The downsizer contribution is not counted against the contribution caps, nor is it age-based, which makes it a potential strategy for those who want to get more savings into the concessionally-taxed superannuation environment.
This measure will have effect from the start of the first quarter after Royal Assent to the relevant legislation - the Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 (introduced in the House of Reps on 3 August 2022).
In conjunction with the reduction in downsizer age eligibility, the Government also confirmed its election commitments to assist pensioners looking to downsize their homes by making changes to the sale proceeds as follows:
• Extending the Social Security Assets Test exemption for principal home sale proceeds from 12 months to 24 months;
• Changing the Income Test to apply only the lower deeming rate (0.25%) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.
These measures are contained in the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022 (introduced in the House of Reps on 7 September 2022). The Bill will commence on 1 January 2023 (or one month after the day the Bill receives the assent).
This was an announcement that withered on the vine, and the Government has finally abandoned the proposal.
The measure, previously announced in the 2018-19 Budget, was supposed to apply to SMSF trustees that have a history of 3 consecutive years of clear audit reports and that have lodged the fund's annual returns in a timely manner.
While the Government did not provide any reasons in the Budget papers for abandoning this proposal, the SMSF audit industry had previously flagged concerns that moving to a 3-yearly audit cycle could result in increased non-compliance due to the time lag between when an indiscretion occurred and when it was picked up by the auditor.
It is interesting that the Government would make an announcement on this proposal, which everyone considered dead in the water, but ignore other, more pressing issues (see below).
The original measure, announced by the Morrison government in the 2021 Budget, increased the central management and controlled safe harbour test from two to five years and scrapped the active member test.
However, this Budget announced a postponement of the introduction of this proposal. These measures will now start from the income year commencing on or after assent to the enabling legislation (previously 1 July 2022).
It was always going to be interesting to understand how these changes would work, given that the 2-year safe harbour test only applies where the member, when leaving Australia, intends to return. If the member has no intention to return, central management and control then reside with them overseas, potentially leading to the SMSF failing the definition of an Australian superannuation fund.
There were two notable policy issues that have been a constant thorn in the side of superannuants but were not mentioned or addressed in the Government’s first Budget.
The first of these is the NALE conundrum created by the ATO’s previous announcements on the issue. A legislative fix is required to ensure the policy intent addresses the mischief associated with NALE, not the overly officious and convoluted views as outlined in Law Companion Ruling LCR 2021/2.
Perhaps the Government sees this as something to be addressed as a standalone proposal, or perhaps it may be addressed in the full Federal Budget due in May 2023.
This is the second major superannuation issue not mentioned in the Budget. Individuals will be permitted to exit certain legacy retirement income stream products (excluding flexi-pensions or lifetime products in APRA funds or public sector schemes), together with any associated reserves, for a 2-year period. Any commuted reserves will not be counted towards an individual's concessional contribution cap. Instead, they will be taxed as an assessable contribution to the fund (taxed at 15%). This was previously announced in the 2021-22 Budget.
Perhaps this is another policy stance that will be addressed at a later stage, or indeed in the May 2023 full Budget.
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