Superannuation news from the Federal Budget 2020-21

There was nothing specific or unexpected announced in relation to superannuation in the Federal Budget 2020-21. However, there are some changes outside the Budget that are in the process of being introduced.

Maximum number of SMSF members increased from 4 to 6

The Government has previously announced that it will increase the maximum number of allowable fund members in SMSFs and small APRA funds from 4 to 6 members and this was reiterated in this Budget.

Legislation to extend this measure remains before Parliament to take effect from the start of the quarter after receiving Royal Assent.

Retirement Income Covenant

The purpose of the Retirement Income Covenant is for trustees to consider the retirement income needs and preferences of their members and to formulate a retirement income strategy. It is designed to allow retiree members to more effectively choose a retirement product that aligns with their preferences, ultimately improving their outcomes in retirement.

This was meant to commence on 1 July 2020 but has now been deferred to 1 July 2022.

Work Test 

Even though this was not part of the Federal Budget announcement, it is worth mentioning that as of 1 July 2020, the Government has increased the age at which the superannuation work test applies from 65 to 67. This effectively provides an additional opportunity for members to make additional voluntary (non-concessional) superannuation contributions.

This change will provide an opportunity to not only increase superannuation balances but also reduce the taxable component of member superannuation balances via re-contribution strategies.

Superannuation members who are under the age of 67 should consult with their financial advisors to confirm if a re-contribution strategy will benefit their circumstances.

Please note there is a proposal to increase the bring-forward age to allow individuals under the age of 67 (as of 1 July in the relevant financial year) to make non-concessional superannuation contributions of up to $300,000. If this becomes law, it will also apply from 1 July 2020 and provide further planning opportunities.

In the meantime, please contact our superannuation and wealth management team on (03) 9810 0700 or if you have any questions.

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