This October Budget is the second Federal Budget for 2022 and the first by the Albanese government.
As expected, the 2022-2023 October Federal Budget has focused, on families, education, health and aged care, energy and affordable housing. From an SMSF perspective it is a relatively quiet Budget with some welcome announcements.
The following is a brief summary of the key changes most likely to be relevant to those with an SMSF.
Relaxing of SMSF residency deferred
The Government will defer the start date for the proposed relaxing of the residency requirements for SMSFs, previously announced in the 2021/2022 Budget. This measure has now been deferred to the income year commencing on or after the date of Royal Assent of the applicable legislation.
SMSF Association view:
This measure had been scheduled to commence from 1 July 2022. The SMSF Association actively engaged with the former Morrison Government to seek the urgent progress of this measure and again with the Albanese Government after the Federal Election. Whilst the delay is disappointing, it is pleasing to see that this issue remains on the Government’s policy agenda.
The Budget papers were silent on the proposed legacy pension concessions announced that same year. The SMSF Association will continue to engage with Government and Treasury on this important amnesty.
Penalty unit rate increase
The Commonwealth penalty unit will increase from $222 to $275 from 1 January 2023. The amount will continue to be indexed every three years in line with CPI as per the existing schedule. Indexation is scheduled to occur on 1 July 2023.
SMSF Association view:
The Commonwealth penalty unit will impact a range of penalties, including SMSF trustee penalties imposed by the Commissioner of Taxation. The increase will apply to offences committed after the relevant legislative amendment comes into force.
Expansion of downsizer contributions
The Government has committed to reducing the eligibility age for downsizer superannuation contributions from 60 to 55.
SMSF Association view:
This pronouncement was a pre-election commitment by the Government and already contained in the Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 which is currently before the Senate.
The Association welcomes the expansion of this concession. The earlier availability of downsizer contributions will allow for more comprehensive pre-retirement planning and decisions on the family home to made sooner.
Once passed, the amendments will apply to downsizer contributions made from the 1st day of the quarter following Royal Assent.
Incentivising pensioners to downsize
Pensioners looking to downsize their family home will see the sale proceeds exempt from the asset test extended from 12 to 24 months. Note that this exemption only applies to the principal home sale proceeds which a person intends to use to purchase a new principal home.
Further, for income test purposes, only the lower deeming rate (currently 0.25%) will apply to these asset test exempt principal home sale proceeds for the 24-month period.
SMSF Association view:
This is a practical measure that should benefit pension recipients when selling the family home.
It is hoped that this concession will encourage more older Australians to consider downsizing their family home, making more family style housing available for young families.
This pronouncement is contained in Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022 which is currently before the Senate.
Lifting the income threshold
The Government has re-stated its commitment to increase the income threshold for Commonwealth Seniors Health Card eligibility from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples.
The Government is also set to freeze the social security deeming rates at their current levels until 30 June 2024.
SMSF Association view:
The Association welcomes this change which will support older Australians who rely on income from deemed financial investments, as well as Government support, to deal with the rising cost of living.
The pronouncement to increase the income thresholds for the CSHC is contained in the Social Services and Other Legislation Amendment (Lifting the Income Limit for the Commonwealth Seniors Health Card) Bill 2022 which was already before Parliament.
Tax Practitioners Board (TPB)
Government will provide $30.4 million to the TPB over four years from 1 July 2023 to support the use of new risk engines to increase compliance investigations into high-risk tax practitioners and unregistered preparers.
SMSF Association view:
The SMSF Association welcomes the additional funding, which comes at a time when the Australian Taxation Office (ATO) and the TPB are working closely together to ensure that tax practitioners maintain a strong level of integrity in their lodgement activities.
The ATO continues to actively refer matters to the TPB of instances where SMSF auditor number (SAN) misuse has deliberately occurred with the TPB recently terminating the registration of two tax agents who prepared and lodged SMSF annual returns with incorrect details about the funds’ annual audit.
Targeted compliance activity will better identify tax practitioners who engage in poor and unlawful tax advice, improving overall tax compliance and raising industry standards.
Managed investment schemes
The Government has allocated funding for the 2022/2023 financial year for a review of the regulatory framework for managed investment schemes. This review has been highlighted as one of the Governments priorities in the Treasury portfolio.
SMSF Association view:
Concerns regarding managed investment schemes have been raised through various consultations on the proposed compensation scheme of last resort including the Sterling Income Trust senate inquiry. The SMSF association welcomes this review and we look forward to the opportunity to consult with Treasury.
Modernising Business Registers
The Government will provide additional funding of $166.2 million over 4 years from 2022/2023 to continue the delivery of the Modernising Business Registers program. This will see over 30 business registers consolidated into the new registry platform.
Included in this package is additional funding for the operation and regulation of the Director Identification Numbers regime.
SMSF Association view:
This is a significant project that will see new systems and registers introduced over time and aligns with new law recently passed by Parliament to delay the transfer of registry functions from the Australian Securities and Investments Commission (ASIC) to the new register to 1 July 2026.
The current director identification project is integral to the next phase which will also include the reconciliation and transfer of company register data from ASIC into the new modernised registry platform.
These changes will improve the data quality, regulation, and compliance.
Digital currencies not taxed as foreign currencies
The Government will introduce legislation to clarify that digital currencies continue to be excluded from the Australian income tax treatment of foreign currency. This will maintain the current tax treatment of digital currencies, including capital gains tax where they are held as an investment.
SMSF Association view:
The Government has already released for consultation exposure draft legislation on this issue. The proposed legislation ensures the current treatment of digital currencies continues, following the decision by the El Salvador government to adopt Bitcoin as legal tender.
Fighting online scams
The Government has announced it will allocate funding to combat scams and online fraud to protect Australians from financial harm. This will include funding to support the ACCC (Australian Competition & Consumer Commission) on the establishment of a National Anti-Scam Centre, expand specialist identity support services (including counselling and identity recovery services for victims of identity theft) and public awareness programs.
SMSF Association view:
Scams, fraud, and identity theft are a concern for all Australian’s. This has been highlighted by the recent Optus and Medibank cases. The SMSF sector is not immune, and we welcome measures that seek to educate the community, prevent these activities, and provide better support for victims.
Three Year SMSF audits policy cancelled
The Government has decided that it will not proceed with the previously proposed change to the annual audit requirements for certain SMSFs.
SMSF Association view:
In the 2018/2019 Budget, the Government had proposed to introduce a three year audit cycle for SMSFs that met prescribed criteria.
This was a controversial measure that contained a range of complexities and concerns for the sector. SMSF auditors and the annual audit process play a pivotal role in maintaining the integrity of the SMSF sector.
The SMSF Association engaged with Government at the time, raising the concerns of our members. Whilst this measure failed to progress beyond the Budget pronouncement, it is pleasing to see that it has officially been axed.
Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.