‘Unfinished superannuation business’ to watch for in 2021
SMSF services firm Heffron has outlined some of the legislative bills and pieces of guidance the SMSF industry is still waiting on and some of the recent proposals floated by the government.
2020-21 federal budget proposals for superannuation
As part of the 2020-21 federal budget, the government announced a raft of new measures for super funds aimed at addressing underperformance and multiple accounts.
The measures include plans to staple existing superannuation accounts to a member to avoid the creation of new account when a person changes employment, performance benchmarking and the introduction of the best financial interests duty.
Heffron head of SMSF technical and education services Lyn Formica said the government released exposure draft legislation for the measures in November, with submissions now closed.
“Given many of the measures have a 1 July 2021 start date, we expect Bills will be introduced to Parliament soon,” said Ms Formica.
Bring-forward measure for those aged 65 and 66
The bill containing the measure to extend the use of the bring-forward rules for non-concessional contributions from age 65 to age 67 failed to pass in the last two weeks of parliamentary sittings for 2020.
With Parliament not returning to early February, this leaves some clients in this age group in a difficult position.
Australian Executor Trustees senior technical services manager Julie Steed previously noted that some practitioners have been advocating a strategy when the client puts $1 more so that the bring-forward rule is triggered but the excess is only $1.
However, she warned that for many licensees, advisers need to base their advice on current laws.
Heffron managing director Meg Heffron said while contributing the full $300,000 now would not be a compliance issue if the new rules failed to be passed, it would create an excess non-concessional contribution, which would come with serious tax consequences.
Six-member SMSFs bill
The bill to increase the maximum number of members of an SMSF from four to six, Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill, is also still before the Senate, said Ms Formica.
The earliest possible start date for this measure is now 1 April 2021, she noted.
In early November, the Senate economics legislation committee recommended that the six-member SMSF bill be passed after it was previously referred to the committee for inquiry and report.
Legacy pension proposal
As part of its Mid-Year Economic and Fiscal Outlook (MYEFO) released in December, the government also outlined a proposed change to enable the partial commutation of certain legacy pensions.
The MYEFO stated that the measure will help ensure that retirees who have commuted and restarted certain market-linked pensions, life expectancy pensions and similar products are treated appropriately under the transfer balance cap.
However, Ms Formica explained that unless the measure is far wider than the wording suggests, she expects it is unlikely to bring much joy to many of the members still running these pensions.
“We have long argued that the government should allow legacy pensions to be converted to simple account-based pensions,” she said.
“This would provide a simple solution to the many problems that these pensions present given that the law has changed profoundly in the 13 plus years since these pensions were actively used in SMSFs.”
Ms Formica said it appears the government instead plans on further tinkering, which will only provide relief to some members.
Non-arm’s length expenditure guidance
One of the other key items that SMSF professionals are still waiting for said Ms Formica is the ATO’s finalised ruling on non-arm’s length expenditure.
“The ATO is still to finalise their view on the situations in which SMSFs will be considered to have non-arm’s length income (NALI) because the expenses of the fund are lower than they would have been in an arm’s length situation,” she explained.
“We expect the ATO will be seeking to release their final view before the transitional rules of PCG 2020/5 – covering expenses of a general nature – expire on 30 June 2021.”
05 January 2021