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Federal Budget Oct 2022 Summary

Federal Budget Oct 2022 Summary

This year’s Federal Budget focuses on providing relief for those with children, homebuyers and social security recipients whilst maintaining pre-election commitments. 

Note: These changes are proposals only and may or may not be made law. 

Summary 

Personal taxation 

  • No changes to personal income tax: The Budget did not contain any measures announcing changes to personal income tax. This includes:
    • no changes to the Stage 3 tax cuts which will take effect from 1 July 2024, and 
    • no extension of the Low and Middle Income Tax Offset, which ended 30 June 2022.
  • Helping enable electric car purchases: For purchases of battery, hydrogen, or plug-in hybrid cars with a retail price below $84,619 (the luxury car tax threshold for fuel efficient vehicles) after 1 July 2022, fringe benefits tax and import tariffs will not apply. Note: Employers will still need to account for the cost in an employee’s reportable fringe benefits. 

Home ownership 

  • Housing affordability measures: A key focus of the Budget were measures to help individuals secure housing. This is expected to occur largely via the Housing Accord – which will bring Federal, State and Local Governments together to work on housing affordability and homelessness. Measures announced include:
    • A commitment to the ‘Help to Buy’ scheme which will support first home buyers to buy a home with the Federal Government being a part owner, resulting in a lower balance to be funded by the individual themselves.
    • A Regional First Home Buyer Guarantee from 1 October 2022 which, similar to the existing First Home Deposit Guarantee scheme, is expected to provide up to 10,000 first home buyers with a guarantee over their mortgage, removing the need for lenders mortgage insurance.

Superannuation

  • Expanding eligibility to downsizer measures: Legislation has been introduced to reduce the downsizer eligibility age from 60 to 55. This measure will take effect from the first quarter after passing into law, which is expected to be 1 January 2023.
  • SMSF and tax residency: The Government confirmed its intention to continue with the 2021/22 Budget measure of extending the temporary trustee absence period from two years to five years and removing the ‘active member’ test. These changes will help SMSFs continue to maintain their Australian tax residency even while members are overseas, and allow them to continue to contribute to their funds even if they become non-tax residents.
  • Three-year audit cycle for SMSFs not proceeding: Originally announced as part of the 2018/19 Budget, it was confirmed the current Government will not proceed with this measure. 

Social Security 

  • Child care subsidy changes: As part of a package of reforms to encourage parents to return to the workforce, the maximum child care subsidy from 1 July 2023 will increase to 90% for families earning less than $80,000. For every $5,000 earned over this threshold the subsidy will reduce by 1% – reducing to zero for incomes $530,000 or above.

The higher rate of subsidy for families with multiple children in care will continue under its current arrangements, ceasing once the eldest child reaches six years old or has been out of care for 26 weeks. 

  • Paid parental leave increases: Announced before the Budget, from 1 July 2024 the Paid Parental Leave Scheme will increase the maximum period of leave by two weeks each year – reaching a maximum of 26 weeks by 1 July 2026.

Further, from 1 July 2023 both parents will be able to access leave at the same time or enter into more flexible arrangements than currently available under the limited Dad and Partner Pay limits, and requirements to take 12 weeks as a continuous period. The paid parental leave income test will also be extended to include a $350,000 family income test, which can be used to help families who do not meet the individual income test. 

  • Reducing assessment of former home proceeds: For individuals on social security benefits, the temporary assets test exemption of home sale proceeds is to be extended from 12 months to 24 months. Additionally, these proceeds will only be deemed to earn a return at the lower deeming rate (currently 0.25% per annum) for this period. Note: This exemption only applies to the portion of the proceeds expected to be used in a new home purchase.
     
  • Work Bonus deposit for older Australians: Announced as an outcome from the Jobs and Skills Summit, age pensioners and veterans over service pension age are expected to receive a one-off credit of $4,000 into their Work Bonus income bank. The Work Bonus typically offsets $300 per fortnight of income earned from employment or self-employment activities, allowing pensioners to receive a higher age pension whilst still working.
     
  • Increased income thresholds for Commonwealth Seniors Health Card: The Government has committed to increasing the income thresholds for the Commonwealth Seniors Health Card to $90,000 for singles and $144,000 combined for couples.
     
  • Deeming rate freeze: The Government has also confirmed its intention to retain the current deeming rates until at least 30 June 2024.
     
  • Plan for cheaper medicines: From 1 January 2023, the general patient co-payment for Pharmaceutical Benefits Scheme treatments is expected to reduce from $42.50 to $30. 

Source: budget.gov.au / Actuate Alliance Services

Business owners

  • Self-assessment of depreciating assets: The Government will not proceed with the measure to allow taxpayers to self-assess the effective life of intangible depreciating assets, announced in the 2021-22 Budget.
    • Reversing this decision will maintain the status quo – effective lives of intangible depreciating assets will continue to be set by statute. This will avoid the potential integrity concerns with the previously announced measure and contribute to budget repair.

