The 2021 Budget contained a number of exciting (and some unexpected) announcements regarding changes to superannuation. As the changes are mostly aimed at increasing flexibility and the ability of older Australians to contribute towards retirement, this is positive news for SMSFs.

The main superannuation Budget announcements are:

Removal of $450 per month threshold for superannuation guarantee (SG) eligibility

Currently, there is no obligation to make super contributions for workers who are paid less than $450 before tax (ordinary time earnings) in a calendar month. The Government has announced that the $450 threshold will be removed so that SG must be paid for all workers who meet the relevant definition of employee (noting this can include certain contractors).

Repealing work test for non-concessional super contributions

Currently, individuals aged 67 to 74 must meet the work test to make voluntary contributions to super. That is, they must be gainfully employed for at least 40 hours in a consecutive 30 day period in the relevant financial year.

The work test is to be repealed in respect of non-concessional contributions and salary sacrifice contributions (subject to the usual contribution caps). Individuals aged 67 to 74 will still have to meet the work test to make personal deductible (concessional) contributions.

Ability to convert market linked and other legacy pensions

Currently, there are a number of members who are stuck with certain ‘legacy’ pensions including market linked pensions, life expectancy and lifetime pensions due to their strict restrictions on commutation. These pensions are typically inflexible, and can be difficult to manage from a transfer balance cap perspective.

It is proposed that there will be a two year period where individuals can ‘opt in’ to convert these pensions, by fully commuting the pension and transferring the underlying capital (including any reserves) to accumulation phase where they can then commence an account based pension, withdraw the lump sum, or retain the funds in super.

Changes to SMSF residency requirements

Currently, the central management and control (CMC) of an SMSF must ordinarily be in Australia, but there is a two year ‘grace period’ where an SMSF will still meet this requirement even if the CMC is temporarily outside Australia for up to two years. An SMSF must also meet the ‘active member’ test, where either no members are contributing to the SMSF, or the members who are contributing are Australian residents who hold at least 50% of the SMSF assets. These tests create great uncertainty for SMSF members who are moving overseas for a temporary period of time.

It is proposed that the two year grace period will be extended to five years, and the active member test will be removed. This means that SMSF members will be able to contribute to their SMSF whilst temporarily overseas (as they are currently able to do for public offer funds).

Reducing eligibility age for downsizer contributions

Currently, to make a downsizer contribution, an individual must be at least age 65 and meet other eligibility criteria, including that the contribution must be referable to the capital proceeds from the sale of the principal place of residence which has been owned for 10 years or more. Individuals can contribute up to $300,000 under a downsizer contribution, without being tested against the usual non-concessional contribution caps or total super balance threshold. There is no maximum age limit.

It is proposed that this minimum age will be bumped down to age 60, with all other eligibility criteria remaining the same.

The above changes are scheduled to take effect from 1 July 2022, provided the relevant legislation passes in the timeframe currently anticipated by Treasury.

To discuss or for further information please contact:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163  
E: pbroderick@sladen.com.au           

Philippa Briglia
Senior Associate
T +61 3 9611 0173
E pbriglia@sladen.com.au