Key Announcements made in this budget

Stage 3 Tax Cuts

The Government’s changes to the Stage 3 tax cuts are a key element of the Budget. They broaden the benefit of the original tax cuts, halving the tax break for wealthier taxpayers and increasing the benefit for those on lower incomes.

Cost of Living – Energy Bill Relief

The Budget’s key new cost-of-living measure is a new energy bill relief payment, extending existing energy relief measures. From 1 July 2024, the Budget provides rebates of $300 to every household and $325 to around one million small businesses.

Small Business Support – Instant Asset Write Off

The Government announced it will continue to improve cash flow and reduce compliance costs for small businesses by extending the small business $20,000 instant asset write-off (IAWO) by 12 months until 30 June 2025.

Superannuation

Superannuation will be paid on government-funded paid parental leave (PPL) for parents of babies born or adopted on or after 1 July 2025.

The Fair Entitlements Guarantee Recovery Program will be recalibrated to pursue unpaid superannuation entitlements owed by employers in liquidation or bankruptcy from 1 July 2024.

Tax Administration

Indexation of the Higher Education Loan Program (and other student loans) debt will be limited to the lower of either the Consumer Price Index or the Wage Price Index, effective from 1 June 2023.

The ATO will be given a statutory discretion to not use a taxpayer’s refund to offset old tax debts on hold.

Access our Budget Report and Tax & Superannuation Overview for a full analysis via the links below.

Please find below links to the full 2024-25 Federal Budget Overview and Tax & Superannuation Overview. If you have any queries or would like to discuss any of the announcements made in this budget, please contact our team.

FEDERAL BUDGET OVERVIEW

FEDERAL BUDGET TAX & SUPERANNUATION

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These measures were introduced in 2018 and the first year a member may make a catch-up contribution was the 2019/2020 financial year. Five years is the maximum any unused contribution cap amounts can be carried forward.

These measures benefit those with intermittent working patterns such as those who are self-employed or those who go on maternity and paternity leave for a period of time and then re-commence full time work in the future.

Other strategic tax planning opportunities lie with making personal concessional contributions in the year of a large capital gain to negate the potential tax payable or using those on lower tax rates such as adult children as a way of offsetting trust distributions.

Careful planning needs to be undertaken to ensure the person has enough taxable income to deduct the additional concessional contributions against.

Division 293 tax consequences maybe another issue for consideration in making a catch up payment of concessional contributions. Division 293 tax applies if the person’s adjusted taxable income in the year of contribution is above the $250,000 threshold.

The following example, demonstrates how the catch-up concessional contributions would work practically:

Example:

Phillip is 54 and has $350,000 in his super fund and considering making additional concessional contributions into that fund in the 2023/2024 financial year, as he has sold an investment property with a large capital gain and would like to use the contributions to reduce his taxable income. His concessional contributions in the prior years and unused amounts accrued since 2018/2019 are summarized below:

Based on the above information, Phillip could contribute catch up concessional contributions of $67,500, plus the 2023/2024 annual cap amount of $27,500, meaning a total of $95,000.

The information provided does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances.

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For example, late last year ASIC moved to shut down an unlicensed financial services business based on the  Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs.The money obtained was not invested, but instead allegedly used by the directors of the business for their own personal benefit, including acquiring real property and luxury vehicles in their personal names.  

Professional advice should always be sought before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose” test. 

Remember, SMSF trustees bear all the responsibility for the fund and its investment decisions complying with the law, and breaches may lead to administrative or civil and criminal penalties. This is the case even if you (as the trustee) rely on the advice of other people,  licensed or otherwise.  

SMSFs are not generally prohibited from investing in crypto-assets – if you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation, you can do so. 

If you do decide to invest in crypto-assets, whether through an SMSF or as an individual investor, it’s also important to keep accurate records and ensure you report any related income to the ATO. 

