We outline below the key superannuation changes announced in the Federal Budget 2018 on 8 May 2018. Some of the proposed changes will have a substantial impact on SMSFs if they are finalised as law.
Nomination of superannuation guarantee ('SG') for certain employees with multiple employers
Broadly, members with incomes above $263,157 with multiple employers can decide whether certain employers do not need to provide SG contributions in respect of their wages from 1 July 2018.
This measure may give a solution to those who unintentionally exceed their concessional contributions cap due to multiple compulsory SG contributions. This can give rise to members being liable to pay tax personally (less a 15% tax offset) on their excess concessional contributions to the extent their overall concessional contributions for the financial year ('FY') exceeds the $25,000 cap. Moreover, the shortfall interest charge and other amounts can become payable on excess contributions.
Members who are interested in using this measure should consider negotiating with their employers to receive what would otherwise have been provided by way of SG contributions as additional income, which is taxed at the employee's marginal tax rates plus applicable levies. These negotiations should occur as soon as practicable given this measure is proposed to apply from 1 July 2018.
While this is a positive and long overdue measure, members with only one employer do not appear to obtain this flexibility.
Work test exemption for the newly retired
For recently retired members between the ages of 65 and 74 with superannuation balances under $300,000 there will be some relaxation from the work test for voluntary contributions to superannuation.
Under current law, a person who attains 65 must generally be gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in that FY before they can contribute to a superannuation fund. A member is 'gainfully employed' if they are employed (including self-employed) for gain or reward in any business, trade or profession.
The proposed relaxation is for the first year they do not meet the work test requirements and starts from 1 July 2019. Total superannuation balances will be assessed for eligibility at the beginning of the FY following the year they last satisfied the work test and there is no requirement for members to remain under $300,000 once the member is eligible.
The usual concessional and non-concessional contribution ('NCC') caps will continue to apply however members may also be able to apply the concessional contribution cap carry forward rules during the 12 months and contribute more than their annual concessional contribution cap. It should be noted that the NCC bring forward rule is generally not available for members over 65 years of age.