Federal Budget 2018: Superannuation
3 Year Cycle for SMSF Audits
Date of Effect: 1st July 2019
SMSFs with a history of good record‑keeping and compliance – that is, three consecutive years of clear audit reports and annual returns lodged on time, will only be required to have their fund audited every three years.
The Government has flagged consultation with key stakeholders on this measure (with no further details available at present).
The key issue with this measure is how the three-year cycle will work – is it an audit for one year in three or three years once?
If the audit is only for the third year of the cycle, then there is a major risk of compliance issues going unnoticed. Having two years with no audits may present opportunities for ‘creative’ trustees to manipulate the superannuation system. It will be difficult for an auditor to sign-off on the third year without having a level of comfort as to what has transpired in previous years.
If the audit is for the prior three years, the benefit for members may be negligible as auditors will need to charge for three years of work. The measure is designed to reduce ‘red-tape’ for trustees but having three years of questions from auditors might just group three years into one.
Retirement Income Strategy for Super Fund Members
Date of Effect: No time period noted
The Superannuation Industry (Supervision) Act 1993 will be amended to introduce a retirement covenant that will require superannuation trustees to formulate a retirement income strategy for superannuation fund members.
The Corporations Act 2001 will also be amended to require providers of retirement income products to report simplified, standardised metrics in product disclosure to assist customer decision making.
Preventing Inadvertent Breaches of Concessional Caps
Date of Effect: 1st July 2018
Individuals whose income exceeds $263,157 and have multiple employers will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG).
The measure will allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap (and incurring excess contributions tax) as a result of multiple compulsory SG contributions.
It is anticipated that employees who use this measure will negotiate additional income in lieu of the 9.5% superannuation guarantee.
Exit Fees Scrapped, Fees Capped & More Transferred to ATO
Date of Effect: 1st July 2019
A ban on exit fees from all superannuation funds will be introduced along with a 3% annual cap on passive fees on accounts with balances below $6,000 from 1 July 2019.
Superannuation funds will also be required to transfer all inactive superannuation accounts with balances below $6,000 to the ATO.
These changes create a gain of $1.1 billion in the underlying cash balance over the forward estimates. This gain is in part a timing issue reflecting the time taken to reunite lost super balances with their owners.
Opt-in Insurance Inside Super
Date of Effect: 1st July 2019
Insurance within superannuation will move from a default framework to an opt-in basis for:
- members with low balances of less than $6,000;
- members under the age of 25 years; and
- members whose accounts have not received a contribution in 13 months and are inactive.
This means that these members will not automatically be provided with insurance inside their superannuation fund but instead will opt-in if they choose. The Government is concerned that automatic insurance cover is eroding savings with many unaware they have insurance within their fund or within multiple funds.
The changes will not prevent anyone who wants insurance from being able to obtain it — low balance, young, and inactive members will still be able to opt-in to insurance cover within super.
Affected members will have 14 months to decide whether they will opt in to their existing cover or allow it to switch off.
Work Test Exemption for Retirees
An exemption to the work test will be introduced for people aged 65 to 74 with superannuation balances below $300,000, who make voluntary contributions to superannuation. The exemption applies in the first year that they do not meet the work test requirements. This measure is really a reprieve for people transitioning to retirement to get their affairs in order.
Currently, the work test restricts the ability to make voluntary superannuation contributions for those aged 65‑74 to individuals who work a minimum of 40 hours in any 30 day period in the financial year.
Example from the Superannuation Work Test exemption for retirees fact sheet
At the age of 68, Gus retires from full-time work on 1 June 2020. As he would not meet the work test in the 2020-21 financial year, Gus would currently be prevented from making any voluntary super contributions after 30 June 2020.
As his total superannuation balance is $150,000 at the end of the 2019-20 financial year, Gus is eligible to make contributions under the work test exemption from 1 July 2020 to 30 June 2021.
As Gus had not reached his concessional contribution cap over the past 2 years, having contributed only $18,000 in 2018-19 and $12,000 in 2019-20, under the existing carry forward arrangements and new work test exemption Gus can contribute up to $45,000 at concessional tax rates in the 2020-21 financial year.
As a result of the work test exemption, Gus is also able to contribute up to $100,000 in non-concessional contributions in 2020-21.
Increasing the maximum number of members in an SMSF
Date of Effect: 1st July 2019
The maximum number of allowable members in new and existing SMSFs and small APRA funds will increase from four to six.
SOURCE: Knowledge Shop
To discuss how this may impact your circumstances please contact PPT on (03) 5331 3711.
DISCLAIMER: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
