What the Federal Budget Means for Super

[ breaking down the budget for Super ]
by Megan Kelly Published

With refinement of the recent super changes still occurring, it is no surprise that there were few super announcements in the 2018 Budget.

There are however, some interesting tweaks that are in the favour of self-managed funds and new retirees focussing on reducing the administration burden of the super system.

The biggest one that we see that is of benefit to our high-income clients is the ability to opt-out of super guarantee where they would normally exceed the $25k concessional contribution cap. This will save these individuals the hassle of filling out forms, and dealing with the excess contribution tax system.

Other key areas of interest are the proposals to reduce the annual audit requirement for super funds with good compliance history and the introduction of mandatory retirement income strategies for fund members.

The budget has not addressed Limited Recourse Borrowing Arrangements. However, between the $1.6million total Super balance cap and the draft legislation to include debt in members super balances when measuring this cap, they have already imposed further restriction on these arrangements. To some degree, the proposed increase in number of members of a self-managed fund can help with this and reduce the need for borrowing arrangements in the future.

While the super related budget announcements were very few this year, there are some small changes which are in our clients' favour.

Ability to Opt-Out of Super Guarantee for High Income Earners with multiple employers

This is music to all those high-income earners' ears! We have many clients who work for multiple employers and exceed their contribution cap every year [which is now only $25,000] just via their super guarantee.

This proposal will allow individuals with income of $263,157 from multiple employees to opt-out from super guarantee from certain employers so they no longer exceed their caps.

This saves on the hassle of excess contribution tax and preparing applications to have this released from their super funds.

High-income earners earning more than $216,120 can already request that their employer doesn’t exceed the maximum contributions base [keeping them under the $25,000 cap].

3 year Audit Cycle of SMSFs

This is a huge change for all our self-managed super fund clients and one that I will be following closely.

At the moment, all self-managed super funds are required to be audited every year. Under this proposal funds with a history of good record-keeping and compliance will only be required to be audited every 3 years.

I find this interesting and I am also keen to see more detail as there are lot of questions that I can think of... such as, "What does this mean if a breach occurs in one of the years in between?" "Is the auditor expected to conduct 3 years of audits at a time?" Not to mention, "How will the ATO calculate the trustee penalties on a breach that has occurred 3 years ago?" Let's stay tuned!

Increase the number of allowed members in a SMSF from 4 to 6

I have to confess this one was in the media over a week ago so I’ve had a bit more time to consider the pros and cons of this proposal.

Pros

1. This allows the fund to grow to a larger balance and can reduce the need for a Limited Recourse Borrowing Arrangement [LRBA] on a property. [click here for a re-cap of where we are at on the LRBA rules]

2. Allows larger families to bring more children or children’s spouses into the one fund.

3. Creates an opportunity to transfer a property asset within a SMSF from one generation to the next.

4. Pushes the point that SMSFs should have a corporate trustee [something that is already best practice and I believe strongly in]

Cons

1. The big one for me is more disputes within a SMSF. SMSFs are not subject to the superannuation complaints tribunal so when members disagree it often ends up in court. The more members, the more chance of a dispute.

2. This creates an estate planning nightmare! Ever heard the rule – “whoever has the gold, makes the rules”? That’s what it can be like in an estate planning situation when it comes to SMSF and adult siblings. Include these people in the fund, and I predict death benefit disputes will be on the rise, with the only winners being the lawyers.

So while in theory this proposal sounds like a positive one for SMSFs, I continue to recommend that clients only every set up a SMSF with their spouse. Unless there is a really strong reason to do something different. 

Recent Retirees Exempt from Works Test

The opportunity of using this will be limited, but it is worth noting. If you have less than $300,000 in Super at the first year you can’t meet the works test [40hrs of paid work in a 30 day period]. You will be exempt from this test. This will allow you to continue to contribute to super when you wouldn’t have otherwise been eligible.

Easier to apply for a deduction for your personal super contributions

From 1 July 2017, it’s no longer only self-employed individuals who can claim a deduction in their tax return for a super contribution, it is now open to employees as well. However, the ATO have identified that while most people have the right intentions, they fail to complete the paperwork required to claim these deductions.

To reduce this administrative burden, they are going to introduce a new system to make it easier on everyone involved.

It might seem like a small thing, but for anyone who has had a deduction disallowed because they didn’t lodge the right form with their super fund, this is a game changer.

The budget announcements for super, thankfully were few and focussed on improvements to some of administration processes involved in the system.

Some of these announcements are still light on the detail, so it’s going to be a case of “wait and see” but its good to see a real practical focus from the government that should save our clients some time and money [no matter how minor].

Too much to take in?

Let me help you! Send me a message at m.kelly@businessdepot.com.au, or give me a call at 07 3193 3020 so we can further discuss how the budget impacts you and your super.

Megan Kelly
read more by Megan Kelly

Megan’s skills in self-managed super to provide both the accounting and strategic advice solutions for clients. Her many years working with business owners on their SMSFs has meant that she understands the value of including their superannuation in a business owners overall financial plan.

Her passion is to assist client’s in taking control of their future, through supporting them in making decisions in relation to the self-managed fund and their retirement. Megan regularly provides advice in relation to investment structuring, SIS compliance as well as pension and retirement planning.

Megan has also provided specialist support in relation to estate planning, family law disputes and compliance issues. She is a member of the SMSF Association Queensland Community, and a valued member of the network of SMSF specialists.

Megan Kelly is an authorised representative [No. 1240833] of Hunter Green Pty Ltd AFSL 225962. Your Adviser may offer you services through Depot Superannuation Pty Ltd which is a separate business. Although the same Adviser may offer you services under the above businesses, each business is solely and separately responsible for the advice they each provide. In particular, Hunter Green is only responsible for the financial planning services provided by Megan Kelly.


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