Changes announced to superannuation fund balances above $3m
8 March 2023
Changes announced to superannuation fund balances above $3m
Recently, the Australian Government announced the upcoming changes to tax concessions for superannuation balances above $3 million.
What does this mean for you?
There is no current impact for your superannuation fund. This announcement is a proposal only and is required to go through the parliamentary process before it is approved. If approved, the changes are proposed to commence on 1 July 2025 and is limited to those individuals who have more than $3 million in super at the end of a financial year. Therefore, it’s the balance at 30 June 2026 that matters initially. It should be noted that it’s $3 million per person, not per fund. The $3 million will however include all of a member’s super, ie both their pension and accumulation accounts combined.
How will the earnings and tax be calculated?
According to the factsheet released by Treasury, for people subject to the new rules there are three essential elements:
- There will be a new, extra tax (at 15%) on some of their super’s earnings.
- The tax will be levied on the member personally, not their fund.
- They will be allowed to elect to take money out of their fund to pay it.
For those familiar with “Division 293” tax, the last two elements will feel familiar as this is how this additional tax is also managed.
The two key terms in the proposal are those in bold above – just some of the fund’s earnings will be taxed and earnings for this purpose has a special definition. Formulas and examples have been provided outlining how the calculations will work, but will include details such as opening balance, closing balance, contributions and pension payments. At this stage it has been stated that earnings will not only include the income a super fund would normally pay tax on – things like interest, rent, dividends or capital gains on assets it’s actually sold; but also growth in assets that the fund hasn’t yet sold. This is the area that seems most contentious and will require specialist advice on how to manage if affected.
How Boyce can help
At Boyce, we are committed to providing you with the latest information and advice on government legislation and its impact on your financial situation. As stated above, this announcement is a proposal only and is required to go through the parliamentary process before it is approved. As further details emerge we will provide updates via our e-alerts or direct contact.
If you would like more information or if you have any questions relating to this proposed change or your superannuation fund in general, please contact your Boyce accounting team who can connect you with one of our superannuation or financial planning specialists.
2022-23 Labor Government's Federal Budget: Building a better future
26 October 2022
On Tuesday, 25 October, the Labor Government delivered the second Federal Budget for the year, following the May election and change in government. The main themes of this budget were stated to:
- provide responsible cost-of-living relief that delivers an economic dividend;
- build a stronger, more resilient and more modern economy;
- begin the hard task of budget repair to pay for what is important.
Only a small number of tax measures were delivered in this budget, mostly making good on the pre-election commitments to strengthen the laws targeted at multi-national corporations and strengthen tax integrity.
The budget now forecasts a cash deficit of $36.9 billion (1.5% of GDP) for 2022/23, and a redistribution of expenditure signals the new Government's change in focus.
Key budget announcements
Individuals
- No changes
Businesses
- Electric car discount – exemption of electric cars from FBT and import tariffs.
- Taxation of COVID grants – additional grants listed as being non-assessable, non-exempt income.
- Thin capitalisation – a partial rewrite of the rules.
- Digital currencies – confirmation that digital currencies will be excluded from the taxation treatment of foreign currencies.
- Additional funding provided for ATO compliance activities.
Superannuation
- Audit cycle – the proposal for a 3-year audit cycle of SMSF’s will not proceed.
- Downsizer contributions – minimum age to decrease from 60 to 55.
- Residency rule changes – deferred from 1 July 2022 until the ultimate legislation receives Royal Assent.
Other measures
- Paid parental leave – expanded from 1 July 2023, allowing either parent to claim the payment. Then, from 1 July 2024, the program will be expanded by an additional 2 weeks a year until it reaches 26 weeks from 1 July 2026.
- Child care subsidy – maximum rate to be increased from 85% to 90% for the first child in care. The rate will increase for all families earning less than $530,000 in household income.
- Regional first home buyer scheme – establish a fund to support eligible first home buyers in a regional area to purchase their first home with a minimum 5% deposit.
- Penalty units – increasing from $222 to $275 from 1 January 2023.
Businesses
Electric car discount
The Government has announced that, from 1 July 2022, it will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 for 2022/23) and providing the car has not been held or used before 1 July 2022. Employers will still need to include these exempt benefits in an employee’s reportable fringe benefits amount.
Taxation of COVID grants
The following COVID related grants have been added to the list of grants eligible to be treated as non-assessable, non-exempt income (meaning business are not required to pay tax on them):
- Victoria Business Costs Assistance Program Four – Construction
- Victoria Licenced Hospitality Venue Fund 2021 – July Extension
- Victoria License, Hospitality Venue Fund 2021 – Top Up Payments
- Victoria Business Costs Assistance Program Round Two – Top Up
- Victoria Business Costs Assistance Program Round Three
- Victoria Business Costs Assistance Program Round Four
- Victoria Business Costs Assistance Program Round Five
- Victoria Impacted Public Events Support Program Round Two
- Victoria Live Performance Support Program (Presenters) Round Two
- Victoria Live Performance Support Program (Suppliers) Round Two
- Victoria Commercial Landlord Hardship Fund 3
- Australian Capital Territory HOMEFRONT 3 and
- Australian Capital Territory Small Business Hardship Scheme.
