There was plenty in Tuesday’s Federal Budget that will impact retirees.
You can also read more on what the budget means for investors and ASX listed company, as well as a deep dive into whether the government's green hydrogen plan stacks up.
Superannuation measures
The budget confirmed that tax concessions to individuals with a super balance of more than $3 million will be cut from July 1, 2025. The tax rate will go up from 15% to 30% for this group. The budget suggests the extra tax will impact 80,000 individuals in 2025-2026, equating to 0.5% of people with a super account. Despite a storm of criticism on the issue, SMSF advisor Meg Heffron notes the budget indicates there’s unlikely to be any change in the way that the Government calculates the tax: “… we had hoped the Government might adjust the method used to calculate the tax (to avoid a current criticism that the proposed method effectively taxes unrealized gains), might index the $3 million threshold or might allow those who exceed it to withdraw some of their super even if they hadn’t reached the age where this would normally be allowed. It seems that won’t be happening.” Peter Burgess from the SMSF Association had this to say on the issue: “If the Government proceeds with the taxation of unrealised gains as proposed in their consultation paper released in late March, given many small business premises and farms are owned by SMSFs, this new tax could drive up their costs substantially at a time of unprecedented cost of living increases. We stand by our position that using a member’s total super balance to calculate earnings is neither simple nor fair. By definition, a member’s total super balance includes unrealised gains and a growing list of items that will need to be excluded to ensure ‘earnings’ for the purposes of this new tax are not overstated. This methodology discriminates against those funds who can identify and report to the ATO actual taxable earnings attributable to each member.”Non-arm’s length income (NALI) measures
The Government provided an update on proposed amendments to the non-arm’s length income (NALI) rules. For context, the investment income of both SMSFs and APRA regulated funds is generally taxed at the concessional rate of 15%. But any amounts regarded as NALI are taxed at 45%. The NALI rules were originally designed to deter taxpayers channelling income, which would otherwise be taxable at company/individual rates, into concessionally taxed superannuation funds. The rules had been unchanged until 2018 when they were broadened to include a focus on a fund’s expenses as well as income. Put simply, if a fund’s expenses were lower than they would have been in an arm’s length situation (i.e. they were non-arm’s length expenses or NALE), all or part of the fund’s income (including contributions) could be regarded as NALI and taxed at 45%. NALI has become a hot topic for SMSFs in recent times, and a major focus area for the ATO, with the release of updated compliance guides and rulings. It appears several years of lobbying by super/SMSF groups for significant changes to the rules have come to little, with the budget including only minor amendments to the rules, such as:- Large APRA regulated funds will be exempted.
- SMSFs haven’t fared so well. If the general expenditure of an SMSF is lower than what would be expected in an arm length’s scenario, then instead of the fund’s income being taxed as NALI, the NALI amount will be limited to twice the general expense shortfall.
- Also, for the calculation of NALI, fund contributions will be excluded.