Source: Macquarie

Director Identification Number (director ID) – time’s running out to apply

Director Identification Number (director ID) – time’s running out to apply

You may have heard about the new rules which require directors of Australian companies to obtain a Director Identification Number (director ID). It is a unique 15-digit identifier that directors apply for once and keep forever.

The following provides some useful further information.

As a director of my SMSF’s corporate trustee do I need a director ID?

The new requirement to obtain a director ID applies to all directors of corporate trustees of an SMSF.  This obligation also applies to any directors who may have resigned from all director roles after 31 October 2021 and have no intention to ever be appointed as a director of an Australian or foreign company.

How long do I have before I need to get my director ID?

Individuals that were a director of any company prior to 1 November 2021 have until 30 November 2022 to get a director ID. This transitional period also applies to newly appointed directors of corporate trustees of an SMSF, provided they were an existing director, of a company, before 1 November 2021.

Otherwise, first time directors are now required to have a director ID before they are appointed as director of any company.

What is the fastest way to apply for a director ID?

With 30 November 2022 fast approaching, we strongly encourage all directors to apply for their director ID now. The fastest way to apply for your director ID is online at abrs.gov.au/directorID

To access the director ID application online, you will use your myGovID to log in to ABRS (Australian Business Registry Services) online.

This director ID demonstration video will show you step by step, how to apply for your director ID online.

What to do if you do not have a myGovID already?

A 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.

If you do not already have a myGovID you will need to set this up before you can apply for your director ID online. Refer to mygovid.gov.au/setup for more information on setting up a myGovID.

You will need to choose your identity strength, noting that ‘standard’ identity strength is the minimum strength required for a director ID.

What if I can’t set up myGovID online?

Where you are experiencing difficulties setting up your myGovID, the ATO encourages you to contact them on 13 62 50.

To speed up the phone application, please have your TFN ready as well as the information listed below, required to verify your identity.

If you cannot apply online or over the phone, the ATO will provide you with a paper form to complete. This is the least preferred option and will require you to provide certified copies of your documents to verify your identity.

Can we help you get your director ID?

You must apply for your director ID yourself, so that the ATO can verify your identity.

To verify your identity against your ATO records, once you have logged into ABRS online using myGovID, you’ll need your tax file number, your residential address held by the ATO, and information from two of the following documents:

  • bank account details (where your tax refunds or payments are made and received)
  • an ATO notice of assessment
  • a dividend statement
  • a Centrelink payment summary
  • a PAYG payment summary (this is different to your income statement or your PAYG instalment activity statement).

 Source: SMSF Association

 

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 and where possible, source documents to help you verify your identity with the ATO.

Super housekeeping for 30 June

Super housekeeping for 30 June

Make sure you draw the minimum pension 

With 30 June only 2 weeks away, it’s important to check if you have made the minimum pension payment from your account based pension in your SMSF. For those with an industry fund or a retail super fund, it’s all done for you, so you have nothing to worry about. 

Remember, you only need to draw 50% of your regular minimum annual pension. This has been extended again for 2022/2023. 

minimum annual pension rates

If you have maxed out your Transfer Balance Cap (TBC) and taken the discounted minimum annual pension, it’s often a good idea to take any additional payments from your accumulation balance. 

Super contributions 

You should be checking the level of concessional contributions you, or your employer, have made. If you do need a tax deduction, you may consider topping this up to $27,500 prior to 30 June. 

If you are wanting to continue to build up your superannuation balance, it may also be appropriate to make a non-concessional contribution up to $110,000 for the year. Or, should you bring forward the next 2 years’ contribution this year and make it $330,000? 

Remember, from 1 July 2022, changes to contribution rules may mean you can contribute up to 75 years of age without satisfying the work test. 

Ways to contribute 

Your contributions may be simply a cash contribution, or you may transfer investments like shares into your fund. Remember, any transfer is regarded as a sale, so it will give rise to a capital gain or capital loss. This could also be advantageous. 

Super co-contributions 

If you meet the eligibility criteria, you could guarantee yourself a guaranteed return of up to 50% by making a personal (after-tax) contribution (also known as a non-concessional contribution) of up to $1,000. 

The co-contribution from the government is to support low or middle-income earners. 

The amount of government co-contribution you receive depends on your income and how much you contribute. 

You don’t need to apply for the super co-contribution. When you lodge your tax return, they will work out if you’re eligible. If the super fund has your tax file number (TFN) they will pay it to your super account automatically. 

