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Although this year may be a little less confusing and uncertain than at the start of the pandemic, things are never quiet when it comes to superannuation, with 2021–22 bringing a host of new challenges – and opportunities – for SMSF trustees.
From 1 July 2021 there are new contribution caps and a higher Super Guarantee rate to consider, plus a range of significant reform proposals announced in the May 2021 Federal Budget.
SuperGuide has compiled a checklist of the top things SMSF trustees should expect to see in 2021–22, together with important legislative changes likely to finally pass through Parliament.
9 key things for SMSF trustees to come to grips with in 2021–22
1. Expect higher SG contributions
From 1 July 2021, SMSF trustees will be receiving higher Super Guarantee (SG) contributions from employers contributing to the fund on behalf of their employees. From this date employers are required to make quarterly SG contributions of 10% of an employee’s ordinary time earnings (OTE) to their nominated super fund.
It’s worth noting the government proposes to abolish the current rule that an employer is not required to make super contributions for an employee paid less than $450 per calendar month. This change is not yet law, but it is expected to commence from 1 July 2022 after it passes through Parliament.
2. Watch the new contribution caps
From 1 July 2021, both the annual concessional (before-tax) and non-concessional (after-tax) contribution caps (or limits) are going up. SMSF trustees should ensure their members are aware they can make larger annual contributions without going over the new caps and incurring excess contribution penalties.
The concessional contributions cap is now $27,500 per year (up from the previous cap of $25,000 from 1 July 2017 to 30 June 2021), while the new non-concessional contributions cap is $110,000 (up from $100,000 from 1 July 2017 to 30 June 2021).
It may be a good idea for SMSF trustees to remind their members that their concessional contributions include any salary sacrifice or personal contributions for which they intend to claim a tax deduction. Non-concessional contributions should also be checked, particularly if the member has triggered the bring-forward rule in the past two years, as this means their non-concessional contributions cap remains at $100,000.
3. Check contributions meet the work test
There has been lots of discussion about the proposed abolition of the work test for super members wanting to make a contribution after age 66, so SMSF trustees need to ensure their members meet the existing rules – not those proposed to apply from 1 July 2022.
In the May 2021 Federal Budget, the government announced it would abolish the work test for most types of contributions made by fund members aged 67 to 74. However, this change is not yet law and even when it passes Parliament, it’s unlikely to apply until 1 July 2022.
It’s also important to remember that under the current rules for 2021–22, SMSF members aged 65 and over cannot commence a bring-forward arrangement for their non-concessional contributions – regardless of whether they are working or not. The legislation for this change did not become law last financial year and is now not expected to come into effect until the legislation abolishing the work test passes through Parliament.
4. Document any COVID-19 early access to super
In 2020-21, the government allowed super members to apply for early access to some of their super benefits due to COVID-19. Although SMSF members can no longer apply for early access, the ATO has indicated it is checking the eligibility of some early release applicants, so trustees should ensure they have the necessary paperwork in place. The regulator has noted if super members have applied for early release and did not qualify, or did so mainly to obtain a tax benefit, it will consider taking further action.
There were 40,000 approved early release applications to SMSFs, totalling $395 million. The ATO has said it will be paying particular attention to SMSF audits this year and is likely to be checking SMSFs have documentation in place such as a member notice requesting early release, trustee minutes for the payments and trustee notifications to a member of the early release payments. Your auditor will also be checking these documents, together with member information supporting a loss of employment or reduction in earnings to verify their eligibility for the scheme.
5. Review pension payment amounts
During the 2019–20 and 2021–22 financial years, the government reduced the minimum pension payment percentage for account-based pensions by 50% due to COVID-19. The government recently announced that this temporary reduction in minimum pension payments will be extended to the 2021–22 financial year, finishing 30 June 2022.
| Age of beneficiary | Temporary percentage factor (2019–20 to 2021–22) | Normal percentage factor (2013–14 to 2018–19) |
|---|---|---|
| Under 65 | 2% | 4% |
| 65 to 74 | 2.5% | 5% |
| 75 to 79 | 3% | 6% |
| 80 to 84 | 3.5% | 7% |
| 85 to 89 | 4.5% | 9% |
| 90 to 94 | 5.5% | 11% |
| 95 or more | 7% | 14% |
Source: SIS Act
Underpaying an income stream for an SMSF pensioner can lead to a number of compliance issues, so trustees should ensure their pensioner members are paid at least the minimum percentage factor this financial year. All fund documentation covering the changed pension payments should be updated and minuted to avoid problems at audit time.
