SMSFs – 2023-2024 Federal Budget Update – $3 million super threshold confirmed

As expected, the 2023-2024 Federal Budget has placed a strong emphasis on the cost of living and establishing a stronger, secure economy.

From an SMSF perspective, we were pleased to see there were no unexpected changes likely to significantly impact the sector or superannuation more broadly. As expected, we saw continued provisions for the Government’s proposed $3 million tax threshold for superannuation balances.

The following is a brief summary of the key changes relevant to the SMSF sector.

Better Targeted Superannuation Concessions

The Government will be going ahead with its previously announced measure to reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million, from 1 July 2025. This follows the release of the Government’s Fact Sheet and Consultation Paper on this proposed measure.

This reform is intended to ensure that superannuation concessions are better targeted and sustainable. It will bring the headline tax rate to 30 per cent, up from 15 per cent, for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million.

The Government has indicated that earnings relating to fund assets below the $3 million threshold will continue to be taxed at 15 per cent or zero per cent if held in a retirement phase pension account.

The Budget papers also note that this measure will include earning amounts calculated on defined benefit fund interests.

While the precise details on how ‘earnings’ will be calculated under this measure are yet to be finalised, and the Budget papers were silent on the methodology to be applied, the initially proposed model broadly relies on a person’s total superannuation balance to calculate earnings. Unless this proposed approach is modified, unrealised gains, accounting adjustments, and/or book entries and tax refunds will potentially be subject to this new tax.

Note: While the Budget papers state that this measure will include earning amounts on defined benefit fund interests, the papers made no mention of the previously announced measure to allow SMSFs a two-year amnesty period to convert legacy defined benefit pensions.

Non-arm’s length income (NALI)

The Government is proposing to amend the non-arm’s length income (NALI) provisions that apply to certain expenses incurred by superannuation funds.

Specifically relevant to SMSF trustees, the Government is proposing to limit the level of a fund’s income that is potentially taxable as NALI to twice the level of an impacted ‘general’ expense.

Additionally, fund income taxable as NALI will exclude contributions.

Treasury had previously proposed that the maximum amount of income, subject to the highest marginal rate, would be five times the level of the general expenditure breach. So, on face value, this proposal would appear to result in an improved outcome for SMSF trustees.

However, further details are required to determine whether this calculation relies on the value of the general expense itself or the level of the general expenditure breach – calculated as the difference between the amount that would have been charged for the general expense under an arm’s length arrangement and the amount that was actually charged to the fund.

Superannuation Guarantee – Changes to payment frequency

From 1 July 2026, employers will be required to pay their employees’ compulsory SG entitlements on the same day that they pay salary and wages. Currently, employers are only required to pay their employees’ SG on a quarterly basis.

This measure will increase the payment frequency of superannuation to align with the payment of salary and wages, ensuring employees have greater visibility over whether their entitlements have been paid and better enable the ATO to recover unpaid superannuation amounts. The increased frequency of payment will also support better long-term retirement outcomes.

This measure was announced prior to the Federal Budget and will provide individuals and their professional advisers greater certainty on the timing of superannuation contributions. From a contribution planning perspective, this is critically important and is expected to help reduce instances of inadvertent contribution cap breaches.

How can we help?

If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2023-24 Federal Budget, please feel free to contact us.

Rollover relief ending 30 June

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Winner – Tax Firm (Aus/NZ) < $30m

Understanding self-managed super fund performance

New research released

New research released by the University of Adelaide provides tangible evidence of the benefits of investment diversification.

In its report, titled “Understanding self-managed super fund performanceand using data from over 318,000 SMSFs between 1 July 2017 and 30 June 2019, the University of Adelaide explored the relationship between the investment performance of self-managed super funds (SMSFs) and their level of diversification across multiple asset classes. The asset classes that were considered included:

The research study found on aggregate, SMSFs with more diversified asset allocations achieved higher returns. The performance benefits of adding a second, third or fourth asset class are strong and consistent across the 2017-19 period.  Each incremental increase in asset classes (up to 4) is associated with an improvement in median investment returns of between 1% to 3%. Diversification beyond 4 asset classes (up to 7) also improves aggregate SMSF performance, but at reduced marginal rates.

These results are consistent with standard finance theory. Higher levels of diversification are correlated with improved levels of investment performance.

