Two steps forward, one step back

budget superannuation

This year's budget had no new changes to superannuation but lacked any details about changes to legacy pensions, residency rules and how the government will address the over-reach of the non-arm’s-length expenditure provisions.

There is a common saying that in some situations less is more and it certainly is an apt way to describe the 2022 federal budget when it comes to superannuation. Of course after last year’s abundance of retirement savings measures one could ask what was actually left to be announced in this area.

Well, if I was to be really picky I could suggest Treasurer Josh Frydenberg could have given us a little more detail as to how the amended residency rules and how the legacy pension exit provisions will work.

So why do I think less is more in this instance? You would well know over recent years there have been a raft of changes to the superannuation system, such as the introduction of the transfer balance cap, the two changes to the work test and the increase in the maximum number of SMSF members allowable from four to six.

Many of these changes amplified the complexity involved with running an SMSF and with little respite between budget announcements and the need to continually adapt to the changing legislative environment.

Well it would appear now, for a short time anyway, trustees have been given some clean air to get their SMSF houses in order and implement or adjust any strategies they need to in order to accommodate the new rules. And that’s just what the doctor ordered.

On the back of this win, the government, as reported in the previous edition of smstrusteenews, has swallowed its pride and listened to the deafening feedback regarding the non-arm’s-length expenditure or NALE rules and committed to a review of the law as it stands.

Basically, Superannuation, Financial Services and the Digital Economy Minister Jane Hume has agreed the provisions as they currently stand do not reflect the law as it was intended and as such it will be subsequently reviewed and potentially amended.

Most sector stakeholders expressed their concerns over the severe nature of the rules as they applied to general expenses as they could result in all of the income and capital gains of the fund being treated as non-arm’s-length income and taxed at the top marginal tax rate. So this announcement was definitely a victory.

And while the debate over the NALE laws raged, the ATO thankfully agreed not to assign any compliance enforcement resources to these rules for the 2020, 2021 and 2022 financial years.

In keeping with this common-sense approach to the NALE rules, the sector was hoping the ATO would continue its period of compliance leniency for the 2023 income year as well. Alas this was not to be, with ATO SMSF risk and strategy assistant commissioner Justin Micale confirming it will be business as usual regarding compliance with these provisions from 1 July 2022.

Of course, we don’t exactly know what this will mean and whether or not the regulator will apply a razor-sharp focus to this area of compliance. Of course we hope it won’t. Nor do we know whether the ATO’s stance on NALE will place pressure on the government to fast track an amendment of the rules before any trustees are unfairly penalised in the interim.

If an acceleration of this review does result, that would be a great outcome as well, but given we’re going to the voting booths in May, and I wouldn’t think this would be a high priority for the current government or Labor should it be voted in, this would seem highly unlikely.

So it appears we’ve just taken two steps forward and one step back, but at least it means we’re still on the positive side of the ledger.


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