Superannuation update: 2021 Federal Budget superannuation changes enacted or outstanding (March 2022)

The majority of the Federal Government's proposed enhancements to the superannuation system, announced in the May 2021 Federal Budget, have now finally been passed through Parliament and received Royal Assent. We summarise these key measures which will largely take effect from 1 July 2022.

As for the remainder of these May 2021 Federal Budget superannuation announcements, which included the relaxation of the residency requirements and two-year amnesty period for legacy pensions, unfortunately, with the limited remaining Parliamentary sittings days before the fast approaching Federal election, it is now unlikely they will be enacted any time soon. 

Removing the $450 per month threshold for superannuation guarantee eligibility

From 1 July 2022, the scope of superannuation guarantee (SG) payments will be broadened to now include employees receiving salary or wages of less than $450 a month, with these employees previously being excluded from their employer’s SG obligations. The SG scheme is intended to ensure that employers pay a minimum level of superannuation contributions on behalf of their employees and these changes are expected to affect almost 300,000 people, representing 3 per cent of all employees. 

However work performed by non-residents solely outside of Australia and work performed by individuals under the age of 18 years and employed for less than 18 hours per week, are still exempt from SG and will not be affected by these changes. 

As an important reminder, Single Touch Payroll (STP), which commenced on 1 July 2018 for employers with 20 or more employees and 1 July 2019 for employers with 19 or fewer employees, has now become a mandatory obligation for employers. Accordingly, employers will need to make sure their STP software is updated to account for this change before 30 June 2022 to ensure all SG contributions are calculated and paid correctly. 

Expanding access to First Home Super Saver Scheme

Since 1 July 2017, first home savers who make voluntary concessional and/or non-concessional contributions of up to $15,000 per year into a superannuation fund, have been able to withdraw those contributions (up to certain limits), as well as the associated earning for the purposes of purchasing their first home under the First Home Super Saver Scheme (FHSSS). 

From 1 July 2022, the amount an individual (on a per person basis) can withdraw from their superannuation fund under the FHSSS, has increased from $30,000 to $50,000.

In spite of the increased withdrawal amount, the limit on the amount of voluntary contributions that is able to be released is unchanged, i.e $15,000 from any one financial year. First home buyers will therefore have to conceivably spread their voluntary contributions over at least four financial years to take full advantage of the scheme, as any contributions that exceed the limit are not eligible for release. 

Expanding access to the superannuation downsizer scheme

The Government’s superannuation “downsizer” measures, introduced from 1 July 2018, have allowed an individual aged 65 years or over to make a non-concessional contribution of up to $300,000, by utilising the proceeds on the sale (or part sale) of their principal residence. These contributions are in addition to those currently permitted under existing contribution rules and caps.

The eligibility age to make downsizer contributions has now been lowered from 65 to 60 years effective 1 July 2022. 

There are however  certain eligibility criteria which must be satisfied, including that the home needs to have been owned by you or your spouse for at least 10 years. Satisfying all criteria will allow each individual to make a downsizer contribution for a total combined household contribution of up to $600,000 within a financial year. 

It is also important to note that by lowering the eligibility age from 65 to 60 years, may mean that individuals making the contributions could now be faced with a situation where they will be limited in the ability to access these funds, should they be needed, from the superannuation system until they have met a condition of release enabling them to withdraw these benefits. This could be, at the latest, not until they reach the age of 65.

Repealing the work test for superannuation contributions from retirees 

From 1 July 2022, retirees between 67 to 74 years of age will be eligible to make contributions into superannuation as a result of the abolishment of the “work test” that currently applies to them when making non-concessional and salary sacrificed concessional contributions.

Importantly however, this does not apply to those individuals wanting to make concessional contributions by claiming a personal tax deduction. In these instances, individuals will still be required to meet the work test from 67 years of age.

With proper planning, a number of strategies may now be available to allow individuals the opportunity to maximise the amount contributed into superannuation and this is especially important for those individuals nearing the age limits or total superannuation balances cut off limits. These strategies could include how excess concessional contributions are managed, the use of re-contribution strategies, or even the potential for a 74 year old member to maximise their non-concessional contributions of up to $330,000 via the three bring-forward arrangements, where the appropriate conditions are satisfied.

One point to note in respect to these new changes is that an inconsistency in the law now exists between the respective income tax and superannuation Acts and Regulations. Accordingly, further legislative change is still needed to the Superannuation Industry (Supervision) Regulations 1994, to enable superannuation trustees to accept contributions for members aged 67 years or over. Practically speaking however, this should not have an impact on the strategies advisors will suggest and the decisions trustees and members make as the regulations should shortly be amended. 

Segregated current pension assets

Currently in those circumstances where total superannuation benefits of a fund are entirely supporting an income stream, and the members have an individual balance above $1.6 million, the law still requires that a superannuation trustee apply for an actuarial certificate to document the fund’s tax exempt percentage regardless of the fact that this proportion was very obviously already known. 

The passing of the new law now removes this requirement by giving superannuation trustees greater discretion in how they calculate exempt pension income whilst also minimising the cost and complexity of a fund’s annual compliance requirements. The amendments will apply to the 2021-2022 and later financial years. 

Additional changes announced in the 2021 Federal Budget that are yet to be drafted

Relaxation of the residency requirements

The Government had announced a relaxation to residency requirements for both self-managed superannuation funds (SMSFs) and small APRA-Regulated Funds (SAFs) 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. By removing the active member test, this would allow members in these funds to continue to contribute to their superannuation fund whilst temporarily overseas and provides parity with members of large APRA-regulated funds.

There is no indication at this stage, if or when these changes will be enacted.

Two year amnesty period for legacy pensions

For a number of years the SMSF sector has been asking the Federal Government to allow SMSF members with legacy pensions such as market-linked, life-expectancy and lifetime products to be able to convert to contemporary pensions, such as the Account-based pension product which came into effect from 1 July 2007. Most of these pensions were purchased under the former reasonable benefit limit (RBL) rules that restricted the amount of benefits that could be received by a member at tax concessional rates. Those RBL rules were abolished as at 30 June 2007, however most legacy pensions that still existed from 1 July 2007 were non-commutable and created significant tax cost when allocating excess reserves to members. 

The Budget announcement would allow individuals to exit these products, together with any associated reserves, for a two-year period with effect from the first financial year after Royal Assent of amending legislation.

Again, there is no indication at this stage, if or when these changes will be enacted.