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Federal Budget May 2023-24: Funds & Superannuation

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The Federal Government has announced several measures in relation to superannuation and managed investment trusts (MITs). 

The key announcements relate to:

  • improvement in superannuation engagement and compliance
  • additional MIT concessions to encourage investment and construction to expand Australia’s housing supply

Superannuation

Superannuation Guarantee (SG) engagement and compliance

The Government has announced several measures relating to improving SG engagement and compliance.  The key measures are:

  • From 1 July 2026, employers will be required to pay their employees’ SG entitlements on the same day that they pay salary and wages.
  • Funding of $40.2 million to the ATO in 2023–24. This funding is aimed at improving data matching capabilities to identify and act on cases of SG underpayment by employers.
  • Additional funding over 4 years from 1 July 2023 to enable the ATO to engage more effectively with businesses to address the growth of tax and superannuation liabilities. The additional funding will facilitate ATO engagement with taxpayers who have debts over $100,000 and aged debts older than two years where those taxpayers are either public multinational groups with an aggregated turnover of greater than $10 million, or privately owned groups or individuals controlling over $5 million of net wealth.
  • Funding of $5 million over 5 years from 2023–24 to continue a superannuation consumer advocate to improve members’ outcomes, offset by an increase in the Superannuation Supervisory Levy administered by APRA.

Amending the non-arm’s length income (NALI) provisions

The Government will amend the NALI provisions which apply to expenditure incurred by superannuation funds by:

  • limiting income of self-managed superannuation funds and small APRA-regulated funds that are taxable as NALI to twice the level of a general expense. Additionally, fund income that is taxable as NALI will exclude contributions;
  • exempting large APRA-regulated funds from the NALI provisions for both general and specific expenses of the fund; and
  • exempting expenditure that occurred prior to the 2018-19 income year.

The date of effect for this measure is unclear in the Budget papers, however a previous Government consultation paper indicated that any changes to the non-arm's length expenses rules would apply from 1 July 2023.

Reducing concessions for individuals with a superannuation balance exceeding $3 million

As was announced prior to the Budget, the Government will reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million, from 1 July 2025.

This measure will bring the headline tax rate to 30%, up from 15%, for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million.  Earnings relating to assets below the $3 million threshold will continue to be taxed at 15% or 0% if held in a retirement pension account.

Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests.  The measure will not place a limit on the amount of money an individual can hold in superannuation, with the current contributions rules continuing to apply.

No reduction in minimum drawdowns for 2023-24

The Budget did not announce a further extension of the temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities.

As a result, the 50% reduction in the minimum pension drawdowns, which has applied since the 2019-20 income year, will cease on 30 June 2023.

Managed Investment Trust (MIT) concessions

Clean building withholding tax concession

The Government has announced its intention to extend the clean building MIT withholding tax concession to data centres and warehouses.  This measure will extend eligibility for the concession to data centres and warehouses that meet the relevant energy efficiency standard, where construction commences after 7:30 PM (AEST) on 9 May 2023.  This measure will apply from 1 July 2025.

This measure also comes with increased minimum energy efficiency requirements for existing and new clean buildings.

Reducing MIT withholding tax rate for Build-To-Rent Developments

For eligible new build-to-rent projects where construction commences after 7:30 PM (AEST) on 9 May 2023, the Government will introduce legislation to:

  • increase the rate for the capital works tax deduction to 4% per year; and
  • reduce the final withholding tax rate on eligible fund payments from MIT investments from 30% to 15% (applying from 1 July 2024).

This is a welcome measure that aims to encourage investment and construction in the build-to-rent sector, aiming to expand Australia’s housing supply.

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