In this year’s federal budget, the government announced a number of proposed changes to super and SMSFs, which included additional contribution opportunities, repealing the work test for individuals 67 to 75 for non-concessional contributions, including bring-forward amounts, and providing choice in respect to determining exempt current pension income (ECPI). These changes were introduced into Parliament in October but have not progressed past the lower house yet.
Speaking to SMSF Adviser, SuperConcepts executive manager of SMSF technical and private wealth Graeme Colley said there is a bit of uncertainty around what will happen with the legislation currently sitting in Parliament at the moment.
“Whether that actually passes before the election will be pretty important for anyone who is planning for 1 July 2022 onwards, particularly those changes to non-concessional contributions between 67 and 75 and the abolition of the work test,” said Mr Colley.
Clients that are around the age 67 will need to think about the timing of their contributions, he said.
“They might have access to the bring-forward rule this year, but it may not be available to them in 2022 because they turn age 67 at some stage,” he explained.
If the government does manage to legislate its measure to abolish the work test for non-concessional contributions for those between 67 and 74, then from 1 July 2022 onwards the work test will no longer apply for those contributions, including bring-forward contributions.
Mr Colley said its important SMSF professionals get this message across to clients in this age group, particularly if they are planning to access the bring-forward rule.
“[SMSF clients need] to get financial planning advice on the timing of contributions to make sure they do it correctly,” he said.
The government also announced in the federal budget that SMSFs with certain complying income stream products will be given a two-year period to commute and transfer the capital supporting their income stream, including any reserves, back into a superannuation account in the accumulation phase. However, any reserves commuted will be assessed as a taxable contribution to the fund and result in a 15 per cent tax liability.
Mr Colley explained that if this change does come in, it may have an impact on the amount of tax the client ends up paying, as the amount that’s commuted from the fund’s reserves will be taxed as an assessable contribution of the fund and taxed at 15 per cent.
Clients may therefore be better off doing transfers from their reserves now to reduce the their potential tax liabilities going forward, he explained.
“We need to ensure they get the best advantages out of timing in terms of using amounts they’ve got in reserves and transferring those into their accumulation account,” he stated.
Mr Colley noted in an online SuperConcepts article earlier this year that under the current rules there are limits that apply to allocating reserves associated with legacy income streams to ensure the allocation is not counted towards an individual’s concessional contribution cap.
