What happened in 2021 and what’s happening in 2022?

By Josh Rundmann, Technical Manager

Following on from 2020, 2021 had big shoes to fill – but did it ever deliver? We faced multiple lockdowns, vaccine rollouts, a little submarine kerfuffle and even a delayed Olympics.

Time waits for no one however, and with such a dynamic world around us we have taken the time to look at key changes that have passed this year, or that may make their way into law before the end of the 46^th Federal Parliament.

What was achieved in 2021?

Given the focus on navigating Australia through a pandemic, the Federal Parliament found itself short on time to pass superannuation, tax and social security reforms. As such, the list of accomplishments in this space are somewhat limited. The key changes in the strategic planning space include:

• Exempting granny flat arrangements from CGT. Considered more an oversight than an intended feature, this long-standing thorn in the side of tax-conscious families seeking to provide support to their aging relatives has finally been addressed. CGT rules have been amended to remove the creation of a granny flat right from being considered a CGT event. This Bill received royal assent on 30 June 2021, which was incredibly convenient as the amendment took effect 1 July following royal assent – and is thus effective from 1 July 2021.
  
  
• Small super funds and actuarial certificates. Another technical oversight stemming from the 2016 ‘fair and sustainable’ super changes. Small funds where a member has a total super balance in excess of $1.6m (yes, this threshold is not indexed – perhaps another technical oversight?) and is receiving a retirement phase income stream cannot use the ‘segregated method’ for calculating the exempt portion of their investment income due to the fund paying a retirement phase pension. Consequently, even if a fund is fully in retirement phase for the whole financial year, the fund will need to engage an actuary to confirm that indeed, 100% of the fund’s earnings are exempt from tax. The amendment, effective from 1 July 2021, allows funds to use the segregated method whether the fund is fully in pension phase for the whole financial year – saving the actuary from needing to crunch the numbers, and the fund from incurring an unnecessary expense.
  
  
• Your future, your super. The Coalition’s key reform in super this year, was more a revolution in transparency and fund administration than changes that provide strategic opportunities. This package of changes includes:
  • Annual performance testing for MySuper products from 1 July 2021, as well as select choice products administered by the fund (trustee directed portfolios) from 1 July 2022. Poorly performing funds have to write out to their members highlighting the underperformance, and a fund that fails two consecutive years can no longer receive new members.
  • The single default account changes, also referred to as ‘stapling’ – is designed to reduce members having multiple funds. When clients start with a new employer from 1 November 2021, the employer will have to ask the ATO for any existing super funds before they can contribute to their default fund.
  • The ATO launching the YourSuper comparison tool, to help fund members compare offerings across super funds.
  • The replacement of the super fund trustee’s duty to act in the member’s best interest with a covenant to act in the member’s best financial interest.

• Winding up of Eligible Rollover Funds. Initially designed as a temporary home for super money with no proper home, the inability for these funds to actively consolidate these funds has resulted in substantial benefits in places that members may not even know exist. Given the technological advancements with transfers of super money to the ATO – and the ATO’s ability to actively consolidate money with active funds for the member – the Government has required all eligible rollover funds to close by 31 January 2022, with their funds to be transferred to the ATO. From here the ATO will actively consolidate these monies with a member’s active super.

What could we expect in 2022?

There are a number of reforms which have been introduced to Parliament but have not yet passed into law. The below are proposed to have effect from 1 July 2022.

• Changes for older Australians to make super contributions. As part of the 2021 Federal budget, changes were proposed to remove the work test for making voluntary super contributions between ages 67 and 74. Part of this included changes to tax law so as to increase the age limit on when a client can trigger the bring-forward arrangements to age 74, and only apply the work test after age 67 to those personal contributions that the client wants to claim as a tax deduction.
  
  Removing the work test for making contributions will allow anyone with a total super balance under $1.7m, at 30 June of the previous financial year, to make non-concessional contributions up to age 75. Effectively the age limits have become less relevant now the ability to make substantial contributions is limited based on client’s super balance. Advisers should note that the removal of the work test for making voluntary contributions over age 67 will only require a change to the SIS regulations, and does not need to pass through Parliament.. For example, with the increase in contribution eligibility to age 67, we saw super work test regulations amended nearly 12 months in advance of the tax law contribution cap amendment as the latter requires legislative change.

• Downsizer eligibility age reduction. The budget also proposed reducing the minimum age for downsizer contributions from 65 to 60.

• Pension loan scheme enhancements. Building on from the recent increase in eligibility and amount available under the scheme, these changes provide that the repayment of the loan is limited to the value of the asset it is secured against, as well as introducing the ability to bring forward 50% of their next 12 months of payments as a lump sum.

• Retirement income covenant. Initially raised in 2018, this covenant applies to super trustees and requires them to develop retirement strategies for identified cohorts of members. The intent behind this change is to have super trustees focus on helping members balance maximising their income in retirement, managing longevity risks and providing access to capital as required. A public summary of this strategy is required to be published by the fund.

Of course, the reforms above will have no effect until they pass into law.

What measures haven’t yet been introduced?

In addition to measures which have not yet passed, there are also important announcements from the 2021 budget that have not been progressed at this stage.

The most commonly queried announcement which has not seen any movement to date is the ability to exit legacy income streams. This budget announcement bought hope to many clients who are ‘trapped’ in older income stream products such as complying lifetime and life expectancy pensions or term allocated pensions, but was not introduced to Parliament at the time of writing.

However, it may be possible for the Government to simply amend regulations to achieve this outcome, depending on the specific implementation.

Will an election impact legislation passing in 2022?

An election will need to be called early 2022. At present there are two potential ways an election could play out:

1. Upon returning from summer break in February 2022, the Prime Minister can call an election immediately – removing the ability for any outstanding legislation to be passed.
   
   
2. The Government proceeds with the February and March 2022 sittings (with an early Budget to be delivered late March), and the Prime Minister calls the election called shortly thereafter. This would provide a limited opportunity for Government to address the backlog of legislation that has been introduced and not passed.

At time of writing a later election seems more likely, but regardless of when the election is called we are eager to see what promises are kept during 2022.

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

Disclaimer
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.