SMSFs and the Federal Budget Update 2019

We were surprised yet overall rather pleased with the outcome of the 2019 Federal Budget Update and the impacts on SMSF.

Compared to past years where drastic changes have been implemented (most recently the Super Reforms), the announcements made last night all have a positive impact on the SMSF industry. Helping Australians to save for their retirement is part of the Government’s plan for a stronger economy.

Increased Opportunity to get more into your SMSF

From 1 July 2020, the Government will increase the work test age to 67 to be aligned with the age pension age – another positive change as it allows voluntary superannuation contributions to be made by those aged 65 and 66 without satisfying the ‘Work test’.

Contribution rules differ depending on the age of the SMSF member.

If under the age of 65 – a member can contribute at any time up to their annual contribution caps, (currently $25,000 for concessional contributions and $100,000 for non-concessional contributions (provided their total superannuation balance on the previous 30 June is below $1.6 million).

If aged between 65-74, you must satisfy a Work Test, which requires that they work a minimum of 40 hours over any 30 day period during the financial year, in order to be eligible to make additional, voluntary personal contributions to super.

Those aged 65 and 66 will be able to contribute a total of $300,000 in a single year (based on the annual $100,000 cap), effectively ‘bringing forward’ three years of future super contributions.

Increasing the age limit for spouse Contributions

From 1 July 2020 the age limit for spouse contributions made to a spouse’s account will increase from 69 to 74 years of age – another win for SMSF members.

Changes to Calculating Exempt Current Pension Income (ECPI)

  • Changes will be made to allow superannuation fund trustees with a superannuation balance in both the accumulation and pension phases during an income year to choose their preferred method to calculate exempt current pension income. At present, the ATO has a complex ‘proportionate’ method which needs the added time and expense of obtaining an Actuarial Certificate. This will be made far easier going forward.
  • The Government will also remove the requirement to obtain and Actuarial Certificate where all members of the fund are fully in pension phase for the entire financial year.

Essentially we’re returning to the old way of doing things which is far simpler for all parties involved.

Action needed by Trustees

At this point there is no action required by Trustees as the announcements are proposed only and subject to the outcome of the next Federal Election.

However, on an annual basis we strongly advocate SMSF Trustees review their SMSF trust deed to ensure it is in line with current legislative obligations.

By Olivia Long, Managing Director – Strategy and Operations

The information in this article contains general advice and is provided by ExpertSuper™ Pty Ltd as an authorised representative of Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (available here) for contact information and information about remuneration and associations with product issuers.This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article (3 Apr 2019) and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.