The impacts for Self-Managed Superannuation Funds (SMSFs) in the 2017 Budget were significant and broad ranging. Not surprisingly the measures impacting SMSFs in the 2018 Federal Budget are much more subdued, incorporating a number of smaller changes. That being said, there are some important reforms proposed by the Federal Government that will have an impact on SMSFs, as outlined below:
Increase to SMSF member limit
Currently a SMSF is only allowed to have a maximum of four members. The 2018 Federal Budget announced an increase in the limit to six members. The proposed change will apply to new and existing funds and will be applicable from 1 July 2019.
For large family groups looking to consolidate their retirement planning, this represents a positive change. Family groups of more than four currently need to have multiple funds if they wish to build their retirement savings through SMSFs, which creates more complexity and administrative costs. The proposed amendment will allow family groups to pool their retirement savings, allowing them to potentially take on larger investments. There may also be improved cash flow for SMSFs with members in both pension phase and accumulation phase.
Careful consideration and planning will still need to be undertaken before adding additional family members to a SMSF. All members will need to be trustees of the fund, either individually or as Directors of the trustee company, which will have administrative and estate planning implications.
Work test exemption for recent retirees
Currently an individual aged 65-74 years of age needs to pass a work test to be able to make voluntary superannuation contributions. The work test requires the individual to work a minimum of 40 hours in any 30-day period during the financial year.
The 2018 Federal Budget announced a concession that will allow individuals aged 65-74, with a superannuation balance below $300,000, to make voluntary superannuation contributions in the first year that they do not meet the work test, i.e. in the year after they cease working at least part-time. This proposed change will apply from 1 July 2019. Voluntary superannuation contributions include salary sacrifice, personal deductible and personal non-deductible contributions, up to the respective contribution caps.
Whilst this is a welcome measure for those individuals who have recently retired, it falls short of the previously proposed plan to remove the work test altogether for individuals aged 65-74. In an increasingly complex superannuation system, removing the work test would provide some welcome simplicity and certainty.
Super-guarantee opt out for high income earners
High income earners will be able to opt out of a super guarantee with one of their employers if they earn over $263,157 and have multiple employers. This proposed measure will apply from 1 July 2018 and will allow employees to avoid unintentionally breaching the $25,000 concessional contribution cap and the associated penalties.
This is a welcome measure that fixes an inherent problem in the super guarantee legislation impacting high income earners with multiple employers. It is expected that employees will be able to negotiate to receive additional income from their employer instead of receiving super guarantee.
Reduced audit requirements for good compliance funds
Currently SMSFs are required to be audited annually. From 1 July 2019 SMSFs with a history of good record keeping and compliance will only need to be audited on a 3-yearly cycle. The measure will apply to SMSFs and with 3 consecutive years of lodging their annual return on time and with no issues identified in their audit reports. Exactly how this new measure will start to be implemented is unknown at this stage.
Given the greater majority of SMSFs do have good record keeping and compliance we expect that the majority of funds will move to a 3-yearly audit cycle. This is a welcome measure that will have a positive impact, reducing the administrative costs for operating a SMSF.
Ensure you understand the proposed SMSF reforms and how they impact you and your business. Get in touch with our team at BLG Business Advisers online or by calling (02) 4229 2211 to arrange an appointment today.