Historically, good news can be hard to find when reviewing the annual federal budget over the last couple of years, however the 2019/20 federal budget came with some genuine positives.
Treasurer Josh Frydenberg, announced the following major changes:
- Forecasted $7.1 billion surplus
- 2018/19 presented a $4.2 billion deficit
- 2017/18 presented a $10.1 billion deficit
- $158 billion potential saving in personal income tax relief
- Infrastructure investment of $100 billion
- $2 billion for fast rail from Geelong to Melbourne
- $3 billion added to the Urban Congestion Fund
- $2.2 billion road safety package
- $1 billion added to the next phase of the Roads of Strategic Importance initiative
- $1 billion to improve freight routes and access to ports
- $100 million for regional airports
- An increase to the Low and Middle Income Tax Offset to $1,080
- Estimate to provide a benefit to 10 million Australians
- Funding for skills and education including $525 million for VET and up to 80,000 new apprenticeships
- $9 billion allocated to science, research and technology
- $62 million to boost literacy, numeracy and digital skills
- $20 billion invested into a Medical Research Future Fund
- Dividends will go towards new clinical research and trial
- Increase in health funding
- From $81.8 billion to $89.5 billion
With regards to superannuation, the following changes were announced:
Work Test Changes for Voluntary Contributions
From 1 July 2020, individuals aged under 67 years old will be able to make voluntary concessional and non-concessional contributions into their superannuation fund, without meeting the “work test”. The work test requires an individual to work a minimum of 40 hours over 30 consecutive days for gain or reward before they are able to make a voluntary contribution into superannuation. Previously, a member had to be less than 65 years of age without having to meet the work test.
OPPORTUNITY: Your firm should be reviewing your clients with an SMSF who are aged 65 and 66 to let them know about the potential change. Members of SMSFs may be able to make further contributions into their fund that they would otherwise not be able to make prior to these changes being introduced.
Extension of Bring-Forward Provision
The bring-forward provision that currently applies to individuals aged less than 65 years will be extended to those aged less than 67 years old from 1 July 2020. The bring-forward provision allows a member of a superannuation fund to make three years’ worth of non-concessional contributions within one single year. If the bring-forward provision is fully utilised by a member, no further non-concessional contributions can be made for the next two years.
OPPORTUNITY: Again, starting reviewing those members aged 65 and 66 as they may have capacity to use the bring forward provision (without meeting the work test) and subsequently contribute up to $300,000 into their SMSF.
From 1 July 2020, the age limit for spouse contributions will increase from 69 to 74 years. A spouse contribution allows a member to make superannuation contribution on behalf of their spouse up to their concessional or non-concessional cap.
OPPORTUNITY: Determine how many of your clients with an SMSF can make a spouse contribution. A spouse contribution may be useful in helping build a member’s spouse’s superannuation balance to balance out a member likely to exceed their $1.6 million limit or where a spouse is older but has a lower members balance.
From 1 July 2020 the Government will allow superannuation fund trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method of calculating ECPI.
It was also confirmed the requirement for an actuarial certificate will be removed where a fund opts to calculate ECPI using the proportionate method, in conjunction with all members of the fund being in full retirement phase.
OPPORTUNITY: Review what method has been used to calculate ECPI for your SMSFs. If you have funds that are in 100% pension phase and use the proportionate method, an actuarial certificate is not required anymore!
Merging Superannuation Funds (non SMSFs)
It was announced that a permanent change to the current tax relief for merging superannuation funds will take place. This measure was due to expire on 1 July 2020. The current measure provides tax relief for superannuation funds to transfer revenue and capital losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets.
Self-managed superannuation funds are excluded from this tax relief.
Electronic SuperStream Rollovers
An additional $19.3 million will be provided to the ATO over a three year period, starting from the 2021 financial year, which will enable electronic requests to be sent to superannuation funds for the release of money required under a number of superannuation arrangements.
This change, which will take effect from 31 March 2021, and will be implemented by expanding the electronic SuperStream Rollover Standard used for the transfer of information and money between employers, superannuation funds and the ATO.
It was announced a delayed start date of 1 October 2019 for the previously announced measures which seek to ensure that insurance within superannuation is only offered on an opt-in basis for individual accounts with balances of less than $6,000 and new accounts belonging to a member who is under the age of 25 years.
These changes aim to protect the superannuation balances of young people and those with low balances by ensuring their balances are not heavily reduced by premiums on insurance policies they do not need or are not aware of.
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