SMSF Tech Update

The Next 12 Months

Now that we’re through the end of financial year, there are a number of changes that took place on 1 July 2021. In this article we summarise what is and what’s not changing. We’ll discuss the following:

1. The Transfer Balance Cap
2. Contribution Caps
3. Total Superannuation Balance
4. Superannuation Guarantee
5. Minimum Pension Percentages
6. CGT Lifetime Cap
7. Low Rate Cap – Lump Sum Super Benefit
8. Preservation Age
9. Age Pension Age
10. Safe Harbour Interest Rate for LRBAs
11. ASIC Annual Return Fee
12. ATO SMSF Levy

Transfer Balance Cap

The general transfer balance cap (TBC) will index by $100,000 to $1.7 million on 1 July 2021. From this date, you’ll need to get used to the terms ‘general transfer balance cap’ and ‘personal transfer balance cap’ and the difference between the two. Indexation of the general transfer balance cap will not automatically mean an increase in an individual’s personal transfer balance.

Where an individual has a transfer balance account (TBA) prior to 1 July 2021, the ATO will calculate an individual’s personal TBC, after indexation of the general TBC and this figure should be available in the member’s myGov account from 5 July 2021. However, importantly, it will be based on the individual’s highest balance of their TBA prior to 1 July 2021.  So for trustees it’s important that all reportable TBA events prior 1 July 2021 are reported without delay to ensure the ATO’s calculation is based on complete and accurate information.

Contribution Caps

The concessional and non-concessional cap have increased from 1 July 2021 as follows:

• Concessional Cap – $27,500
• Non-Concessional Cap – $110,000

The bring forward rule, where first triggered in the 2021 to 22 income year, can apply where the member is under 67 in the income year, based on the following:

A transitional bring forward rule applies where it is triggered prior to 1 July 2021 and the bring forward period extends beyond 30 June 2021.

Total Superannuation Balance

From 30 June 2017, an individual’s total superannuation balance (TSB) is used to determine whether they are eligible for several super-related measures for the following income year. Some of these super-related measures set the limit for the TSB as being equal to the general TBC, which has been indexed to $1.7m from 1 July 2021.

However, there are a number of super-related measures that whilst requiring a calculation of a member’s TSB, are not linked to the general TSB and consequently will not increase on 1 July 2021. These super-related measures include:

• TSB threshold for application of the catch-up concessional contribution cap – it will remain at $500,000
• TSB threshold for the recently retired work test exemption – it will remain at $300,000
• TSB threshold test for determining whether an SMSF has disregarded small fund assets (DSFA) – this will remain at $1.6 million
• TSB threshold for an SMSF to self-assess whether it is an annual or quarterly reporter for TBA purposes – this will remain at $1 million. However, it is noted that on the ATO’s website (QC 57300) the following statement is made in relation to the $1 million threshold:

“We will continue to evaluate this reporting frameworks’ benefits and risks. For example, the $1 million threshold may be re-evaluated in the future, given indexation of the general transfer balance cap”

Superannuation Guarantee

For employers, the superannuation guarantee (SG) contribution percentage has increased to 10% on 1 July 2021. The SG is applied to an eligible employee’s ordinary time earnings (OTE). For further information for employers, refer to the ATO’s website and search on Quick Code (QC) 33737.

Minimum Pension Percentages

The 50% reduction to minimum pension percentage for account based and market linked pensions, which applied for the 2019-20 and 2020-21 income years, will be extended to the 2021-22 income year. This was announced by the Prime Minister on 29 May 2021. This will require an amendment to the relevant schedules in the SIS regulations. Generally, an amendment to regulations only requires tabling of the amendment in the House of Representatives and no objection being made during the relevant statutory period, being 14 sitting days. Assuming the amendment to the relevant schedules in the SIS regulations are affected, the minimum pension percentages will be as follows:

Schedule 7 – SIS regulations (account-based pensions):

The above minimum percentages also apply to:

• All Transition to Retirement Periods
• Market Linked (Term Allocated) Pensions Commenced on or after 20 September 2007

The ten percent maximum pension for a Transition to Retirement pension in non-retirement phase is not affected by the 50 percent reduction to the minimum pension percentage.

CGT Lifetime Cap

Under the CGT cap, an individual can during their lifetime, exclude non-concessional super contributions made from the sale of certain small business assets from their non-concessional contributions cap up to the CGT cap amount. The cap amount has increased to $1,615,000 from 1 July 2021.

