As your trusted financial advisor, the team at Step Up Financial Group wanted to share some important updates from the latest budget that could affect your superannuation and Self-Managed Super Funds (SMSFs). We aim to help you understand these changes and how they might benefit you.
Let’s start with the updates to the Non-Arms Length Income (NALI) rules. These rules prevent superannuation trustees from artificially boosting their fund balances using discounted services from related parties. For example, if a family member is a qualified accountant and does your SMSF accounting for free—services usually cost $5,000—this could be flagged under NALI.
In the past, income from such non-arms-length transactions could be taxed at the highest marginal tax rate, which is quite hefty. Expenses were divided into general expenses (like accounting and audit fees) and specific expenses (like maintenance costs on SMSF-owned property).
Recent consultations by the Treasury have brought some significant changes. The most notable one is capping the taxable income as NALI to twice the level of the breach in general expenses rather than the previous uncapped amount. Also, fund income taxed as NALI will no longer include contributions, and any expenditure before the 2018-19 income year will be exempt from these rules.
The DIV296 Tax
Starting July 1, 2025, there will be an extra 15% tax on earnings for individuals whose total superannuation balance (TSB) exceeds $3 million at the end of a financial year. The definition of TSB remains unchanged and includes amounts in retirement phase pensions. This new tax will consider growth in TSB over the financial year, including contributions and withdrawals.
This method captures both realised and unrealised gains, which means you can carry forward negative earnings to offset against future years. This feature provides some flexibility and relief, especially in volatile market conditions.
Interests in defined benefit schemes will be appropriately valued and taxed similarly to other super interests under this new measure. You can pay this tax either personally or from your superannuation fund, and those with multiple accounts can choose which fund will cover the tax.
The new tax on balances over $3 million is crucial for high-net-worth individuals to consider. While it introduces an additional tax layer, the ability to carry forward negative earnings and choose how to pay the tax provides some flexibility in managing your superannuation funds. This measure is expected to increase tax receipts by $950 million over five years, showing the government’s commitment to a fairer superannuation system.
Seek professional advice
Understanding these changes allows you to strategise your superannuation management better. The NALI rule amendments offer more clarity and fairness, particularly with the cap on taxable income related to non-arms length expenses. This change can significantly reduce the potential tax burden on your SMSF, allowing for better financial planning and optimisation.
It is important to seek professional advice about any financial update or change, particularly those that affect your superannuation and retirement planning. Don’t hesitate to contact our team if you have any questions or need further clarification on how these changes might affect you. We’re here to help you navigate these updates and maximise your superannuation. We specialise in financial planning, superannuation, and retirement planning for singles, couples, and families.
Contact us today for experienced, compassionate, and professional financial planning advice.