How does the 2016 Federal Budget affect SMSFs?
In this year’s Federal Budget, Prime Minister Tony Abbott pledged that there will be no adverse changes to superannuation in this term or in the future. But that doesn’t mean other initiatives announced last week won’t affect your SMSF or how you run it.
Here are the main changes that will both directly and indirectly impact on you and your superannuation fund and some things you might be able to do about them.
There are two changes that will take effect on 1 January 2017:
- The asset test thresholds have been increased. Non-homeowners asset test thresholds will all be increased to $200,000 above the homeowner asset test thresholds. The maximum levels of assets at which pensions cut out have also all been lowered (see the tables below).
- The taper rate for this test has been increased from $1.50 to $3.00 per $1,000 worth of assets. If your assets exceed your relevant threshold (see below), then your pension reduces by $3 for every $1,000 you have above that threshold. This reverses a concession introduced by the Howard Government in September 2007.
What’s counted under the assets test? Every asset you own (including the market value of your super pension, collectibles, personal use assets, motor vehicles) other than your family home is counted in this test.
Stricter rules ahead for collectibles in SMSFs
The Government estimates that the first change mentioned above will see about 326,000 Australians either have a reduced pension or lose the pension completely. Those who lose the pension completely will still be eligible for the Commonwealth Seniors Health Card.
The new and old asset test limits are set in the tables below.
One strategy worth considering if you might lose access to a part-pension is superannuation splitting
. This works where one partner in a couple is younger than the other.
Under the assets test, the super of your partner is not included if they are not yet of pension age. So, while you will now be effectively assessed under the lower single assets test limit and CentreLink will consider your combined assets, they will exclude your partner’s super balance.
For a couple with combined super assets of $823,000, if the partner of pension age had, say, less than $547,000 in super, and the other partner under pension age had the balance, the elder partner would still be eligible for a part pension.
There are no changes to the main income test.
Deeming – the proposed 2014 changes that would have seen the deeming thresholds reduced to $30,000 for singles and $50,000 for couples (currently $48,000 and $79,600, respectively) have been withdrawn.
Defined benefit pensions – at present there is an income test concession for some defined benefit pensions. Effectively, the pension income counted is reduced if it includes any tax-free component. From 1 January 2016, the maximum reduction will be set to 10 per cent of the income paid. This will mean more pension will be included in the incomes test, which will see a fall in aged pension payments for some defined benefit pension recipients.
There are two changes of note:
Terminal medical condition - from 1 July 2015, you will be able to gain access to super if two doctors certify that you have less than 24 months to live (currently 12 months).
- Penalty units – from 31 July 2015, the penalty unit fine will increase from $170 to $180 per penalty unit. SMSF trustees who receive a fine will therefore pay more. For example, a breach of five penalty units would now carry a fine of $900, instead of $850.
Medicare levy low-income thresholds will be increased from 1 July 2015. The thresholds under which you don’t have to pay the Medicare levy are increasing as follows:
Senior Australian Pensioner Tax Offset recipients - $33,044 (up from $32,279)
Couples with no children - $35,261 (from $34,367)
Couples with dependent children - $35,261 (from $34,367) plus $3,238 for each dependent child
Singles - $20,896 (up from $20,542)
From 1 January 2016, means testing arrangements for periodic payers and lump sum contributors will be aligned. Effectively, this means the rental income exemption on the former family home will be removed.