An individual must elect to exclude eligible contributions from their non-concessional contribution cap and apply their CGT lifetime cap by using the ‘Capital gains tax cap election form’ (NAT 71161) and providing the completed form to the superannuation trustee before or at the time the contribution is made. An election made after the contribution it refers to is not valid. Consequently, the contribution will not be excluded from the non-concessional contributions cap.

Low Rate Cap – Lump Sum Super Benefit

The low rate cap amount is the limit set on the amount of taxable components (taxed and untaxed elements) of a super lump sum that can receive a lower (or nil) rate of tax. It applies to individuals who have reached their respective preservation age, but are below 60 years at the time of receiving the payment.

It is a lifetime cap which is reduced by any amount previously applied to the low rate threshold. The low rate cap amount will increase to $225,000 for the 2021-22 income year.

Preservation Age

An individual’s preservation age is the age they can access their superannuation benefits where they have retired. Attaining preservation age also allows an individual to start a transition to retirement pension. An individual who was born before 1 July 1960 has already reached their preservation age, which was age 55. The preservation age is being increased to age 60 as follows:

For those born on or before 30 June 1963, they will have already reached their relevant preservation age. For those born from 1 July 1963 up to 30 June 1964, they will have to wait until their 59th birthday, the earliest being 1 July 2022, before they can access their preserved superannuation benefits. For everyone else, the earliest they will be able to access their preserved benefits will be 1 July 2024, when those who were born on 1 July 1964 turn 60.

Age Pension Age

An individual needs to be the qualifying age or older to get the Age Pension. This is referred to as an individual’s ‘Age Pension age’. An individual’s birthdate will determine their Age Pension age.

The Age Pension age has been slowly increasing from 65 to 67 years. It’ll increase by 6 months every 2 years until the Age Pension age is 67 on 1 July 2023. Consequently, the Age Pension age has increased to 66 years and 6 months from 1 July 2021. The final increase in the Age Pension age will be on 1 July 2023 when it increases to age 67.

Safe Harbour Interest Rate for LRBAs

Where an SMSF has borrowed to acquire an asset via a limited recourse borrowing arrangement (LRBA) and the loan is from a related party, an option to avoid the application of the non-arm’s length income (NALI) rules is for the loan to be structured in accordance with the safe harbour guidelines in PCG 2016/5.  These guidelines include the interest rate to be charged for a particular income year. The ATO has released the interest rate for the 2021-22 income year to be used under an LRBA with a related party loan that will be consistent with the safe harbour terms outlined in PCG 2016/5: 

The safe harbour interest rates for 2021-22 have remained the same as the 2020-21 income year. For prior income year interest rates, please click here. 

As the safe harbour LRBA related party loan interest rates have not changed for 2021-22, generally there will be no requirement to re-calculate the monthly loan repayment amount from 1 July 2021. However, where the related party loan was subject to a fixed interest rate (maximum five years) and the fixed interest rate term is ending on or after 30 June 2021, the loan repayment will need to be re-calculated to accommodate the relevant variable safe harbour interest rate for 2021-22.

ASIC Annual Return Fee

For SMSFs with a corporate trustee, there is a requirement to pay an annual fee, commonly referred to as the “annual return fee”. In line with an increase in the Consumer Price Index (CPI) for the March quarter, ASIC increases some of their fees each year from 1 July. The annual return fee will increase from 1 July 2021 as follows:

• Proprietary company – $276 (up from $273)
• SMSF sole purpose company – $56 (up from $55)

Annual review fees must be paid within 2 months after the review date (except upfront fees). Where the payment is received by ASIC within 1 month after the due date the late payment fee will increase from $82 to $83 from 1 July 2021. Where the payment is received by ASIC more than 1 month after the due date the late payment fee will increase from $340 to $344 from 1 July 2021.

ATO SMSF Levy

Self-managed super funds (SMSFs) are required to pay a supervisory levy to the ATO on an annual basis. It is paid at the time of assessment of the SMSF annual return. The amount payable is stated on the return and is either added to the net income tax payable or deducted from the refund due. There are special rules for an SMSF lodging its first annual return and for the wind-up annual return.

The amount of the levy has been $259 since the year ended 30 June 2014 and will remain at $259 in respect of the 2021 SMSF annual return.
SMSFs with DSFA will continue to be required to use the proportionate method to claim ECPI for an income year, unless they are a fund for which the second proposed measure applies.

Disclaimer

The information has been adapted from information provided by Accurium Pty Ltd.  It is factual information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances.  While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Cosca Super Pty Ltd is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.