By Colin Lewis, Head of Strategic Advice, Fitzpatricks Private Wealth
June 2024

In recent years, federal budgets have been getting leaner with announcements of new measures impacting superannuation, and this year’s budget was no different.

In fact, this one takes the cake for being the leanest yet, but that’s good news for a system that’s seen constant change over the decades.

With everything that’s happening with the Government’s Better Targeted Superannuation Concessions Bill – the legislation introducing the extra 15 per cent tax on ‘earnings’ on super balances greater than $3 million from 2025-26 onwards – it wasn’t surprising that there was virtually nothing on superannuation in this year’s budget.

It’s worth noting that the Senate Economics Legislation Committee has recommended this Bill be passed without amendment – meaning the unpalatable measures of taxing unrealised capital gains and the $3 million threshold not being indexed remain in the draft legislation. The $3 million threshold not being indexed means more people will be impacted by this new tax over time.

Only one new superannuation announcement impacting personal finances crept into the budget.

And this was the introduction of superannuation on government-funded paid parental leave (PPL).

In recognition of the important contribution parents make, the Government is going to pay super on government-funded PPL for parents of babies born or adopted from 1 July 2025.

Super will be paid at 12 per cent – the Superannuation Guarantee rate from that date – of the PPL rate, which is set at the national minimum wage (currently $882.75 per week).

It will be a taxable contribution, meaning 15 per cent tax will apply to it (like other pre-tax concessional contributions), and it will count towards the individual’s concessional contributions cap in the year it is received by the super fund.

Recipients don’t need to do anything to receive this contribution. Services Australia will notify them of their entitlement and the Australian Tax Office will pay it directly to their nominated super fund.

This measure is designed to close the super gender gap and reduces the impact of parental leave on retirement incomes.

It builds on legislation already in Parliament – still to be passed – to increase PPL by 2 weeks to 22 weeks for children born or adopted from 1 July 2024, 24 weeks from July 2025 and 26 weeks from July 2026.

Still on the agenda

There was a missed opportunity with superannuation in the budget in that the Government did not address two long awaited measures still to see the light of day.

Whilst it may have been wishful thinking on the part of the superannuation industry that these outstanding items would be dealt with, it was disappointing there was no word on the proposed two-year legacy pension amnesty and relaxing the residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs).

‘Legacy pensions’ amnesty

In February 2023, the Government confirmed it was proceeding with the former government’s proposed amnesty allowing people locked in market-linked income streams (i.e. term allocated pensions and annuities) and complying lifetime and life-expectancy pensions and annuities, two years to get out of them.

This was welcome news for people trapped in an income stream commenced back before 2007 to manage the old reasonable benefit limits or improve Centrelink entitlements.

The proposal allows for the income stream to 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 be 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 concessional contributions cap, which may otherwise have occurred.

Any favourable social security treatment applying to an existing income stream is non-transferrable and will be lost but, more importantly, there will be no re-assessment of it for the entire time it was running.

Relaxing residency requirements for SMSFs and SAFs

In the budget released in October 2022, the Government confirmed the residency changes for SMSFs and SAFs proposed by the former Government were still alive and would commence the financial year after becoming law.

The proposal is for the residency requirements for SMSFs and SAFs to be relaxed by extending the central control and management test safe harbour from two to five years for SMSFs 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.

Currently, if you have an SMSF and head overseas for more than two years then you must do something with your fund – or you’ll have a problem. In the extreme, you can wind-up your fund, or convert it to a SAF by appointing a professional trustee.

Alternatively, you can appoint an attorney. Appointing a trusted Australian-based person – who holds your enduring power of attorney – to act in your place as trustee (or director) avoids a central management and control problem with your fund. But you must resign as a trustee (or director) and be prepared to relinquish control to them.

Also, you may have to stop contributing to your SMSF while overseas if you cannot comply with the active member test – which requires that while the SMSF is receiving contributions, at least 50% of the fund’s total asset value attributable to actively contributing members is attributable to resident contributing members.

Unfortunately, we haven’t seen draft legislation yet on either of these measures – nothing.

Silence …

With super and the budget, no news can be good news in that the Government didn’t move to freeze indexation of certain superannuation caps and abolish limited recourse borrowing arrangements used by SMSFs, that were rumoured to happen in the lead-up to budget night.