example, if an SMSF member’s total super balance is currently just over $500,000, they cannot take advantage of carry-forward concessional contribution rules that will allow them to get more money into their fund.

But if the new total super balance calculation determines their total super balance falls just below the critical $500,000 mark, all of a sudden this strategy is open for their use again.

Of course, not all of the unanswered questions in 2023 have been associated with proposed policy. We still all await mooted changes to the SMSF residency rules that will allow the operation of funds to better fall into line with issues such as working from remote locations overseas.

One can only hope the answers we are all seeking will be forthcoming shortly after the new year ticks over.


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