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Issue 803, 11 May 2021 Budget 2021-22 edition
In this issue:

 

Overview

This year’s Budget was characterised by the announcement of a series of discrete measures favourable to super fund members. The main package was entitled More flexibility for older Australians and contained and contained measures with respect to repealing the work test, increasing the flexibility of the pension loans scheme, reducing the eligibility age for downsizer contributions, and rationalising legacy life insurance & managed investment scheme products. There are also measure that will support younger Australians, including removing the $450 SG threshold and enhancements to the First Home Super Saver Scheme.

The major measures with a direct effect on superannuation or retirement income include:

  1. 1. The more flexibility for older Australians package
    1.1. Flexible super — repealing the work test for voluntary super contributions
    1.2. Increasing the flexibility of the pension loans scheme
    1.3. Flexible super — reducing the eligibility age for downsizer contributions
    1.4. Rationalising legacy life insurance & managed investment scheme products 
  2. Removing the $450 per month threshold for super guarantee eligibility 
  3. First Home Super Saver Scheme — increase in maximum amount to $50,000 
  4. First Home Super Saver Scheme — technical changes 
  5. Improving the visibility of super assets in family law proceedings 
  6. Stronger consumer outcomes for members of superannuation funds 
  7. Treasury portfolio — resourcing for government priorities 
  8. Transfer of superannuation to the KiwiSaver scheme 
  9. Self-managed superannuation funds — relaxing residency requirements 
  10. Early release for victims of family and domestic violence — not proceeding 

There are also a number of measures with more general application that may impact superannuation and retirement income, including: 

  1. Taxation of Financial Arrangements (TOFA) — hedging & foreign exchange deregulation 
  2. Corporate tax — corporate collective investment vehicle revised start date 
  3. Taxation — temporary full expensing extension 
  4. International tax — updating the list of exchange of information countries 
  5. Financial market infrastructure regulatory reforms 
  6. Relief to foreign financial service providers 
  7. Women’s economic security package — family law — small claims and property mediation 
  8. The Digital Economy Strategy 
  9. Emissions reduction & new investments under the ‘technology investment roadmap’ 
  10. Response to the Royal Commission into Aged Care Quality and Safety 

 

Details of specific superannuation measures  
  1. More flexibility for older Australians

1.1. Flexible super — repealing the work test for voluntary super contributions 

The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the ‘bring-forward’ rule) or salary sacrifice super contributions without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.

Currently, individuals aged 67 to 74 years can only make voluntary contributions (both concessional and non-concessional) to their super, or receive contributions from their spouse, if they are working at least 40 hours over a 30 day period in the relevant financial year.

The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

 

1.2. Increasing the flexibility of the pension loans scheme. 

The Government will improve the uptake of the Pension Loans Scheme by: 

 

1.3. Flexible super — reducing the eligibility age for downsizer contributions

The Government will reduce the eligibility age to make downsizer contributions into super from 65 to 60 years of age.

The downsizer contribution allows people to make a one-off, post-tax contribution to their super of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute in respect of the same home, and contributions do not count towards the non-concessional contribution caps. 

The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022. 

 

1.4. Rationalising legacy life insurance & managed investment scheme products

The Government will provide $2.5 million over two years from 2021-22 to establish an industry working group to develop and consult on the design of a streamlined mechanism to facilitate the transfer of policyholders from closed life insurance products and managed investment scheme products to new products.

The Government has also announced that it will allow individuals in self managed super funds to exit a specified range of legacy retirement products, together with any associated reserves, for a two year period. The measure will include market-linked, life-expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme. The social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds and the commuted reserves will be taxed as an assessable contribution. This measure will permit full access to all of the product’s underlying capital, including any reserves, and allow individuals potentially to shift to more contemporary retirement products. 

 

  1. Removing the $450 per month threshold for superannuation guarantee eligibility

The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the super guarantee by their employer.

This measure will improve equity in the superannuation system by expanding the super guarantee coverage for cohorts with lower incomes. The Retirement Income Review estimated that around 300,000 individuals would receive additional super guarantee payments each month, 63 per cent of whom are women.

The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

 

  1. First Home Super Saver Scheme — increase in maximum amount to $50,000

On 8 May the Morrison Government announced additional measures to help more Australians own their home sooner as part of the 2021-22 Budget. 

Amongst other measures, the package includes increasing the maximum amount of voluntary contributions that can be released under the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000. 

