Whilst the focus may be on 2020-21 year-end matters for SMSFs, such as contribution being receipted and minimum pension paid by 30 June 2021, there are a number of changes taking place on 1 July 2021. In this article we summarise what is, and also what is not changing.
Transfer balance cap
The general transfer balance cap (TBC) will index by $100,000 to $1.7 million on 1 July 2021. From this date, individuals, accountants and advisers need to get use to the terms ‘general transfer balance cap’ and ‘personal transfer balance cap’ and the difference between the two. Indexation of the general transfer balance cap will not automatically mean an increase in an individual’s personal transfer balance.
Where an individual has a transfer balance account (TBA) prior to 1 July 2021, the ATO will calculate an individual’s personal TBC, after indexation of the general TBC and this figure should be available in the member’s myGov account from 5 July 2021. However, importantly, it will be based on the individual’s highest balance of their TBA prior to 1 July 2021 and consequently, it’s important that all reportable TBA events prior 1 July 2021 are reported without delay to ensure the ATO’s calculation is based on complete and accurate information.
The concessional and non-concessional cap will increase from 1 July 2021 as follows:
- Concessional cap – $27,500;
- Non-concessional cap – $110,000.
The bring forward rule, where first triggered in the 2021-22 income year, can apply where the member is under 65 in the income year, based on the following:
|Total super balance on 30 June of previous year||Non-concessional contributions cap for the first year||Bring forward period|
|Less than $1.48m||$330,000||3 years|
|$1.48m to less than $1.59m||$220,000||2 years|
|$1.59m to less than $1.7m||$110,000||No bring forward period, general non-concessional contribution cap applies|
|$1.7m or more||Nil||Not applicable|
Note: A Bill is before the Senate at the time of compiling that will increase the bring forward rule age to under 67 with effect from 1 July 2021. There was also a proposal in the 2021-22 Federal Budget to remove the ‘work test’ for those up to age 74 and also allow access to the bring forward rule.
A transitional bring forward rule applies where it is triggered prior to 1 July 2021 and the bring forward period extends beyond 30 June 2021.
For further discussion on the indexation of contribution caps, refer to our article ‘Contributions caps indexation follows indexation of TBC’
Total superannuation balance
From 30 June 2017, an individual’s total superannuation balance (TSB) is used to determine whether they are eligible for several super-related measures for the following income year. Some of these super-related measures set the limit for the TSB as being equal to the general TBC, which is indexing to $1.7m from 1 July 2021.
However, there are a number of super-related measures that whilst requiring a calculation of a member’s TSB, are not linked to the general TBC and consequently will not increase on 1 July 2021. These super-related measures include:
- TSB threshold for application of the catch-up concessional contribution cap – it will remain at $500,000;
- TSB threshold for the recently retired work test exemption – it will remain at $300,000;
- TSB threshold test for determining whether an SMSF has disregarded small fund assets (DSFA) – this will remain at $1.6 million;
- TSB threshold for an SMSF to self-assess whether it is an annual or quarterly reporter for TBA purposes – this will remain at $1 million. However, it is noted that on the ATO’s website (QC 57300) the following statement is made in relation to the $1 million threshold:
“We will continue to evaluate this reporting frameworks’ benefits and risks. For example, the $1 million reporting threshold may be re-evaluated in the future, given indexation of the general transfer balance cap.”
For employers, the superannuation guarantee (SG) contribution percentage will increase to 10% on 1 July 2021. The SG is applied to an eligible employee’s ordinary time earnings (OTE). For further information for employers, refer to the ATO’s website and search on Quick Code (QC) 33737.
Minimum pension percentages
The 50% reduction to minimum pension percentage for account based and market linked pensions, which applied for the 2019-20 and 2020-21 income years, will be extended to the 2021-22 income year. This was announced by the Prime Minister on 29 May 2021. This will require an amendment to the relevant schedules in the SIS regulations. Generally, an amendment to regulations only requires tabling of the amendment in the House of Representatives and no objection being made during the relevant statutory period, being 14 sitting days.
