Federal Budget October 2022 changes for Superannuation

I don’t recall a Federal Budget with less to say about superannuation in my career of over 20 years.

This budget included the following brand new superannuation measures:

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It confirmed some changes already in train:

• The age at which members will become eligible for downsizer contributions will reduce from 60 to 55. But those with more than a passing interest in the subject will know that legislation for this change is already making its way through parliament. While it hasn’t passed yet, it’s sufficiently well progressed that we expect it to become law in the current financial year.
• Digital currency will not be taxed as foreign currency. This is important for all taxpayers that hold (say) Bitcoin and other cryptocurrencies, not just SMSFs. It had already been announced and draft legislation released for consultation (which closed in September 2022) so again, this move seems reasonably well progressed.
• While not specifically superannuation issues, there are two other changes that are very relevant to retirees, often including those with SMSFs.
  • Very significant increases to the income test thresholds for the Commonwealth Seniors’ Health Card (CSHC) – up to $144,000 for couples and $90,000 for singles. Again, these are almost law already. The change to the thresholds themselves has been agreed by both Houses of Parliament, the Bill has just been held up by a proposed change to the start date – again, we expect this to come soon.
  • Changes to the assets and income tests for the age pension when a recipient sells their home. Currently the sale proceeds are excluded from the assets test for 12 months if they will be used to buy a new home. This is to be extended to 24 months. In addition, there will be a special rule to calculate “deemed income” on the proceeds at the lowest possible rate for 24 months. Again, both changes are already well progressed – with legislation in parliament and seemingly not contested by either side.

While all these are important measures and to be celebrated, they are definitely not news.

The Budget also confirmed some things announced by the last Government but not specifically endorsed by the new Government until now:

• Relaxation of the residency rules for SMSFs (see our last blog here). While the new Government confirmed its commitment to this change, the start date won’t be 1 July 2022 as originally planned. Instead it will be the 1 July after the relevant legislation receives Royal Assent. Since there’s been no legislation put forward yet – even in draft form for consultation – it’s likely that this is still a little way off.
• Funding for the “Modernising Business Registers” program. While that might not be a household name, it’s the program that includes director identification numbers (director IDs). Like Heffron, we expect many practitioners are still struggling to mobilise all relevant clients to apply for a director ID by 30 November 2022. Unfortunately we will have to keep pushing because it’s definitely not going away.

And finally, the Budget ruled out one very bad idea that the previous Government announced but never got to implement: replacing annual SMSF audits with a three yearly cycle. Given the important role audits play in supporting the ATO to manage compliance, it was always a mystery to me why this was ever suggested in the first place. A great example of a solution looking for a problem.

Often with a Federal Budget there’s as much interest in what is NOT said as what IS included. Since there was nothing new this year, it’s worth briefly reflecting on what might have been.

There was nothing on:

• The amnesty for legacy pensions proposed in May 2021 which would allow members with these pensions to terminate them relatively painlessly (see our blog at the time). The loud silence on this issue suggests it is simply not on the Government’s radar. This is bitterly disappointing. It’s a change that is long overdue, creates no great revenue leakage for the government, recognises that the tax and regulatory environment has moved on enormously since people put these in place (they haven’t been an option as a brand new pension since 2007) and is simply…. the right thing to do. The fact that it hasn’t been done yet beggars belief. Hand me the keyboard and I will write some draft legislation to release for consultation tomorrow. Who’s with me?

There have been some changes on these pensions that help those with very large legacy pensions improve their position (even potentially exit them entirely). But the change comes at a cost – most people need to accept a short term additional tax bill to make the change. An amnesty might not change the eventual outcome but it would remove the cost. The failure to even mention this amnesty does suggest that some clients who can improve their situation already should look to do so now rather than wait.

• Non Arm’s Length Income & Expenses (NALI and NALE). This has been a festering sore since the ATO first publicised its controversial view back in 2018. The last Government accepted that it required a legislative fix. The current Government has yet to formally commit to that fix and an announcement in the Budget would have been reassuring.
• Simplifying the transfer balance cap regime – there is a great opportunity to strip out some complexity from the system here. It wasn’t taken in this year’s Federal Budget and hopefully it will be in a future version.
• Some of the scarier kites flown in recent weeks – changes to limited recourse borrowing arrangements (to be fair, this is raised every single year as a possible change), a $5m cap on superannuation balances, halting indexation of the transfer balance cap etc. We were very glad that none of these saw the light of day.

All in all, a quiet night for those of us in super. And perhaps that’s a good thing – there will be another one at the usual time in May 2023 so we don’t have too long to wait.

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