Under the FHSSS individuals can make voluntary concessional (before-tax) and voluntary non-concessional (after-tax) contributions into their super fund to save for their first home. Provided they meet the eligibility requirements they can then apply for the release of their voluntary contributions, along with associated earnings, to help them purchase their first home. 

Currently individual can apply to have a maximum of $15,000 of their voluntary contributions from any one financial year included in their eligible contributions to be released under the FHSSS, up to a total of $30,000 contributions across all years. This will increase to $50,000 from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects will have occurred by 1 July 2022. 

The eligibility requirements are that the person 

 

  1. First Home Super Saver Scheme — technical changes

The Government will make four technical changes to the legislation underpinning the First Home Super Saver Scheme (FHSSS) to improve its operation, as well as the experience of first home buyers using the scheme. 

The four changes will assist FHSSS applicants who make errors on their release applications by: 

This measure will apply retrospectively from 1 July 2018. 

 

  1. Improving the visibility of super assets in family law proceedings

The ‘improving the visibility of super assets in family law proceedings’ measure was announced as part of the 2018 Women’s Economic Security Statement and had been scheduled to commence on 1 July 2020. Government has advised this measure has been delayed due to COVID-19.

The Government has announced that it will shortly introduce enabling legislation to deliver this measure, which will involve building an electronic information sharing mechanism between the Australian Taxation Office (ATO) and the Family Law Courts to allow super assets to be identified readily during family law proceedings. Allowing the ATO to provide this information to the Courts will ensure more just and equitable super splitting outcomes for members.

 

  1. Stronger consumer outcomes for members of superannuation funds

The Government will provide $11.2 million over four years from 2021-22 (and $3.1 million per year ongoing) to support stronger consumer outcomes for members of super funds by providing: 

The funding for this initiative will partially be met through an increase in levies on regulated financial institutions. 

 

  1. Treasury portfolio — resourcing for government priorities

The Government will provide $57.9 million over five years from 2020-21 to support the delivery of Government priorities in the Treasury Portfolio. Funding includes:

 

Partial funding for this measure already has been provided for by the Government. 

 

  1. Transfer of superannuation to the KiwiSaver scheme

The Government will provide $11.0 million over four years from 2021-22 (and $1.0 million per year ongoing) to the Australian Taxation Office to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts in New Zealand – the equivalent of Australian superannuation funds.

The Government will also consult on options to create a fast-track licensing process for Foreign Financial Service Providers (FFSPs) who wish to establish more permanent operations in Australia. Fast-tracking is intended to shorten application timeframes and reduce barriers to entering the Australian market.

 

  1. Self-managed superannuation funds — relaxing residency requirements

The Government will relax the residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) by extending the ‘central control and management test’ safe harbour from two to five years for SMSFs, and removing the ‘active member test’ for both fund types.

This measure will allow SMSF and SAF members to continue to contribute to their super fund whilst temporarily overseas, ensuring parity with members of large APRA-regulated funds. This will provide SMSF and SAF members the flexibility to keep, and to continue to contribute to, their preferred fund while undertaking overseas work and education opportunities.

The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

 

  1. Early release for victims of family and domestic violence – not proceeding

The Government announced it will not be proceeding with the proposed measure to extend early release of superannuation to victims of family and domestic violence.

Under the Women’s Safety measures the Government will provide $998.1 million over four years from 2021-22 for initiatives to reduce, and support the victims of, Family, Domestic and SexualViolence (FDSV) against women and children. Funding includes $164.8 million over three years from 2021-22 for a two year trial program to provide financial support of up to $5,000 to women fleeing a violent relationship.
 

 

Other measures that may affect super
  1. Taxation of Financial Arrangements (TOFA) — hedging & foreign exchange deregulation

The Government will make technical amendments to the Taxation of Financial Arrangements (TOFA) legislation which will include facilitating access to hedging rules on a portfolio hedging basis.

The amendments will reduce compliance costs and correct unintended outcomes, so that taxpayers are not subject to unrealised taxation on foreign exchange gains and losses unless this is elected.

These changes will take effect for relevant transactions entered into on or after 1 July 2022.

 

  1. Corporate tax — corporate collective investment vehicle revised start date

The Government will finalise the corporate collective investment vehicles (CCIV) component of the measure titled Ten Year Enterprise Tax Plan — implementing a new suite of collective investment vehicles announced in the 2016-17 Budget, with a revised commencement date of 1 July 2022.