Assuming the amendment to the relevant schedules in the SIS regulations are affected, the minimum pension percentages will be as follows:
Schedule 7 – SIS regulations (account-based pensions):
|Age at 1 July (or start, if started in year)||Standard minimum pension %||Reduced minimum pension % for 2019-20; 2020-21 and 2021-22 financial years|
|65 – 74||5%||2.5%|
|75 – 79||6%||3%|
|80 – 84||7%||3.5%|
|85 – 89||9%||4.5%|
|90 – 94||11%||5.5%|
The above minimum percentages also apply to:
- All Transition to retirement pensions;
- Market linked (term allocated) pensions commenced on or after 20 September 2007.
The 10% maximum pension for a Transition to retirement pension in non-retirement phase is not affected by the 50% reduction to the minimum pension percentage.
Schedule 6 – SIS regulations (market linked & term allocated pensions):
- Standard annual pension range:
- Minimum – 90% of calculated amount per Schedule 6 SISR
- Maximum – 110% of calculated amount per Schedule 6 SISR
- Annual pension range for 2019-20; 2020-21 & 2020-22 income years:
- Minimum – 45% of calculated amount per Schedule 6 SISR
- Maximum – 110% of calculated amount per Schedule 6 SISR.
Note: For a market linked (term allocated) pension that commenced on or after 20 September 2007, it must also comply with the minimum pension percentage under Schedule 7. Where the minimum amount calculated under Schedule 7 is greater than the minimum amount calculated under Schedule 6 – the Schedule 7 minimum amount applies.
For further information on minimum pension payment requirements, please refer to the ATO’s website for “SMSFs: Minimum pension payment requirements – frequently asked questions”, search using Quick Code (QC) 39769.
CGT Lifetime cap
Under the CGT cap, an individual can during their lifetime, exclude non-concessional super contributions made from the sale of certain small business assets from their non-concessional contributions cap up to the CGT cap amount. The cap amount increases to $1,615,000 on 1 July 2021.
An individual must elect to exclude eligible contributions from their non-concessional contribution cap and apply their CGT lifetime cap by using the ‘Capital gains tax cap election form’ (NAT 71161) and providing the completed form to the superannuation trustee before or at the time the contribution is made. An election made after the contribution it refers to is not valid. Consequently, the contribution will not be excluded from the non-concessional contributions cap.
Low rate cap – lump sum super benefit
The low rate cap amount is the limit set on the amount of taxable components (taxed and untaxed elements) of a super lump sum that can receive a lower (or nil) rate of tax. It applies to individuals who have reached their respective preservation age, but are below 60 years at the time of receiving the payment.
It is a lifetime cap which is reduced by any amount previously applied to the low rate threshold. The low rate cap amount will increase to $225,000 for the 2021-22 income year.
An individual’s preservation age is the age they can access their superannuation benefits where they have retired. Attaining preservation age also allows an individual to start a transition to retirement pension. An individual who was born before 1 July 1960 has already reach their preservation age, which was age 55. The preservation age is being increased to age 60 as follows:
|Date of birth||Preservation age|
|Before 1 July 1960||55|
|1 July 1960 to 30 June 1961||56|
|1 July 1961 to 30 June 1962||57|
|1 July 1962 to 30 June 1963||58|
|1 July 1963 to 30 June 1964||59|
|From 1 July 1964||60|
For those born on or before 30 June 1963, they will have already reached their relevant preservation age or will do so by 30 June 2021. For those born from 1 July 1963 up to 30 June 1964, they will have to wait until their 59th birthday, the earliest being 1 July 2022, before they can access their preserved superannuation benefits. For everyone else, the earliest they will be able to access their preserved benefits will be 1 July 2024, when those who were born on 1 July 1964 turn 60.
Age pension age
An individual needs to be the qualifying age or older to get the Age Pension. This is referred to as an individual’s ‘Age Pension age’. An individual’s birthdate will determine their Age Pension age.
The Age Pension age has been slowly increasing from 65 to 67 years. It’ll increase by 6 months every 2 years until the Age Pension age is 67 on 1 July 2023. Consequently, the Age Pension age will increase to 66 years and 6 months on 1 July 2021. The final increase in the Age Pension age will be on 1 July 2023 when it increases to age 67.
New accounting standard
AASB 2020-2 comes into effect from 1 July 2021 and changes reporting requirements for SMSFs. SMSFs will no longer be able to self-assess financial reporting requirements and prepare special purpose financial statements where their trust deeds were created or amended on or after 1 July 2021 and require preparation of financial statements that comply with Australian Accounting Standards.
