Staying ahead in the ever-changing superannuation landscape

Our specialist self-managed superannuation team recently presented at the Affinity webinar, Superannuation update: Staying ahead in an ever-changing landscape. We have summarised below the key takeaways to assist you with servicing your clients. 

The current landscape

• The removal of the 'Work Test’ gives those in the 67-75 age range further opportunities to contribute to super. Specifically, it gives the ability for those people to make Non-Concessional Contributions (NCCs) without needing to work – as long as they are under the Total Super Balance cap of $1.7m. It’s important to note the work test is still required if you want to claim a tax deduction by making personal Concessional Contributions.
• In addition to the above, you can 'bring forward' NCCs before age 75, meaning you could put into your super up to $330,000 in one hit, depending on your circumstances.
• When you are in pension phase, your fund gets a tax exemption. In some cases, there is a choice about how this is calculated in years that you either start or stop a pension. This is called the 'Exempt Current Pension Income' choice and is although complex, could give you a tax advantage based on your choice. 
• Downsizer contributions can be made in some circumstances when you sell your home. There are several conditions to meet, but one of them is your age. From 1 July 2022, you had to be 60 to take advantage of the downsizer provisions, but this was reduced to 55 from 1 January 2023. This gives an excellent opportunity to boost your super if you're selling your home, as these contributions can be made over and above any contribution caps.
• Ability to manage an excess when you have a capped defined benefit pension is rare and complex. If this applies to you or a client, please reach out to one of our specialists for advice. 

Changes to come in 2023-24

• Currently a SMSF may only need to report some transfer balance transactions – like starting a pension – to the ATO once a year. From 1 July 2023, this will be quarterly for all funds, and will make it increasingly important to keep fund records up to date throughout each year.
• During the challenges that resulted from COVID, the Government temporarily halved the minimum amount you needed to draw from a pension account annually. From 1 July 2023, these return to normal. They are age based and range from 4 per cent for those under 65 to 14 per cent for those over 95. The important point is that they will be at least double what they were in FY23, so cashflow considerations are important.
• The general transfer balance cap will index to $1.9m from 1 July 2023. If you have already used up your full cap in prior years, you don't get any benefit. If you have partially used it, will you get partial indexation. Unfortunately for all of us, this will mean that post 1 July 2023, the ATO is possibly the only one who will know what each person's cap is.
• The ability to contribute is based on your total super balance, and must be less than the general transfer balance cap. As this cap will index to $1.9m on 1 July 2023, a small number of people who previously couldn't contribute may be able to again. 
  
  

Long range proposals – the $3m cap

The $3m super cap is highly controversial because of the plans to implement it.

It will essentially apply a 15 per cent tax on income for the proportion of a members super that is greater than $3m. Below are a few important points:

• Income isn't just income. It is the change in the value of the super (adjusted for contributions and withdrawals). Essentially this means its income, as we understand that word, plus the increase in the value of an investment – even if you've not sold it. No other part of the Australian tax system taxes unrealised capital gains. 
• The individual pays the tax not the fund. The ATO will calculate your extra tax individually. It’s a personal liability, but there will be some mechanism to ask your fund to release some money if you want them to. This is similar to how Division 293 tax is levied to high income earners and is confusing for most taxpayers.
• Losses. With the inclusion of market value changes in 'income' there is a real prospect in some years income will be negative. In those years, you won’t pay the extra tax, but you don't get a refund either. The 'loss' will be carried forward and potentially offset against 'income' in the next year. This could result in some people paying large tax amounts in one year (just because of a temporary spike in values), and none the next because of the return downwards.
• The $3m threshold will not be indexed. While the proposal is being sold as only applying to a small number of 'rich people', the reality is that it is likely to creep its way to a vast number given the Government has no intention to index the threshold.

There is uncertainty in the SMSF industry about this proposal. Hopefully industry consultation will result in some concrete changes before this comes into play on 1 July 2025. 

These changes open several planning opportunities for many people. Please get in touch with our superannuation specialists to discuss how they may apply to you or your clients.