Thin capitalisation
The only announced significant rewrite of taxation legislation under this budget is to the thin capitalisation provisions. These rules essentially limit tax deductions in relation to debt for certain cross-border investments where certain limits are exceeded.
Under current legislation these limits are the greater of the amounts allowed under:
- the safe harbour debt test
- the arm’s length debt test and
- the worldwide gearing debt test.
It is now being proposed to:
- replace the safe harbour debt test with a new test where debt related deductions would be limited to 30% of profits (using EBITDA — earnings before interest, taxes, depreciation, and amortisation – as the measure of profit)
- allow deductions limited under this new profits-based test to be carried forward and claimed in a subsequent income year (up to 15 years) and
- replace the worldwide gearing test and allow an entity in a group to claim debt-related deductions up to the level of the worldwide group’s net interest expense as a share of earnings (which may exceed the 30 per cent EBITDA ratio).
Digital currencies
The Government has confirmed its intention to introduce legislation to ensure digital currencies are not taxed under the rules for foreign currencies unless a digital currency is issued by or under the authority of a government agency.
Additional funding provided for ATO compliance activities
While the Government has continued with its pre-election promise to crack down on multi-national tax avoidance and tax compliance by providing significant additional funding to a number of ATO programs, many of these programs apply to small businesses.
- As a result, it is anticipated that there will also be a significant increase in the number of small business taxpayers receiving additional scrutiny from the ATO under these programs.
Superannuation
Audit cycle
The Government has announced it will not be proceeding with the 2018-19 budget announcement to allow self-managed superannuation funds with a good compliance history to have a 3-year audit cycle. Instead, the requirement for annual audits will remain.
Downsizer contributions
The Government has confirmed it will reduce the minimum eligibility age to make a downsizer contribution from 60 to 55 years of age.
Under this concession, an individual can make a one-off post-tax contribution to their superannuation of $300,000 per person ($600,000 per couple) from the proceeds of selling their home (noting there are certain conditions that need to be met).
Residency rule changes
The previously announced self-managed super fund residency rule changes have been delayed from 1 July 2022 to a yet to be determined date, after the associated legislation received Royal Assent.
These measures are intended to extend the safe harbour for the central management and control test from a 2-year to a 5-year period and to remove the active member test from both self-managed superannuation funds and APRA funds.
Other measures
Paid parental leave
The Government has announced it will expand the paid parental leave scheme from 1 July 2023 by making it more flexible. It will do this by making either parent able to claim the payment and both birth parents and non-birth parents eligible to receive the payment if they meet the criteria. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time.
From 1 July 2024, the Government will start expanding the scheme by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026.
Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis, to encourage and facilitate both parents to access the scheme and to share the caring responsibilities more equally. Sole parents will be able to access the full 26 weeks.
Child care subsidy
The Government has announced it will increase the child care subsidy rate from 85% to 90% for a family's first child in care and increase the rate for all families with less than $530,000 in household income.
The rate will lift from 85% to 90% for families earning with household earnings less than $80,000, and the subsidy rate will taper down one percentage point for each additional $5,000 in household income, until the $530,000 maximum limit is reached.
Families will continue to receive the existing higher subsidy rates for multiple children aged 5 or under in child care, with higher rates to cease 26 weeks after the older child’s last session of care, or when the child turns 6 years old.
Regional first home buyer scheme
The Government has announced it will establish a Regional First Home Buyers Scheme to support eligible citizens and permanent residents who have lived in a regional location for more than 12 months to purchase their first home in that location with a minimum 5% deposit. This will be limited to 10,000 places per year to 30 June 2026.
Penalty units
From 1 January, the Government will increase the Commonwealth penalty unit from $222 to $275.
For more information visit budget.gov.au. If you have specific questions about how this budget may impact you or your business, please speak with your local Boyce accountant.
Please note that the budget measures will only take effect once they become law.
Superannuation Changes from 1 July 2021
24 June 2021
Changes to superannuation will be taking effect on 1 July 2021.
We have outlined the key changes and information for you.
Increase in Super Guarantee & Minimum Wage
22 June 2021
On 1 July 2021, the superannuation guarantee and minimum wage will increase.
Halving of Minimum Pension Draw Down Rates
7 June 2021
An Extension of the Temporary Reduction in Superannuation Minimum Drawdown Rates
In an effort to assist retirees during the coronavirus pandemic, the Government introduced a temporary 50% reduction in superannuation minimum drawdown rates. This reduction was set to end this financial year but has been extended to 30 June 2022 to include the 2021-22 financial year.
Minimum annual payment requirements, calculated on 1 July each year, will be affected by the extension.