The CCIV is an investment vehicle with a corporate structure that provides flow-through tax treatment. This investment vehicle will enhance the international competitiveness of the Australian managed funds industry by allowing fund managers to offer investment products using vehicles that
are more familiar to overseas investors.

 

  1. Taxation — temporary full expensing extension

The Government will extend the 2020-21 Budget measure titled JobMaker Plan — temporary full expensing to support investment and jobs for 12 months until 30 June 2023, to further support business investment and the creation of more jobs. 

Temporary full expensing will be extended to allow eligible businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30pm AEDT on 6 October 2020 and first used, or installed ready for use, by 30 June 2023. 

The 12-month extension will provide eligible businesses with additional time to access the incentive, to encourage them to make further investments, including in projects requiring longer planning times. All other elements of temporary full expensing will remain unchanged, and from 1 July 2023 normal depreciation arrangements will apply. 

 

  1. International tax — updating the list of exchange of information countries

The Government will update the list of jurisdictions that have an effective exchange of information (EOI) sharing agreement with Australia. Residents of listed jurisdictions are eligible to access the reduced Managed Investment Trust (MIT) withholding tax rate of 15 per cent on certain distributions, instead of the default rate of 30 per cent.

The updated list will be effective from 1 January 2022.

 

  1. Financial market infrastructure regulatory reforms

The Government will introduce a Financial Market Infrastructures (FMIs) regulatory reform package to provide Australian Regulators with sufficient power to pre-emptively identify and manage risks, or intervene in an FMI failure crisis.

The reform package will: 

The reforms would be accompanied by a facility for the RBA to draw up to $5 billion per event as a last resort measure to ensure the continued operation of clearing and settlement facilities, with any funding to be recovered once a crisis is resolved.

 

  1. Relief to foreign financial service providers

The Government will consult on options to restore previously well-established regulatory relief for Foreign Financial Service Providers (FFSPs) who are licensed and regulated in jurisdictions with comparable financial service rules and obligations, or have limited connection to Australia, from holding an Australian Financial Service License (AFSL), in order to reduce duplicate regulatory requirements. The relief is limited to FFSPs that deal with wholesale clients and professional investors.

 

  1. Women’s economic security package – family law small claims & property mediation

The Government will provide $1.8 billion over five years from 2020-21 to improve women’s workforce participation and economic security. Funding includes $10.7 million over two years from 2021-22 to extend the family law small claims property pilot and Legal Aid Commission family law property mediation trial for settlement of property less than $500,000 following a relationship breakdown. While this is not directly targeted to superannuation it would be reasonable to expect that a significant proportion of the family law small claims and property mediations would involve superannuation.

 

  1. The Digital Economy Strategy

The Government will provide $1.2 billion over six years from 2021-22 for the Digital Economy Strategy to invest in settings, infrastructure and incentives to grow Australia’s digital economy to ensure businesses across all sectors are able to lift productivity and be globally competitive. The Digital Economy Strategy includes support for the following priorities:

 

The Digital Economy Strategy will also allow taxpayers to self-assess the tax effective lives of eligible intangible depreciating assets, such as patents, registered designs, copyrights and in- house software. Taxpayers will continue to have the option of applying the existing statutory effective life to depreciate these assets.

The tax effective lives of such assets are currently set by statute. Allowing taxpayers to self-assess the tax effective life of an asset will allow for better alignment of tax outcomes with the underlying economic benefits provided by the asset and will align the tax treatment of these assets with that of most tangible assets. This measure will allow taxpayers to adopt a more appropriate useful life and encourage investment and hiring in research and development.

This measure will apply to assets acquired from 1 July 2023, after the temporary full expensing regime has concluded.

 

  1. Emissions reduction & new investments under ‘technology investment roadmap’

The Government will provide $1.6 billion over ten years from 2021-22 to incentivise private investment in technologies identified in the Government’s Technology Investment Roadmap and Low Emissions Technology Statements, grow new export industries, create jobs and reduce emissions. The Government will also provide $50.0 million over ten years from 2021-22 to establish an early stage seed capital financing function within the Australian Renewable Energy Agency (ARENA), the cost of which will be met from within the existing resources of ARENA.

 

  1. Response to the Royal Commission into Aged Care Quality and Safety

The Government will provide a $17.7 billion whole-of-government response to the recommendations of the Royal Commission into Aged Care Quality and Safety to improve safety and quality and the availability of aged care services.

 

 

ASFA REGULATORY WATCHLIST

ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations

and other regulatory announcements relevant to superannuation.

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