If you feel
like the Federal Budget has rolled around unusually quickly this year, you’re
right. Last year’s was delayed (like so
many things) thanks to Covid-19 and was released in October 2020. This year, we have reverted to the normal “2nd
Tuesday in May” arrangement and so the budget will be brought down on Tuesday
11 May 2021.
So what is everyone hoping for?
Last year, my wish list contained three things for SMSFs:
- change the residency rules to make it simpler for people moving overseas to keep their SMSF;
- deal with legacy pensions (such as complying lifetime pensions); and
- simplify the indexation of the transfer balance cap.
I didn’t get any of them. I still have them at the top of my list. I expect a lot of other people now feel the same about the indexation of the transfer balance cap as we’re about to enter the first year of indexed caps. From 1 July 2021 there will be (ridiculously) 101 possible personal transfer balance caps rather than just $1.6m or $1.7m.
So I definitely still want my original three things.
But now I’d probably add a few extras:
- Don’t announce anything on extending the bring forward maximum age from 65 to 67. No, rather than putting it in the budget, just pass the legislation that is already before Parliament! (expletives removed)
- Drop the proposed changes to exempt current pension income. Remember the last budget? The plan was to let trustees that are allowed to use the segregated method to choose whether they used that or the unsegregated method for calculating ECPI. The proposal probably came from good intentions. When ECPI-life changed on 1 July 2017 there was widespread criticism of the ATO’s position that funds allowed to use the segregated method were required to do so whenever – as a matter of fact – all member accounts were supporting retirement phase account-based or market linked pensions. That definitely made life very complicated. So in some ways the budget announcement to provide flexibility was designed to allow people to go back to the way things used to be. But the time for that change was 4 years ago when the ATO first expressed their controversial view. Now, systems have been changed (at great expense), accountants have learned the new approach (at great expense) and there is little benefit to changing things again. In fact, all a change would do is introduce a whole new layer of complexity.
- Lift the $500,000 threshold for the special “catch up” concessional contribution rules. These are the rules that allow people who didn’t use their entire concessional contributions caps in prior years to use them in future years. These unused amounts can only be carried forward for 5 years and the concessional contributions cap remains pitifully low – even next year, it will be only $27,500. Currently only those with a total super balance of less than $500,000 at the previous 30 June are eligible to use these extra cap amounts in a particular year. And the amount is not indexed. Why? Why limit a completely reasonable rule (use caps you were entitled to at the time but didn’t use) to those with superannuation balances that are clearly too low to support a comfortable retirement? Why not use the general transfer balance cap instead ($1.7m from 1 July 2021)?
So my wish list now has six things. Hopefully I get at least one of them soon, otherwise I guess my list will have nine things by May 2022 as none of these are going away.
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