Federal budget super changes explained

The Australian Treasurer, Josh Frydenberg made a number of changes to superannuation in the 2019-20 Federal budget.

The announcements were largely targeted at anyone 65 years and older to allow concessional and non-concessional contributions to super. This is to bring contributions into line with the move in the Age Pension age to 67 from 1 July 2023 and enable spouse contributions to age 75.

There was other good news with simplification of the actuarial requirements for calculating exempt current pension income.

I explain the specifics of the proposed changes in more detail below:

Contributions after reaching age 65

From 1 July 2020 you will be able to make personal concessional and non-concessional contributions to super until you reach age 67 without meeting the work test in the year you make the contribution. If you qualify, you will also get access to the bring-forward rule for non-concessional contributions of up to $300,000 if your total super balance as at 30 June in the previous tax year is less than $1.6 million.

This announcement will help if you are at least 65 years old and retired, but have not had the opportunity to contribute to superannuation until later in your working life. It will also help if you are aged 65 or 66, as you will be able to make personal superannuation contributions without having to work 40 hours in 30 consecutive days during the year in which you make the contributions. This will provide a bonus at those ages if you wish to claim personal tax-deductible contributions against your income.

Maximum non-concessional contributions are restricted if you have a total superannuation balance of more than $1.4 million. But once your total superannuation balance is $1.6 million or more it is not possible to make any non-concessional contributions to super. However, downsizer contributions of up to $300,000 from the sale of an eligible principal residence can be made once you reach age 65 without any upper age threshold. Downsizer contributions are not counted against your non-concessional contributions cap.

Spouse contributions

The qualifying age for making non-concessional contributions for a spouse will increase from age 69 to age 75 in line with the maximum age for making voluntary contributions to super. In addition, the good news is that there will be no work tests applied until your spouse reaches age 67. After that spouse contribution can only be made if your spouse is working at least part-time. That means being gainfully employed for at least 40 hours in 30 consecutive days. Our understanding is that this change is to commence from 1 July 2020.

Of course, if your spouse is a low-income earner you may be eligible for a tax offset of up to $540 if you make non-concessional contributions of $3,000 in a financial year and your spouse has a total superannuation balance of less than $1.6 million.

Exempt current pension income – process changes

From 1 July 2020 we will see some streamlining of arrangements for the calculation of exempt current pension income (ECPI). ECPI provides tax exemption on income that is earned from fund assets that support the payment of a fund’s current pension liabilities. It can be calculated by segregating assets between accumulation and retirement phases or by using the proportional method which requires an actuarial valuation of the fund.

In view of confusion that has evolved due to a change in the Australian Taxation Office requirements for ECPI calculations from 1 July 2017, Mr Frydenberg announced some changes to simplify the current requirements. If your fund is in accumulation and retirement phases during the financial year, then you will be able to choose your preferred method for calculating ECPI. These methods are:

• using an averaging method to calculate tax exempt income throughout the income year; or
• calculating the tax-exempt income for discrete periods during the income year when the fund is required to use the proportional method.
  

Another part of the simplification of the ECPI administration is that there will be no requirement for funds that are wholly in retirement (pension) phase for all of the financial year to obtain an actuarial certificate. This applies to funds which have selected to use the proportional method or are required to use the proportional method because they have ‘disregarded small fund assets’.

Other budget changes to super

The Treasurer made other superannuation announcements mainly impacting on larger superannuation funds rather than SMSFs. These included:

1. Deferring the commencement of including SMSF rollovers in SuperStream and the expansion of the SuperStream rollover standard to include release authorities to 31 March 2021. These measures are designed to speed up the transfer of superannuation benefits between APRA funds and SMSFs.
2. Permanent tax relief for merging superannuation funds.
3. Providing government funding to identify options to establish a Superannuation Consumer Advocate.
   
4. Providing additional funding to extend the operation of the Superannuation Complaints Tribunal for a further six months and provide for its closure.
   

Where to from here?

As you’ve probably guessed we will be fortunate to see some of these changes pass through the parliament prior to the announcement of the date for this year’s Federal election. From there, it’s a-wait-and-see game as to which party will assume power and whether these proposals finally make it into law.