SMSFs are considered not to be a reporting entity and consequently can prepare special purpose financial statements, rather than general purpose financial statements. Special purpose financial statements are not required to follow accounting standards, with the accounting policies determined by the SMSF trustee and trust deed.
These changes mean new SMSFs that are set up from 1 July 2021 and wish to prepare special purpose financial statements will need to ensure they don’t have a clause in their trust deeds that require their financial statements be prepared in accordance with the Australian Accounting Standards (AAS). Similarly, existing SMFSs that intend to amend their trust deed after 1 July 2021, should remove such a clause if they wish to continue preparing special purpose financial statements.
Generally, SMSF trust deeds refer to the financial statements being prepared in accordance with the superannuation laws and do not refer to the AAS. Consequently, this should not become an issue for the majority of SMSFs, but always worth checking.
Non-arm’s length expenditure
The ATO extended their transitional compliance approach set out in Practical Compliance Guideline (PCG) 2020/5 in relation to non-arm’s length expenditure (NALE) to include the 2021-22 income year. The extension has been provided while the ATO finalises Draft Law Companion Ruling (LCR) 2019/D3: Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement.
As outlined in PCG 2020/5, the ATO will not allocate compliance resources to determine whether the income of a complying super fund is non-arm’s length income (NALI) where the fund incurred non-What arm’s length expenditure of a general nature that has a sufficient nexus to all ordinary and or statutory income derived by the fund. However, SMSF trustees, accountants and SMSF auditors will still need to consider the application of the broadened NALI provisions, which came into effect from 1 July 2018, in relation to non-arm’s length expenditure that directly related to the fund deriving particular ordinary or statutory income from 1 July 2018, as the transitional compliance approach in PCG 2020/5 does not apply.
Safe Harbour interest rate for LRBAs
Where an SMSF has borrowed to acquire an asset via a limited recourse borrowing arrangement (LRBA) and the loan is from a related party, an option to avoid the application of the non-arm’s length income (NALI) rules is for the loan to be structured in accordance with the safe harbour guidelines in PCG 2016/5. PCG 2016/51. These guidelines include the interest rate to be charged for a particular income year. The ATO has released the interest rate for the 2021-22 income year to be used under an LRBA with a related party loan that will be consistent with the safe harbour terms outlined in PCG 2016/5:
|Asset under LRBA||Safe harbour interest rate for 2021-22|
|Listed shares or units||7.10%|
The safe harbour interest rates for 2021-22 have remained the same as the 2020-21 income year. For prior income year interest rates, please click here.
As the safe harbour LRBA related party loan interest rates have not changed for 2021-22, generally there will be no requirement to re-calculate the monthly loan repayment amount from 1 July 2021. However, where the related party loan was subject to a fixed interest rate (maximum five years) and the fixed interest rate term is ending on or after 30 June 2021, the loan repayment will need to be re-calculated to accommodate the relevant variable safe harbour interest rate for 2021-22.
ASIC annual return fee
For SMSFs with a corporate trustee, there is a requirement to pay an annual fee, commonly referred to as the “annual return fee”. In line with an increase in the Consumer Price Index (CPI) for the March quarter, ASIC increases some of their fees each year from 1 July. The annual return fee will increase from 1 July 2021 as follows:
- Proprietary company – $276 (up from $273)
- SMSF sole purpose company – $56 (up from $55)
Annual review fees must be paid within 2 months after the review date (except upfront fees). Where the payment is received by ASIC within 1 month after the due date the late payment fee will increase from $82 to $83 from 1 July 2021. Where the payment is received by ASIC more than 1 month after the due date the late payment fee will increase from $340 to $344 from 1 July 2021.
ATO SMSF levy
Self-managed super funds (SMSFs) are required to pay a supervisory levy to the ATO on an annual basis. It is paid at the time of assessment of the SMSF annual return. The amount payable is stated on the return and is either added to the net income tax payable or deducted from the refund due. There are special rules for an SMSF lodging its first annual return and for the wind-up annual return.
The amount of the levy has been $259 since the year ended 30 June 2014 and will remain at $259 in respect of the 2021 SMSF annual return.
SMSFs with DSFA will continue to be required to use the proportionate method to claim ECPI for an income year, unless they are a fund for which the second proposed measure applies.
This information is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. The information is provided in good faith and derived from sources believed to be accurate and current at the date of publication. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional advice before making any financial decisions.