TIP: The ATO started its first crypto data-matching program in April 2019, comparing taxpayer self-reported income to cryptocurrency transaction data for the 2015–2020 financial years. This program was expanded mid-last year to cover the 2021–2023  financial years.

The ATO’s legal power to gather information is extensive and includes the power to physically enter any place and inspect any document, good or other property – this extends to a physical cryptocurrency wallet. The ATO is also permitted by law to amend a  taxpayer’s tax return for an unlimited period where it considers fraud or evasion has occurred – and deliberate non-reporting of gains made from disposals of crypto-assets would meet this description.

Get in Touch

Get in touch today to learn more.

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• COVID-19 vaccination rewards: tax implications – While offering rewards or incentives for being vaccinated can be an effective way to help employees and customers to stay safe and businesses to stay open, it’s important to consider that there may be some tax consequences involved for your business.
• Free mental health support for small business – The Federal Government has announced additional funding to extend the availability of free mental health support to small business owners dealing with the current pandemic and recent natural disasters.
• Changes to recovery loan scheme for small and medium enterprises – The SME Recovery Loan Scheme is available to eligible small and medium businesses with up to $250 million turnover, including sole traders and non-profits, but some of its conditions have now been fine-tuned.
• Need more money in retirement? – Retirees who own their own home and need more money in retirement can now access a voluntary non-taxable fortnightly loan payment through the Home Equity Access Scheme.
• Income protection insurance in super: beware of offsets – While income protection insurance through super has the advantage of providing a regular income for a period if you can’t work due to temporary disability or illness, ASIC has raised concerns about the lack of information given to super members, particularly about “offset” clauses.

Download the latest Client Alert here.

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Super Insurance

Life cover (death cover) pays a lump sum or income stream to beneficiaries upon your death, or in the event of a terminal illness. TPD insurance pays you a benefit if you become seriously disabled and are unlikely to work again. Income protection insurance pays a regular income for a specified period, ranging from two years to five years, or up to a certain age, if you can’t work due to temporary disability or illness.

Recently, the Australian Securities and Investments Commission (ASIC) reviewed the practices of five large super funds that provide default income protection insurance on an opt-out basis to their members, accounting for around 2 million MySuper member accounts.

Overall, ASIC found that most income protection insurance policies contain “offset” clauses, which mean that the insurance benefit is reduced or “offset” if you receive other kinds of income support. This is used as a way to reduce incentives for you to delay your return to work as a result of receiving more income while disabled than when working.

The review also found large variations between super funds in the types of income offset against income protection benefits.

ASIC found that trustees were not proactively giving members clear explanations about when insurance benefits would or would not be paid as a result of offsets. This information is obviously relevant when you’re considering whether to opt out of default income protection insurance, and if you make an insurance claim.

ASIC’s concern isn’t that the offset clauses exist, but that relevant information to explain the clauses was not available in website communications or in welcome packs, and the clauses were only described in technical and legalistic language in insurance guides.

TIP: You can get more information on ASIC’s MoneySmart website about what to look for when considering income protection insurance through super: see https://moneysmart.gov.au/how-life-insurance-works/income-protection-insurance.

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It’s important to get your deductions and record keeping correct for the SMSF audit process and the tax return, as there are strict laws governing SMSFs.

An SMSF must be set up as a trust and must also have a legal document called a trust deed. A super fund trust is set up for the sole purpose of providing retirement benefits to its beneficiaries. The trust deed governs how the fund is set up and how it will operate and must be used in conjunction with the superannuation laws.

There are many different investment strategies for SMSFs according to the fund’s trust deed and operations.

Common Tax Deductions

Deductible expenses for SMSFs vary according to the nature of investments and the trust deed, however there are some general expenses that apply to most funds.

• Operating expenses, such as management and administration fees, audit fees and ASIC annual fees.
• Investment-related expenses, such as interest, investment advice fees, costs of servicing and managing investments, property fees and brokerage fees.
• Tax-related expenses, such as preparing the SMSF annual return.
• Legal expenses including amending trust deeds.
• SMSF statutory fees and levies.
• Insurance premiums for death, total and permanent disability, terminal illness and income protection.