Plan your super/pension strategy for 2022-2023 

Planning early for the next financial year is important. Your plan should include: 

  • Level of contributions to be made for 2022-2023. 
  • The best time to make these contributions. 
  • Should you commence an account based pension? 
  • Updating your SMSF Investment Strategy up to date. 
  • For those exceeding their TBC and running an account based pension within their SMSF, have members sign a notice to take the minimum pension with any surplus to be taken from the accumulation account.  

Superannuation can be very complex, and while it presents excellent opportunities for retirement, each person’s situation is very different. So, before acting, you should seek personal advice from your adviser. 

Want to learn more? Speak to a specialist about your SMSF today.

4 new super contribution opportunities

4 new super contribution opportunities

For older Australians, it has been more difficult to build up their superannuation balances. Once you are 67 years of age, there is a requirement to meet a ‘work test’ in order to continue to contribute. This work test forced you to work 40 hours over 30 consecutive days in order for you to make a lump sum contribution (known as a non-concessional contribution) of up to $110,000.

With these restrictions, it was important to carefully plan your superannuation strategy from a younger age.

However, the Federal Government sought to amend these restrictions.

May 2021 Federal Budget

In the May 2021 Federal Budget, the government announced a number of initiatives to assist Australians in building up their superannuation.

These included:

  • Removal of $450 monthly income threshold for super contributions.
  • Reduction in age to 60 for the downsizer contributions.
  • Removal of the work test for people aged 67-74.

It also increased the withdrawal limit for First Home Super Saver Scheme (FHSS).

Legislation has now passed both houses of parliament and will apply form 1 July 2022.

4 new super contribution opportunities

Removal of $450 monthly income threshold

The government has finally scrapped the $450 superannuation guarantee threshold. This should make approximately 300,000 people eligible for super contributions from 1 July 2022.

Lower Age for ‘Downsizer’ contributions

In selling the family home, couples have the ability to contribute $300,000 each into superannuation as a personal contribution. The age for this contribution was 65, however, it has been lowered to 60. As of May 2021, 22,000 Australians have taken advantage of this opportunity to boost their retirement balances. It should also be noted that these contributions are not restricted by the $1.7m transfer balance cap.

The lowering of age to 60 will come into effect from 1 July 2022.

First Home Super Save increased capacity

This is a great opportunity for couples who are saving for their first home. This scheme allows people to make voluntary contributions to superannuation to save for this purchase. The current caps on these contributions are $15,000 a year and $30,000 in total.

However, it has been passed to allow voluntary contributions (both post tax or through salary sacrifice) up to $50,000 in total.

So a couple will have access to $100,000. It’s important to remember compulsory employer contributions are excluded. Only voluntary contributions may be withdrawn.

This will commence from 1 July 2022.

Removal of work test for 67-74 year olds

The most significant superannuation opportunity announced in the May 2021 Federal Budget was to allow 67-74 year olds to make a personal contribution to superannuation without meeting the current work test. This has now been passed and will come into affect on 1 July 2022.

However, not only will older Australians be able to make a personal contribution of $110,000 pa, but they will also be able to take advantage of the bring forward rule and contribute $330,000 as a lump sum.

Be aware of SMSF Trustee responsibilities you should be reviewing now

Be aware of SMSF Trustee responsibilities you should be reviewing now

Have you reviewed your superfund’s investment strategy and binding death nominations?

Choosing to establish and manage a self-managed super fund (SMSF) comes with trustee responsibilities which are important to not neglect. It may be as simple as not having an appropriate investment strategy or actually forgetting to legally document a non-lapsing binding death nomination or to consider a reversionary beneficiary when commencing an income stream with your super.

SMSF investment strategy

As a trustee of a superfund, you need to have an investment strategy. It’s more than simply providing a range of different asset classes your fund is allowed to invest in. The ATO, as the regulator of your SMSF, requires the trustee to consider:

  1. The fund’s investment objectives and how the investments link to these objectives.
  2. How the strategy provides benefits to the members at retirement.
  3. Diversification of the investments.
  4. Risks from the lack of diversification.
  5. Liquidity of the fund including cashflow requirements – particularly in the future when an income stream will commence.
  6. The ability for the fund to pay liabilities.
  7. Whether the trustees have considered insurance, and if not, why?

If you make changes to what is already documented in your strategy, then you must make the appropriate amendments and sign off the changes. Changes such as high fluctuations in markets causing your asset allocation to change dramatically, or investing in an asset outside what is included in your strategy.

The ATO has had concerns on the quality of information in fund investment strategies, and we are seeing auditors pay closer attention to what is included and if they actually reflect the investments made and held during the year.

We have seen the ATO more closely scrutinize the investments held with letters sent to ask trustees to justify their investments, particularly if there is a lack of diversification.

Estate planning considerations in an SMSF

An area we find there is a lack of attention from trustees is in estate planning. Superannuation doesn’t actually form part of the estate and needs to be dealt with specifically.

