Impact of the Federal Budget for SMSFs


Wayne Swan has handed down a ‘tough budget’ as the Labor Government strive to bring the economy back into surplus for 2012/13.

For self-managed super funds and the superannuation industry, it was a budget that certainly won’t bring any front-page new stories, good or bad (and that’s probably a good thing!).

Below are some of the budget announcements impacting Self-Managed Super Funds (and their members):

Changes to Excess Contributions Tax

The good news story of the night is the Government has heard the message loud and clear regarding the unfairness of Excess Contributions Tax (ECT).  Whilst not totally removing the penalty tax on excess contributions, the introduction of a ‘one-strike’ policy on excessive amounts up to $10,000 is a logical and positive step for those inadvertently caught by the timing of concessional contributions being paid into super by their employer.  Simply put, eligible individuals will have the option to have these contributions taken out of their super fund and assessed personally at their marginal tax rates (rather than incurring excess contributions tax).

The measure is only available for breaches in respect of 2011/12 or later years, and only for the first year, commencing from 2011/12, in which a breach occurs. It will be interesting to see the statistics of those impacted by these changes and whether it affects the ‘real issues’ raised by the super industry on excess contributions tax and the fairness of some individuals being taxed at 93%!!

Further extension to minimum pensions for 2011/12

With investment markets nowhere near recovered from the past few years of the global financial crisis (GFC), the Government has decided to extend the temporary reduction on the minimum percentage factors to be applied to account based pensions (including transition to retirement).  However, the 50% reduced amount currently available for 2010/11 (and the previous two years earlier) will become a 25% reduced percentage factor.

The table below explains how the minimum amounts will apply for 2011/12:

The Government has announced that the minimum pension factors will revert back to normal for the 2012/13 financial year.

Extension for concessional contributions for over 50’s

Nothing really new here… The Government has basically confirmed their decision to move forward with the extension for concessional contributions for those 50 and over with account balances of less than $500,000.  The decision has been made to set the allowable contribution at $25,000 above the concessional contribution limit (currently $25,000).  This allows for future indexation of this limit.  This information was already outlined in the consultation paper issued earlier this year by Treasury to work out how these rules will practical be administered.  To date, we are still awaiting further information from Treasury, but needless to say the submissions made were none too flattering on this policy decision and the administrative headaches it is going to create!!

This legislation will apply from 1 July 2012 (as previously outlined by Government).

Read my previous blog on the extension for concessional contributions.

Freezing indexation of super co-contributions

The Government will continue the freeze, for an additional year to 2012/13, the indexation applied on the income thresholds for qualification of super co-contribution amounts.

The co-contribution ‘matched amount’ from Government up to $1,000 is currently available for people with incomes of up to $31,920 (with the amount available phasing down for incomes up to $61,920). This thresholds will continue until the end of the 2012/13 financial year.

An increase in the SMSF Supervisory Levy

The Stronger Super reforms announced by the Government in December last year were designed to improve the operation, efficiency and integrity of the SMSF sector and increase community confidence.  As a result, additional funding has been allocated to both the Australian Taxation Office (ATO) and Australian Securities and Investment Commission (ASIC) to implement a range of measures recommended by the Cooper Review Panel (Super System Review).

Some of these measures included:

  • the introduction of administrative penalties that the ATO can apply in cases of non‑compliance by SMSF trustees;
  • the introduction of knowledge and competency requirements on SMSF service providers, including the registration of SMSF auditors;
  • tightened legislative restrictions on SMSF investment in collectables and personal use assets;
  • requiring SMSFs to value their assets at net market value and the ATO to publish valuation guidelines;
  • the appointment of the ATO to collect and publish data on the sector;
  • changes to the registration and rollover processes, and
  • illegal early release penalties to deter the use of SMSFs for illegal activity.
To pay for many of these reforms, it was the recommendation of the Cooper Review Panel to increase the Supervisory Levy for SMSFs.  This increase is to now occur, with an additional $30 per year (to $180) required to be paid each year.  With 450,000 Self-Managed Super Funds now in existence, this is expected to raise $47m over 4 years.  This increase will take effect for the 2010/11 financial year.
In addition, with the introduction of SMSF auditors to be registered with ASIC from 1 July 2012, the government expects to raise a further $1.8m over 4 years through registrations.  

In summary
I was pleased to see that some of my wish-list for change actually occurred within the budget.  Like all things, the devil will be in the detail once we see draft legislation.  Given that the Government is still talking about measures relating to Fairer Super from last year’s budget, I wonder if we could be waiting a while?
What are your thoughts on the budget impact for super funds?
(C) The SMSF Academy 2012
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