The rules for tax deductibility for SMSFs are different to those for individuals and business. Many people are used to claiming deductions for certain things in business or property investment and find they don’t apply to SMSF tax returns. We can help clarify what’s deductible and what’s not.

Expenses must relate to the sole purpose of the super fund being to provide retirement benefits to its members. There may be some items you want to query with us for the audit and tax return to see if they meet the sole purpose test, such as investment training courses, collectibles and artwork, travel expenses or personal computers.

SMSF Annual Return and Records

Once the formal audit of the SMSF has been completed, the annual return must be lodged with the ATO. The annual return is not only a tax return but also reports regulatory information and member contributions. You must keep all records relevant to the annual return.

• Keep all transaction, tax, accounting and financial reporting records for at least five years.
• Keep all records relating to trustee meetings, minutes, investment strategies and appointments or changes of trustees for at least ten years.

Make Your SMSF Management Easy

SMSF management can be time consuming. We can help with checking trust deed compliance, keeping records and conducting the audit. Gray Perry Wealth Advisers can help you with researching and managing investments and setting investment strategies

Gray Perry Wealth Advisers Pty Ltd and Allan Taylor are authorised Representatives of Lionsgate financial group Pty Ltd ABN 92 140 591 484 AFSL 342766.

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SMSF residency test

To be a complying super fund and receive tax concessions, SMSFs must be an “Australian super fund” at all times during the year. This requires, among other things, for the central management and control of the SMSF (ie individual trustees, or directors of a corporate trustee) to ordinarily be in Australia. Under the relief, a fund will still meet this requirement even if its central management and control is temporarily outside of Australia for up to two years.

Rental relief

If an SMSF or a related party has continued to provide rental relief based on the current market conditions, whether it be a rental reduction, waiver or deferral to a tenant, the ATO will provide relief in the form of not taking any compliance action against the fund. However, this is predicated on the rental relief being offered on commercial terms, and there being proper documentation with regards to the arrangement.

Loan repayment relief

For loan repayment relief provided by an SMSF to a related or unrelated party due to the financial impacts of COVID-19, where the relief is offered on commercial terms and the changes to the loan agreement are properly documented, the ATO will provide relief on similar terms as the interim rental relief – that is, it will not take any compliance action against the fund. This will also apply to limited recourse borrowing arrangements (LRBAs).

In-house assets

Where an SMSF exceeds the 5% in-house asset threshold at 30 June 2021 due to the financial impacts of COVID-19, trustees must still prepare a written plan to reduce the market value of the fund’s in-house assets to below 5% by 30 June 2022. However, the ATO has said it will not take any compliance action where the plan has not been executed by the due date as a result of the market not having recovered, or in some cases the plan may be unnecessary because of market recovery.

PAYG variations

The ATO has confirmed that its penalty and interest relief for excessive PAYG variations applies to SMSFs that continue to be impacted by COVID-19 during 2021–2022. The ATO will not apply penalties or interest for excessive variations of PAYG instalments during the 2021–2022 income year, provided that the taxpayer has taken reasonable care to estimate their end-of-year tax.

Audits

The ATO has also extended to 2021–2022 its existing COVID-19 relief in the Addendum to the Auditor/actuary contravention report (ACR). The ACR relief for 2021–2022 will apply for rental relief (including rental reductions, waivers and deferrals), loan repayment relief (including for LRBAs), and in-house assets.

TIP: If you’re a trustee of an SMSF and you or your fund’s members have been affected by COVID-19, we can help you work out the potential tax implications and relief available, and put the proper documentation in place.

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What is a Stapled Super Fund?

A stapled super fund is essentially an existing super account that is linked – or “stapled” – to an individual and follows them throughout their job changes. 

