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Rules to watch in the months ahead

SMSF regulations legislation

SMSF trustees need to take into account certain changes to legislation and regulations that will come into effect from 1 July 2021.

Changes to regulation and legislation mean SMSF trustees have to be on their toes to know what all the latest rules are. To this end, if you run your own super fund, this is what you need to know for the coming months.

Contribution caps

SMSF members will be able to put more into super from 1 July 2021:

  • concessional contributions caps increase to $27,500 from $25,000, and
  • non-concessional contributions caps rise to $110,000 from $100,000.

Members may wish to review salary sacrifice arrangements and consider holding off on adding after-tax contributions from savings or asset sales until after 1 July 2021 to make use of the higher caps.

Bring-forward contributions

Rules that allow people aged under 65 to make three years’ worth of annual non-concessional contributions in one financial year have been extended to people aged under 67.

Under the new legislation, people aged between 65 and 67 will be able to make up to $300,000 in non-concessional contributions to their SMSF in the 2021 financial year or $330,000 in one financial year from 2021/22 onwards.

However, some commentators suggest an announcement in the 2021 budget  that people aged up to 74 will no longer have to satisfy a work test to make non-concessional contributions to super could reduce the importance of the bring-forward rule for that age group.

Transfer balance cap indexation

The amount SMSFs can transfer into the tax-free pension phase from the accumulation phase will rise due to indexation from 1 July 2021

From that date, each person will have their own personal transfer balance cap (TBC), between $1.6 million and $1.7 million, depending on whether they have previously started a retirement income stream (and therefore used up some of their cap allocation). Until 30 June 2021, the limit is $1.6 million for everyone.

Some people will be able to transfer more into the pension phase, bringing potential tax advantages.

The ATO will calculate each person’s TBC on 1 July based on information it has in its systems. SMSFs need to ensure the ATO has up-to-date information. People who transfer too much into pension phase may face penalty taxes.

Pension drawdown

Minimum superannuation drawdown rates will continue to be half the normal amount until 30 June 2022. The 50 per cent reduction in minimum drawdowns was due to end on 30 June 2021, but the federal government in late May extended the reduction to the 2022 income year.

Mandatory SuperStream

Many SMSFs are already using the SuperStream data and payment standard to receive employer contributions. From 1 October 2021, it will also be mandatory for SMSFs to use SuperStream to:

  • accept rollover funds into the SMSF from another super fund, and
  • roll funds out of the SMSF (when winding up the fund, for example).

Even SMSFs with retired members that do not receive contributions will have to be set up for SuperStream.

To register, SMSFs need:

  • an electronic service address,
  • an Australian business number, and
  • to check the ATO holds accurate information about the SMSF.

Exempt current pension income

Trustees will soon be allowed to choose their preferred method of calculating exempt current pension income (ECPI) where their SMSF is fully in the retirement phase for part – but not all – of the income year.

Under the existing system, some funds are forced to use the segregated method of calculating ECPI, while others must use the proportionate method.

The government released draft legislation detailing the changes in mid-May.  The draft is yet to enter parliament, but it says the proposed changes will apply shortly after the legislation receives royal assent. Tax amendments will apply from the 2022 income year onwards.

The legislation will also remove a requirement for SMSFs to obtain an actuarial certificate when calculating ECPI on funds that were in the retirement phase for the full income year.

Six-member funds

As many as six members rather than four will be able to join an SMSF under new legislation.

This will be useful for larger families, although most SMSFs have only one or two members.

Having more members may allow SMSFs to buy bigger assets, diversify better and save on costs with expenses shared between more people.

Despite the change, some states allow SMSFs to have only four trustees. SMSF in those jurisdictions would need to have a corporate trustee to include up to six members.

Non-arm’s-length income and expenditure

Long-awaited guidance from the ATO on how it will treat non-arm’s-length expenditure and non-arm’s-length income in SMSFs has been deferred until the end of the 2022 tax year.

This means it’s business as usual for now on this issue. Watch and wait for another year.

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