Federal Budget 2023-24
By Colin Lewis, Head of Strategic Advice, Fitzpatricks Private Wealth
In recent years, federal budgets have been getting leaner with announcements of new measures impacting superannuation, and this budget was no different. In fact, this one takes the cake for being the leanest yet.
Whilst this could be construed as good news for a system that’s seen constant change, it’s only because certain measures, one very significant, were announced before Budget Night.
Only one new superannuation announcement crept into the Budget that had not been announced earlier.
This concerned amending the former Government’s controversial non-arm’s length income and expenses (NALI and NALE) measures, to provide greater certainty.
Otherwise, the better targeted superannuation concessions and payday super measures announced prior to Budget Night were restated in the Budget.
The Government did however confirm “The current contributions rules continue to apply.”
The Government confirmed the direction it will take in respect of NALE.
Fund earnings in accumulation phase are taxed at a maximum of 15 per cent and nil in retirement phase, but amounts regarded as NALI are taxed at 45 per cent.
The NALI rules are designed to prevent funds from inflating their income, including capital gains, through non-arm’s length dealings.
The rules also apply where a fund incurs expenditure that was less than would otherwise be expected if the parties were dealing with each other at arm’s length terms – say, a trustee renovating the fund’s property and not charging for labour or providing accounting / administration at a discount. Then, all or part of the fund’s income, including contributions, can be assessed as NALI and taxed at 45 per cent.
The Government will amend the NALI provisions applying to expenditure incurred by SMSFs and small APRA-regulated funds (SAFs) – large APRA-regulated funds are exempted from these rules.
If a fund’s general expenditure is lower than in an arm’s length situation, the amount of NALI will be limited to twice the general expense shortfall, i.e. the difference between the arm’s length expense and the expense actually incurred by the fund.
In calculating NALI, contributions will now be excluded.
Expenditure before the 2018-19 income year is exempted.
Better targeted superannuation concessions
The Government confirmed its intention to impose an extra 15 per cent tax on ‘earnings’ on balances greater than $3 million from 2025-26 onwards.
The $3 million threshold is not indexed, so more people will be impacted over time.
There’s no limit on how much you can have in super.
Defined benefit schemes will be appropriately valued and have earnings taxed in a similar way to other interests – ensuring commensurate treatment.
With over two years and a federal election before this proposal is due to commence, much can change, but as it stands now, this is how it will work.
How will ‘earnings’ be calculated?
A fund’s taxable income is irrelevant as the rules look at the movement in super measured by your total superannuation balance (TSB) over the year – adding back lump sum withdrawals and pension payments and excluding contributions (net of tax) to ensure new money doesn’t inflate earnings.
This approach means that unrealised capital gains are captured in earnings.
Currently, TSB includes ‘inherited’ death benefit income streams and the outstanding balance of certain limited recourse borrowing arrangements. Structured settlement contributions are excluded.
Insurance proceeds (from a policy held in super) and transfers into a fund, including family law splits, are excluded as contributions.
Negative ‘earnings’ can only be carried-forward to reduce future earnings – there’s no tax refund.
Take Ray whose TSB grew from $2.9 million on 30 June 2025, to $3.3 million on 30 June 2026.
During 2025-26, Ray took $100,000 in pension payments and made a $20,000 concessional contribution (CC) and $300,000 downsizer contribution.
Ray’s earnings will be $183,000 ($3.3M – $2.9M + $100,000 – $17,000 – $300,000).
But not all of this is subject to the new tax.
How much ‘earnings’ will be taxed?
Only the proportion of earnings on balances over $3 million at the end of financial year is subject to additional tax.
The proportion of Ray’s earnings subject to tax is 9 per cent ($3.3M – $3M) / $3.3M).
His TSB at the start of the year, which was less than $3 million, is irrelevant.
So, Ray’s tax bill will be $2,470.50 (15% x $183,000 x 9%).
This can be paid personally by Ray, or he can have the money released from super – like Division 293 tax.
The Government confirmed that from 1 July 2026, employers will have to pay their compulsory Superannuation Guarantee (SG) contributions at the same time as their employees’ salary and wages.
This does not extend to voluntary salary sacrifice contributions.
When Award Super was introduced in the late 1980’s and the SG in 1992, payroll systems weren’t as advanced as they are today. So, it was reasonable for super to be paid quarterly – but that’s hard to justify in this day and age.
Payday super will make it easier for employees to keep track of their payments and harder for them to be exploited by shonky employers – employees missing out on super because it wasn’t paid is not an uncommon problem.
It also reduces the risk of unpaid superannuation debts when a company goes bankrupt. It can be a nightmare when an employer goes into administration/receivership as unpaid super may take years to recover.
Switching to payday super means a 25-year-old median income earner currently receiving super quarterly and wages fortnightly could be around $6,000 or 1.5 per cent better off at retirement.
Businesses will need to manage their cashflow closely with this change.
Still on the agenda
There are some things in the pipeline – yet to see draft legislation – not mentioned in the Budget.
Relaxing residency requirements for SMSFs
In last October’s Budget, the Government confirmed the residency changes for SMSFs proposed by the former Government are alive and will commence the financial year after it becomes law.
The residency requirements for SMSFs will be relaxed by extending the central control and management test safe harbour from two to five years and removing the active member test for both SMSFs and SAFs – allowing members to continue contributing while temporarily overseas, thus ensuring parity with members of retail and industry funds.
‘Legacy pensions’ amnesty
In February, the Government confirmed it’s proceeding with the former Government’s proposed amnesty allowing people trapped in market-linked income streams (MLISs) – term allocated pensions and annuities – and complying lifetime and life-expectancy pensions and annuities, two years to exit them.
They may be fully commuted with underlying capital, including reserves, transferred back to accumulation phase. Funds can then be withdrawn, used to start a new income stream, or retained in accumulation phase.
Reserves transferred to accumulation phase will assessable contributions taxed at 15 per cent – recognising the concessional tax treatment they received when created to pay the pension – but will not count towards the CCs cap, which may otherwise have occurred.
The social security treatment of a legacy pension will not transition after conversion, but it will not be re-assessed for the period before conversion.
No news is good news in that the Government did not freeze indexation of the transfer balance cap from $1.7 million to $1.9 million on 1 July 2023.
There was no mention of continuing the 50 per cent reduction in minimum pension drawdowns for account-based pensions and annuities, allocated pensions and annuities and MLISs, which ceases come 30 June. But in the past, we’ve seen this temporary reduction extended after Budget Night – even as late as 28 June. So, this may still happen.
*The information in this document (information) has been prepared by Fitzpatricks Private Wealth Pty Ltd (ABN 33 093 667 595, AFSL 247 429) (Fitzpatricks). The information is of a general nature only and does not take into account the objectives, financial situation or needs of any person. Before acting on the information, investors should consider its appropriateness having regard to their own objectives, financial situation and needs and obtain professional advice. No liability is accepted for any loss or damage as a result of any reliance on the information.