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

Is it a scam?

New data released

Naturally, people aspire to get the most out of their investments, especially if a great opportunity is presented by a ‘trusted’ organisation. However, investment scams occur more often than you may think, highlighting the risk both self-directed investors and SMSF trustees may potentially face when seeking ew investment opportunities.

New data released from Scamwatch Australia has reinforced the sophistication and rapidly growing number of scams each year in Australia – which has caused a loss of over $2 billion* in total in 2021 – $701 million of which related to investment scams. It is extremely important for you to remain vigilant and reach out to me, your trusted SMSF professional, before investing your retirement savings in a new product or service.  

*ACCC Targeting Scams Report July 2022

What does the 2021 data reported to Scamwatch Australia tell us?

During 2021, the average monetary value lost to scams has increased by 66%. Scammers have become more sophisticated in their approach, claiming to be from well-known investment organisations or government bodies, with the aim of extracting personal information from an individual.

Combined losses to investment scams have caused the most financial harm to the Australian population throughout 2021, climbing 135% to $701 million lost. Advancements in both technology and software design allow scammers to recreate websites to look identical to an actual organisation’s site, meaning it is becoming increasingly difficult to identify what is a scam and what isn’t.

Cryptocurrency investment scams reported $99 million lost in 2021. The increased popularity of cryptocurrency continues to see a surge in reported losses to investment scams. Also as cryptocurrency becomes the preferred method of payment across all types of scams, the perceived anonymity of unregulated cryptocurrencies can make it harder to recover funds or identify scammers.

Older Australians (65+) are often more at risk havinglost almost $82 million in 2021, more than any other age group. In 2021, a clear trend emerged with losses increasing with age, as the older population is often targeted by scammers as they are perceived to have more accumulated wealth.

The top contact methods used by scammers include phone (50%), text message (23%), email (14%), internet (4%) and social networking (4%)*. Scammers will often inject a sense of urgency into their messaging, propose threats (particularly with tax scams), and request personal and banking information.

*Scamwatch Australia Targeting scams report 2021

What should you do if you suspect a scam?

If someone attempts to scam you, there are several things you can do:

  • Report the scam to Scamwatch Australia – www.scamwatch.gov.au/report-a-scam or ReportCyber – Report | Cyber.gov.au immediately.
  • Do not provide any personal information that will allow a scammer to impersonate and retrieve your funds.
  • Do not click on links you have received via text or email that have a substantial number of letters and numbers.
  • If you have lost money to a scam, contact your financial institution immediately.
  • If you have provided personal information and you are concerned your identity may be compromised, you can contact IDCARE for free support on 1800 595 160.
  • Consider contacting the organisation the suspected scammer claims to work for – the organisation may be able to confirm your suspicions.

If you have been scammed or believe you have been scammed, you shouldn’t feel embarrassed or ashamed. Financial scams are now crimes which are occurring regularly with the latest Optus data breach only highlighting how many scams are very sophisticated and professional. Even very experienced investors have lost money to scams emphasising how it is more important than ever, to discuss the risk of scams with family, friends, and peers.

How can we help?

If you need assistance with identifying whether you are being approached by a scammer, please feel free to give me a call to discuss in more detail. I am here to support you and it’s important that we start the conversation as scamming is a continuous risk in our technologically advanced world. If you would like to seek more information about scams to protect your SMSF, you can refer to the SMSF Association’s trustee education platform, SMSF Connect.