The research also found SMSFs generate greater variation in investment returns relative to larger funds. There is a higher tendency for SMSF investors to outperform as well as a higher tendency to underperform relative to larger funds. This underlies the importance of professional advice and a sound investment strategy. 

Finally, the research found SMSFs with net assets of more than $200,000, that are not heavily concentrated in cash and term deposits, on average, outperformed APRA regulated funds in 2 out of 3 years between 2017 and 2019.

How can we help?

If you require any assistance with your SMSF or would like to discuss the University of Adelaide research findings in more detail, please feel free to give me a call. Alternatively, you can refer to the SMSF Association’s trustee education platform, SMSF Connect.

What is a Director Identification Number (director ID) and do I need one?

You may have heard about the new rules which require directors of Australian companies to obtain a Director Identification Number (director ID). The new requirement to obtain a director ID also applies to individuals who have an SMSF with a corporate trustee, which is why I wanted to bring this new requirement to your attention. For members of your SMSF that do not already have a director ID, they will need to apply for one, before they are appointed as a director of the SMSF corporate trustee.

This document provides some important information about director IDs, including how to apply for one and by when.

An application for a director ID must be made individually and only by those who are applying for the director ID. As you are required to prove your identity as part of the process, our firm, or any other third party, is not able to apply for a director ID on your behalf. 

What is a Director Identification Number (director ID)?

A director ID is a unique identifier that directors need to apply for, like a tax file number. If you are a director of multiple companies, you are only required to have one director ID that will be used across all companies. You will keep your director ID forever even if you change companies, resign altogether from your director role(s), change your name, or move overseas.

Why do I need a Director Identification Number?

As part of the Government’s Digital Business Plan, it is rolling out a Modernising Business Registers program which includes the introduction of director IDs. The main purpose is to prevent the use of false or fraudulent director identities as well as to improve the efficiency of the system by making it easier to meet registration obligations and trace director activity and relationships. By improving the integrity and security of business data it is expected to reduce the risk of unlawful activity.

How do I apply for a Director Identification Number?

There are 3 key steps to apply for your director ID.

Step 1: Set up myGovID – If you do not already have a myGovID you will need to set this up before you can apply for your director ID online. You can find information on how to setup your myGovID by downloading the app at:  https://www.mygovid.gov.au/set-up  

Step 2: Gather your documents – You will need to gather some information that the ATO already knows about you to verify your identity. You will need your tax file number, your residential address held by the ATO, and information from two of the following documents:

  • Bank account details
  • ATO notice of assessment
  • Super account details
  • Dividend statement
  • Centrelink payment summary
  • PAYG payment summary 

Most of this information can be downloaded from your myGov account so it may be worthwhile linking to this service ahead of applying for your director ID. Note, myGovID is different to your myGov account. Your myGov account allows you to link to and access online services provided by the ATO, Centrelink, Medicare and more, while myGovID is an app that enables you to prove who you are and to log in to a range of government online services, including myGov. 

Step 3: Complete your application – Once you have a myGovID and information to verify your identity, you are ready to apply for your director ID. You can click on the following link to start the application process. The application process is quick and should take you less than 5 minutes. 

https://abrs.gov.au/persons/ui/secure/start/applyForDirectorID?action=applyfordirectorid

Further information about the application process, and step-by-step instructions, can be found via this link: https://www.abrs.gov.au/director-identification-number/apply-director-identification-number

By when do I need to have a Director Identification Number?

For individuals who are eligible to be appointed as a director of an Australian company,  any time after 5 April 2022, you must apply for your director ID before your appointment. This may be when your SMSF corporate trustee company is being established.

If prior to 5 April 2022, you were already appointed as a director then the deadline to get a director ID varies depending on when you were first appointed as a director of any Australian company. The table below outlines the various deadlines and we encourage you to contact our office if you are unsure which deadline applied to you.  

Date you first become a directorDate by when you must have applied for a Director Identification Number
On or before 31 October 2021By 30 November 2022
Between 1 November 2021 and 4 April 2022Within 28 days of appointment
From 5 April 2022Before appointment

How can we help?

If you have any questions or would like further information about director IDs, please feel free to give me a call, or arrange a time for a meeting, so we can discuss your requirements in more detail. Although we are unable to apply for a director ID on your behalf, we would be more than happy to guide you through the process.

For other information, resources and timely updates relevant to your SMSF, please refer to the SMSF Association’s trustee education platform, SMSF Connect.