Treasurer Scott Morrison has announced a series of changes in this year’s federal budget that will impact SMSFs, although not as significantly as the extensive measures introduced last year.
The 2017 measures include the use of limited recourse borrowing arrangements (LRBA), non-arm’s-length income (NALI) provisions, salary sacrificing for first home buyers, and extra non-concessional contributions (NCC) for those looking to downsize their home.
The budget papers confirmed that from 1 July, the use of LRBAs would be counted towards a member’s total superannuation balance and $1.6 million transfer balance cap.
“Limited recourse borrowing arrangements can be used to circumvent contribution caps and effectively transfer growth in assets from the accumulation phase to the retirement phase that is not captured by the transfer balance cap,” the budget papers said.
“The outstanding balance of a LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of a LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.
“This measure will ensure the 2016/17 Superannuation Reform Package operates as intended and is estimated to have a gain to revenue of $40 million over the forward estimates.”
In addition, from 1 July 2018, the government would reduce the opportunity for members to use related-party transactions on non-commercial terms to increase super savings.
“NALI provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis,” the budget papers said.
“This measure will ensure the 2016/17 Superannuation Reform Package operates as intended and is estimated to have a gain to revenue of $20 million over the forward estimates period.”
The government would also provide a tax cut on first home deposit savings where first home buyers would be able to save for a deposit by salary sacrificing into their super account and above their compulsory super contribution from 1 July.
“The First Home Super Savers Scheme will attract the tax advantages of superannuation,” Morrison said during his budget address.
Contributions and earnings would be taxed at 15 per cent rather than marginal rates, and withdrawals would be taxed at their marginal rate, less 30 percentage points.
“Savers will not have to set up another account, they can just use their existing super account and decide how much of their income they want to put aside to save for their first home deposit,” Morrison said.
Another budget measure was aimed at encouraging older Australians to free up housing stock by enabling those over the age of 65 who were downsizing their home to make NCCs of up to $300,000 into their super fund from the proceeds of the sale of their principal home.
SMSF Association head of policy Jordan George said the minimal changes to super in last night’s budget were a positive for SMSFs and super in general.
“It gives SMSFs the opportunity to focus on the 1 July changes, which are about to take effect, so they don’t have to worry about digesting any further changes they may need to comply with,” George told selfmanagedsuper.
“For LRBAs, the SMSF Association has some concerns when it comes to the drafting of those measures, especially the inclusion of the outstanding loan balance in someone’s total superannuation balance, which may prevent them from making further NCCs to their fund.
“We are currently still working with Treasury and government to see if we can improve the drafting of those changes.
“One positive in the draft legislation was that it will only apply to new LRBAs after the legislation has passed.”
He labelled the measure to allow $300,000 of NCCs for downsizing the home as the “most positive measure tonight for SMSFs”, particularly for those older trustees who were downsizing to top up their super one last time.
Commenting on the First Home Super Savers Scheme, he said it was important to note only voluntary contributions could be used for the home deposit, which meant it was not eroding superannuants’ long-term retirement savings.
“We think it’s quite a good measure and the positive is that it allows younger people to engage with superannuation, including the SMSF sector, sooner,” he noted.
Institute of Public Accountants technical policy general manager Tony Greco said he was pleased with yesterday’s budget measures.
“It’s in everyone’s best interest that the government has addressed the housing affordability issue through a broad range of measures, which do touch on superannuation,” Greco said.
“The previous budget moved the goalposts in relation to super quite substantially, so no one was expecting a lot of changes [this time].
“We knew the LRBA measure was happening and the initiative to downsize the family home to allow for an additional $300,000 to be contributed into super won’t impact the transfer balance cap, as we anticipated.
“I think most people will be pleased that it’s limited to a couple of changes and we can get on with the implementation of the 2016 budget changes.”