6. Watch the higher Total Super Balance (TSB)
From 1 July 2021, the general Total Super Balance (TSB) cap will increase to $1.7 million ($1.6 million from 1 July 2017 to 30 June 2021). The cap is indexed in line with other super caps and represents the lifetime limit of the amount of money an SMSF member can contribute to their super accounts. It also limits the amount of non-concessional contributions they can make into their super account.
The higher general TSB cap means a super member with a TSB of less than $1.7 million can make a non-concessional contribution of up to $110,000 each financial year if they are under age 67, or if they meet the work test (or work test exemption) if they are aged 67 or older. Some super members may be able to make a larger non-concessional contribution if they are eligible to commence a bring-forward arrangement.
7. Check member transfer balance accounts
SMSF trustees are responsible for reporting the initial amount of a member’s transfer balance account when they commence a retirement income pension and they are also required to report transfer balance account events at least annually.
From 1 July 2021, the general transfer balance cap (TBC) increased to $1.7 million ($1.6 million from 1 July 2017 to 30 June 2021). The higher TBC means SMSF trustees should keep an eye on their members’ transfer balance account amounts and ensure they comply with their transfer balance account report (TBAR) obligations.
8. Prepare for changes to the SMSF residency rules
Most SMSF trustees know they need to meet residency requirements to ensure their SMSF is deemed a complying super fund and maintains its access to valuable tax concessions. In the May 2021 Federal Budget, the government proposed relaxing the residency requirements for SMSFs and small APRA funds. This will extend the central management and control safe harbour test from two years to five years and remove the active member test entirely. These proposed measures will allow members of an SMSF to continue contributing to the fund if they are temporarily working or studying overseas.
Although the proposal has not yet passed through Parliament and become law, it is expected to take effect from 1 July 2022, so trustees need to be aware of the proposed changes and consider how they will impact the management of their SMSF in future years.
9. Ending legacy pension products
The government also announced a proposal in the May 2021 Federal Budget to allow SMSF members receiving a complying lifetime, market-linked or life-expectancy pension to exit their existing pension and restructure their retirement income stream.
Members with legacy pensions issued before 20 September 2007 that receive special treatment for tax or social security purposes will be permitted to fully commute their income stream and either leave the remaining money in an accumulation account, cash it out of super, or use it to start an account-based pension.
The change is expected to commence from 1 July 2022 and SMSF pensioners will then have two years to decide whether to exit or change to a newer product. For eligible pensioners this will represent a significant opportunity to restructure their pension at minimal cost and SMSF trustees should prepare for affected members to seek to restructure their pensions.
10. Six member SMSFs
The Senate passed Treasury Laws Amendment (Self Managed Superannuation Funds) Act 2020 on 17 June 2021 without amendment. Among other things, the Act proposes to amend s 17A(1)(a) of the SIS Act to require an SMSF to have fewer than seven members (instead of fewer than five) in order to satisfy the definition of an SMSF.
Besides allowing SMSFs to have up to six members, the main change that will occur relates to the signing of a document that will require at least half of the trustees or directors of the trustee company to sign certain fund and regulatory documents. The Act also standardises the wording used in the SIS legislation so that reference to small funds is consistent.
Pending legislation to keep an eye on
Financial best interest duty for SMSF trustees
The Treasury Laws Amendment (Your Future, Your Super) Bill 2021 is currently before Parliament and is likely to pass early in the second half of 2021. This legislation will require SMSF trustees to perform their duties in the best financial interests of the fund’s beneficiaries. It will also ‘staple’ a super fund to an employee, so they will not be required to choose a new fund every time they start with a new employer.