Currently, when a new employee starts a new job they are eligible to choose the super fund that their super guarantee contributions will go to. If they do not choose their own fund, the super contributions will be paid into the employer’s default fund. The stapling change aims to reduce unnecessary account fees by avoiding having a new super account opened every time a person starts a new job.

To ensure you’re ready for this change, check ATO online services to confirm that your business has the required access levels. You’ll need to have the “Employee Commencement Form” permission in order to request a stapled fund. 

Paying your employees going forward

After 1 November you’ll still need to offer your eligible employees a choice of super fund and pay their super into the account they nominate – that part of your obligations doesn’t change. However, if your employee doesn’t choose a fund, you’ll need to request the stapled fund details from the ATO. In most cases, a request can be made after you’ve submitted a TFN declaration or a Single Touch Payroll (STP) pay event linking the new employee to your business. 

Responses will usually be received through the online portal in minutes. The ATO will also notify the associated employee of the stapled fund request and the fund details provided.

Remember, an employer cannot provide recommendations or advice about super to its employees, unless the business is licensed by the Australian Securities and Investments Commission (ASIC) to provide financial advice. Penalties may apply Important: Clients should not act solely on the basis of the material contained in Client Alert. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Client Alert is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval. if your business fails to meet the “choice of super fund” obligations.

MySuper performance test results and new super comparison tool

This year marks the beginning of annual performance tests on MySuper products, run by the Australian Prudential Regulation Authority (APRA). The tests were introduced as part of the Federal government’s Your Future, Your Super reforms, aiming to hold super funds to account for underperformance and enhance industry transparency. The first annual test of 76 MySuper products from various super funds or registrable superannuation entities found that 13 products failed to meet the benchmark. These products will need to notify their members of the failed test and make the improvements needed to ensure they pass next year’s test. 

YourSuper comparison tool 

A new interactive online super comparison tool, YourSuper, is also now available on the ATO website and via MyGov. It displays a table of MySuper products ranked by fees and net returns (updated quarterly), and you can compare up to four MySuper products at a time in more detail. 

The performance tests conducted by APRA only relate to MySuper products, which are basic super accounts without unnecessary features and fees. Registrable superannuation entities usually offer multiple products in addition to MySuper products, so don’t panic if you see the name of your super fund on the list of underperforming products. However, if you see the name of your specific product or receive a letter indicating that the fund you’re in has failed the APRA performance test, it may be time to investigate the reasons why or switch to a different product.

To find out more on how we can help you with your financial needs, get in touch today. 

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Previously, if you made super contributions above the annual non-concessional contributions cap, you could automatically access future year caps if you were under 65 at any time in the financial year. 

The bring-forward arrangement allows you to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year. 

TIP: For the 2021 income year, the non-concessional contributions cap is $110,000, which means that individuals aged 65 and 66 can now access a cap of up to $330,000. 

Previously, individuals who exceeded their concessional contributions cap would have to pay the excess contributions charge (around 3%) as well as the additional tax due when excess contributions were re-included in their assessable income. However, people who exceed their cap on or after 1 July 2021 will no longer pay the charge, but will still receive a determination and be taxed at their marginal tax rate on any excess concessional contributions amount, less a 15% tax offset to account for the contributions tax already paid by their super fund.

Recontributions of COVID-19 early released super

Under the COVID-19 early release measures, individuals could apply to have up to $10,000 of their super released during the 2019–2020 financial year and another $10,000 released between 1 July and 31 December 2020. Between 20 April 2020 and 31 December 2020, the ATO received 4.78 million applications for early release, totalling $39.2 billion worth of super.

Not everyone who applied to have super released ended up needing to use it once the government ramped up its financial support programs. From 1 July 2021, people who received a COVID-19 super early release amount can recontribute to their super up to the amount they released, and those recontributions will not count towards their non-concessional contributions cap. The recontribution amounts must be made between 1 July 2021 and 30 June 2030 and super funds must be notified about the recontribution either before or at the time of making the recontribution.

To find out more about how these new Super changes may affect you, contact our team today. 

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