2017 Australian Federal Budget focus – Superannuation

On 9 May 2017 the Federal Treasurer Mr Morrison handed down the 2017 Australian Federal Budget.  The Federal Budget contained a raft of measures with the theme of targeting foreign investment in the property sector, introducing tax incentives for investment in affordable housing and maintaining a focus on small business being evident throughout.

A significant tax reform was once again put on the back burner and the major changes to the superannuation and small business sector as seen in the previous year’s budget were not included this year. Rather, this budget was built on a view as to achieving future positive economic growth assisted through a commitment to transport infrastructure across Australia and a transition to non-mining business investment.

Our brief focuses on the tax aspects that are relevant to high net worth individuals, SMEs and the international tax marketplace and in this particular post, focusing on Superannuation.

Amendment to the non-arm’s length income provisions

The current provisions in section 295-550 of the Income Tax Assessment Act 1997 will be amended, with effect from 1 July 2018, to tighten the definition of, and circumstances for, determining whether a transaction is on a commercial basis.  Specifically, this will include ensuring that expenses normally applicable in a commercial transaction are considered with respect to a related party transaction in a superannuation fund.

We feel this consideration will be important post 1 July 2017 where confirmation as to a fund’s pension cap and total balance threshold must be determined.

Inclusion of limited recourse borrowing arrangements in a member’s super balance

In exposure draft legislation released on 27 April 2017, the Government proposed to include the outstanding balances of limited recourse borrowing arrangements in a member’s total superannuation balance and for the purposes of the $1.6m pension transfer balance.

It was announced, in the 2017 Australian Federal Budget, that this inclusion will apply to all existing outstanding limited recourse borrowing arrangements from 1 July 2017 rather than applying on a prospective basis.

Additional non-concessional contributions for those aged 65 and over

Under the current contribution rules, individuals aged between 65 and 75 are restricted in being able to make non-concessional contributions into superannuation unless they meet a ‘work test’, which requires them to be gainfully employed for at least 40 hours in a period of not more than 30 consecutive days.

From 1 July 2018, the Government announced in the 2017 Australian Federal Budget that they will allow individuals who are 65 or over to make a non-concessional contribution of up to $300,000 from the proceeds of selling their main residence which they had lived in for 10 years or more, without needing to meet the ‘work test’.

Additionally, this contribution is in excess to what is allowed under the non-concessional contribution caps.  We feel this will provide planning opportunities for retirees in this age bracket who are looking to downsize from their family home and as a result will have surplus funds.

Reduction to the concessional contribution cap

The current concessional contribution caps for those under 50 years of age is $30,000 and for those over 50 is $35,000.

From 1 July 2017 the new concessional contribution cap is proposed to be $25,000 regardless of an individual’s age.

First home super save scheme

In line with the Government’s focus on the property sector and making home ownership more attainable for first home buyers, the Government will allow, from 1 July 2017, contributions, within existing caps, to be made into superannuation by prospective first home buyers which can then be withdrawn.

This measure is designed to allow first home buyers to build savings more quickly to then be used for a home deposit.