Before the disruption of the Coronavirus epidemic, the government confirmed it would go ahead with various proposals to improve the SMSF and super sector including flexibility measures. This included increasing the SMSF member limit, changes to the work test, bring forward rule and spousal contributions.
Proposed Government improvements are on the way for SMSFs, however, since the epidemic, the earliest these measures could conceivably become law would be August. It is also not known whether the government will focus on economic recovery and put these flexibility measures on the backburner when Parliament finally resumes.
Prior to the disruptor that is the Coronavirus epidemic, the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume outlined some future government policy and potential changes to superannuation and SMSFs. The sector now holds around $746bn or over a quarter of total superannuation assets. With the number of SMSF doubling since 2006 and a report indicating that 15% of members who switched funds in 2017 went with an SMSF, this sector has become more strategically important for the government.
While the government’s main focus was to first legislate the recommendations from the Hayne Royal Commission on Banking and Financial Services, Senator Hume said it was still committed to enacting legislation to increase the SMSF member limit from 4 to 6. The proposal was previously contained in a 2019 Bill and was dropped so as not to delay the passage of other measures after not receiving support from the Opposition.
The proposed increase would have been beneficial for larger families, as families with up to four children could be a part of a single-family super fund. The advantage of this would have been for these larger families to implement intergenerational solutions for managing long-term investments in SMSFs. This is particularly important due to the reduced contribution caps and transfer balance account limits.
For example, allowing 6 members of a super fund could provide an opportunity to improve an SMSF’s cash flow by using the contributions of younger members to make pension payments to members in retirement phase, without needing to sell a long-term investment, whether that be a property or a stake in a business.
Senator Hume also noted that the government would be aiming to legislate the superannuation flexibility measures announced as a part of the 2019-20 Budget. These proposals included voluntary contributions for individuals aged 65 to 66 without meeting the work test, up to 3 years of non-concessional contributions under the bring forward rule for those aged 65 to 66, and spousal contribution changes for those aged under 75.
Draft legislation was released before the Coronavirus epidemic hit and the consultation period has since passed. The earliest these measures could be passed is in August when Parliament resumes. Given that these measures will cost the government precious revenue and the Prime Minister has indicated that all election promises may no longer be viable due to the pandemic, it is likely that these proposals will be shelved for the time being.
This is especially true for the increase in SMSF members measure, if the Opposition did not support the measure during good economic times, it is implausible that they would support in the current environment. It is also important to note that while the government had planned to legislation the super flexibility measures before the 1 July 2020 start date, it is now impossible with the current 11 August Parliament resumption date. Therefore, those aged 65 to 66 will need to make sure they still meet the work test if they intend to claim voluntary contributions, and make sure their non-concessional contributions still meet the existing rules.
What to do now?
If you’re not sure whether you can still claim voluntary contributions or whether your non-concessional contributions still meet the existing rules, Hunter Partners can help. Hunter Partners can also look at any spouse contributions you’ve made or work out any issues you have with transfer balance account limits. Contact Hunter Partners today to find out more.
Hunter Partners are Accountants, Tax Agents and Financial Planners. We can assist you with all aspect of your accounting, tax and financial planning requirements, call Hunter Partners on (07) 4723-1223.