As the trustee, you are responsible to ensure this has been considered with the appropriate actions taken to reflect the wishes of each member.

While you are in the accumulation phase, each member can plan who they want their superannuation benefit (and any insurance owned by the superfund) paid out to by instructing the trustee through a binding death nomination. A ‘non-lapsing’ binding death nomination is an extension in that it doesn’t have an expiry date.

A ‘reversionary’ beneficiary is who you nominate at the time you commence your income stream. Upon death, the income stream automatically continues to be paid to the chosen beneficiary (such as your spouse) upon your death.

If you haven’t made a reversionary nomination, your benefit will be paid out as a lump sum. This can be an issue if your spouse is unable to make a contribution back into the super fund.

Making the decision to have a Self Managed Super Fund comes with trustee responsibilities. It’s important, as the trustee of your fund, you are fully aware of these to ensure your fund remains compliant. The ATO continues to review funds to make sure they are being run improperly. Making sure your fund has a comprehensive investment strategy, which is updated to consider the investments you are holding or expect to hold, is one area which the ATO has drawn their attention to. Also, the sooner you review your binding death nominations, the better. Make sure you actually have these and they continue to properly reflect your wishes. If commencing an income stream, consider whether you should have a reversionary beneficiary. Getting it right before it starts can save you headaches later on.

Want to learn more? Speak to a specialist about your SMSF today.

What you need to know about property investing in your self-managed super fund (SMSF)

What you need to know about property investing in your self-managed super fund (SMSF)

“We want to eventually retire to the coast so we will buy a property in our self-managed superfund and rent it out in the meantime. The value of the property will rise over time and when we’re ready to retire we’ll just move in.” 

We’ve heard this statement many times, but if only it was so easy. At a time when property markets are buoyant and interest rates so low, many people are considering property investment within their SMSF but the laws around what you can do, and can’t do, with the property are complex. 

Investing in residential property

Firstly, residential property purchased through an SMSF cannot be lived in or rented by you, any other trustee or anyone related to the trustees – no matter how distant the relationship. Buying a coastal property in your SMSF and moving in when you retire is therefore not allowed. When you retire you must first purchase the property from the SMSF, perhaps from the money you receive from selling your city residence. This is just like buying a regular property except you won’t have to deal with negotiations. The transaction must take place at a fair market value, based on objective and verifiable data, and will involve additional costs such as stamp duty and legal.

Investing in commercial property

Rules regarding related parties that apply to residential properties do not apply to commercial properties. They therefore can be sold to an SMSF by its members, as well as being leased to SMSF trustees or an individual or business related to them.

This exception makes SMSF commercial properties appealing to many small business owners such as barristers to buy their chambers or manufacturers who can purchase a warehouse/factory. This allows the business to pay rent to their superfund rather than ‘dead money’ to a landlord. Again, it’s important the lease agreement is at market rate and must be paid promptly and in full at each due date. 

Regardless of whether it’s a residential or commercial property, the investment must also satisfy the overarching function of the SMSF, which is to provide retirement benefits for its members (a concept known as the sole purpose test). You must consider the yield or potential capital appreciation when selecting the property and if neither makes good investment sense, you should reconsider.

The loan

Lending through your SMSF must be done by a limited recourse borrowing agreement (LRBA). The property must be owned by a separate ‘bare’ trust that sits outside of the SMSF structure and has its own trustee. All the property-related income and expenses are then made through the superfund’s bank account. These loans are specifically designed to ‘limit the recourse’ so that if the terms of the loan are breached the lender can only access the property and other superfund assets are protected. 

Given the unique characteristics of the loan, SMSF loans generally attract significant application fees and higher rates than standard home loans. The lending criteria are also much stricter and can involve things such as reduced loan to value ratios (LVR), shortened loan terms resulting in higher repayments, and often borrowers require a minimum percentage of liquid superfund assets available to make loan repayments if needed. There are also additional legal costs associated with the setup and ongoing compliance of both the SMSF and bare trust structure. These costs must be factored in to decide if purchasing in your SMSF is the right option for you.

Renovating

The idea of renovating a residential property within an SMSF to improve capital value is also more complicated than it first appears. Whilst general maintenance and repairs can be made, any significant renovations must be funded by available cash already held within the superfund and not by the loan or borrowed money. Even if funds are available, you are not allowed to make significant changes to the original property that was purchased using the limited recourse borrowing arrangement. Renovations that substantially change the asset will require a new LRBA.

Given the right opportunity, there is no doubt that buying property in your SMSF can be an excellent long-term strategy but there are clear complexities. The considerations presented in this article are by no means exhaustive and investing through your SMSF should always be done in consultation with your financial adviser and an experienced mortgage broker. 

Contact us today to discuss whether buying a property in your SMSF could work for you.