By Graeme Colley
Executive Manager, SMSF Technical & Private Wealth
Like many recent Federal budgets, superannuation received a light touch by the government on Tuesday night to the relief of many, considering the rumours that were circulating but did not become a reality.
Reduction in the age to qualify for the downsizer contributions
The main change, which is currently being legislated, is the minimum age to qualify for downsizer contributions down from 60 to 55 years of age. This is expected to allow more people access to a successful bipartisan policy decision that allows each member of a couple to contribute up to $300,000 to super from the sale of the main residence.
Downsizer contributions can be made on a once-only basis within 90 days after the sale of the main residence that has been owned by a member of a couple for at least ten years. The good news is that downsizer contributions can be made irrespective of the amount a person has accumulated in super, and there is no upper age limit applied when making the contribution.
The main impact of anyone making downsizer contributions prior to retirement for superannuation purposes is that they must be preserved. This requires the amount to remain in the fund until the member satisfies a condition of release with no restrictions on withdrawal.
Commencement of relaxed SMSF residency rules deferred
In the 2021-22 Budget, the previous government announced a relaxation of the residency requirements for SMSFs to qualify as an Australian superannuation fund for tax purposes. The proposal was to increase the time trustees could be temporarily absent from Australia from 2 to 5 years.
The original proposal was to commence from 1 July 2022 but did not make it into law due to the focus of government on COVID and for other reasons. The new government has decided to continue with this initiative, but with a deferred start date.
No change to the audit cycle for SMSFs
In the 2018-19 Budget, it was proposed to allow SMSFs that satisfied certain conditions to be audited on a three-yearly cycle rather than annually. The government has decided not to proceed with this proposal, and SMSFs will continue with the current arrangements requiring the fund to be audited annually.
Increase in the value of a penalty unit
Where an SMSF breaches the Superannuation Industry (Supervision) Act or Regulations, the trustees may be subject to a penalty which is imposed in ‘penalty units. Each penalty unit has a monetary value that is indexed every three years in line with CPI. The current value of one penalty unit has been $222 since 1 January 2020 and is to be indexed from 1 January 2023 to $275. The increase applies to offences committed after the indexation takes effect.
As an example, the administrative penalty if a fund makes a loan to a member or relative of the member is 60 penalty units. Under the current rules, the penalty is $13,320; however, from 1 January 2023, the penalty will increase to $16,500 for offences committed after that time.
Confirmation of the tax treatment of digital currencies
The government proposes to clarify the treatment of digital currencies (such as Bitcoin) for tax purposes, so they continue to be excluded from being treated as foreign currency. The proposed legislation confirms the current income tax and capital gains treatment of digital currencies where they are held as an investment. There is no change to SMSFs that use the ATO’s guidelines when determining the tax payable on digital currency transactions.
In a nutshell
For most members and trustees of SMSFs, the Budget had a minimal impact; however, for anyone between 55 and 60 years of age, the door has been opened if they wish to make downsizer contributions to super.