Superannuation professionals did not have particularly high expectations of superannuation related measures in the 2021 Federal Budget but had hoped to see a number of technical issues addressed with respect to residency requirements for self managed superannuation funds, legacy pensions and the unnecessary complexity in the indexation of transfer balance caps. Not all of these issues were addressed but the Government went further with other measures and has proposed welcome relations to the capacity to contribute to superannuation and the abolition of the $450 superannuation guarantee threshold.

From a superannuation perspective, this could be seen as a “true to label” Budget unlike the 2006 budget which, whilst it simplified much of the superannuation system, gave rise to the creation of signification opportunities form particularly, wealthy Australians and nor is it akin to the 2016 Budget which slammed the door on many of the provisions of the 2006 Budget, introduced a level of (unnecessary) complexity back into superannuation. The introduction of some simplified measures and additional modest measures to help older Australians to create strategically a more tax efficient retirement base is very welcome given that such measures didn’t exist in their current form for much of their working lives.

An interesting departure from previous Budgets is the convention with respect to the date of effect of many of the proposed measures. In the past, Budget papers have often noted implementation dates such as 1 July following the current budget announcements or, in some cases, 7:30pm AEST on Budget night. The timing convention noted in the current Budget papers most often refers to “the start of the financial year following the financial year in which the enabling legislation receives Royal Assent” – this would tend to indicate an implementation date of 1 July 2022 at the earliest. Given the current composition of the Senate through which the enabling legislation would need to pass, this timing convention may indicate a degree of uncertainty as to whether the proposals are implemented in their stated form or are amended through a period of negotiation or lost altogether.

As always, we caution that the announcements made in the Budget are proposals only until such a time as the enabling legislation is passed and receives Royal Assent and any adjustment to the regulations made.


The Government has proposed that the current $450 per month minimum income threshold under which employees do not have to be paid superannuation guarantee by their employer be abolished. This particular threshold which was put in place at the commencement of the superannuation guarantee by their employer be abolished. This particular threshold which was put in place at the commencement of the superannuation guarantee legislation in the early 1190s and which has not been indexed since that time will have the capacity to expand superannuation guarantee coverage for individuals with lower incomes.

There has been no change to the definition of “ordinary time earnings” and “Ordinary hours of work”. An employee’s “ordinary hours of work” are defined in the Superannuation Guarantee Administration Act are the hours specified as the ordinary hours under the award or agreement which governs the employee’s conditions of employment. This has allowed employers to tightly define the concept of “ordinary hours of work” under awards or EBAs to the extent that any hours worked in excess of, or outside the span of, those specified hours are excluded for the purposes of the employer’s obligation to pay the superannuation guarantee contributions. This has led to a situation in which employees are being “shortchanged” such as was exposed in the Federal Court in the case brought against BlueScope Steel.

A change in the definition of “ordinary hours of work” would ensure a greater degree of equity in the superannuation system for such employees who are disadvantaged by the current construct of the definitions.

Scrapping the minimum threshold was one the nineteen recommendations in the 2016 Senate Committee’s report “A husband is not a retirement plan” on achieving economic security for women in retirement. Interestingly, paying SG on the Commonwealth Government Paid Parental Leave Scheme, another one of the recommendations from this Report, which was expected by many to be announced in this Budget, was not.


Currently, individuals aged 67 to 74 years can only make voluntary contributions (both concessional and non-concessional to their superannuation, or receive contributions from their spouses, if they meet the “work test”, (i.e. have worked at least 40 hours over a 30 consecutive day period in the relevant financial year) or are eligible to contribute under the recent retiree work test exemption. This particular provision has been one of the bugbears of superannuation professionals for some time as it introduces complexity, creates risk for the taxpayer (am I able to substantiate the fact that I have met the relevant work test provisions?) and whom is also unable to make the contribution until the work test has been met in the financial year.

From 1 July 2022, the Government will allow individuals aged 67 to 74 (inclusive to make or received no-concessional superannuation contributions or salary sacrificed contributions without meeting the work test, subject to existing contribution caps. Actually, the Government’s fact sheet talks about age 74, presumably this would also be defined in legislation as “the 28th day of the month after the individual turned 75” as per the current legislation.

The work test (or recent retiree work test exemption) will still have to be met by individuals aged 67 to 74 years wanting to make personal deductible contributions. By limiting the deferral of work test conditions to non-concessional contributions and/or salary sacrificed contributions, the Government has ensured that the employment relationship are not available to those taxpayers seeking to arbitrage the superannuation tax rates and the taxpayers’ marginal tax rates applicable to their personal investment income, for example. At this stage there is little clarity as to whether this could also apply to self employed individuals who, by definition, cannot salary sacrifice.


The implementation of this measure could also obviate the need to implement the legislative extensions to the “bring forward” contribution measures which are currently stuck in the Senate. The increases capacity to make contributions under this proposal will also continue to be subject to standard assessment with respect to the transfer balance cap in total superannuation balance rules. Having said that, there was an announcement in the Budget papers which was almost a “throwaway” announcement but which seems to refer to a proposal to allow anyone to use the bring forward rules right up until age 74 or, more probably, “this end of the year in which they turned 75” (extrapolating from current legislation applying to bring forward contributions).



The capacity to make special additional contributions of up to $300,000 (or $600,000 in total for a couple) on selling a family home has been around since 1 July 2018. The current rules allow anyone to meet the eligibility criteria to make “downsizer” contributions provided they have attained the age of 65 but the normal constraints imposed by the total superannuation balance and transfer balance cap thresholds do not apply to such contributions and nor do they count towards the non-concessional contribution caps. Importantly, individuals are only allowed one downsizer contribution over their lifetime.

The eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60 years of age. All other eligibility criteria remain unchanged, allowing individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person, from the proceeds of selling their family home. The lowering of the eligibility age will provide an interesting strategic interplay between the downsizer contribution rules and the standard non-concessional contribution/bring forward rules. It could well be envisaged that under the changed age eligibility rules, downsizer contributions could be made concurrently with, say, a bring forward contribution and which would lead to a situation in which the order in which such contributions are made being particularly important so that an individual does not end up with an excess non-concessional contribution position.



The Government will provide a temporary, two-year opportunity for individuals to transition form existing legacy retirement products (including reserves) that were first commenced before 20 September 2007 to newer, more flexible products. Currently, these legacy products (market linked income streams, term allocated pensions, life-expectancy and lifetime pensions and annuity products commenced with any provider, including SMSFs), can only be converted into another like product. Limits currently apply to the allocation of any associated reserved to avoid counting towards an individual’s contribution caps.

Retirees will be able to exit these legacy products by fully commuting the product and transferring the underlying capital, including any reserves, back into the accumulation phase and which, from there, they can decide to either commence a new retirement product, take a lump sum benefit or retain the funds in the accumulation phase. There will be some interesting implications with respect to certain legacy pension products which are also considered to be death benefit income streams, received by the beneficiary as a result of the death of the original pensioner and further detail will need to be evidenced from the legislation proposals to be put before Parliament as to the treatment of the death benefit incomes streams under measure.

It is also not clear from the announcements as to whether this proposal will also extend to legacy products which commenced before 20 September 2007 but were subsequently rolled over on a like for like basis and we await further details on this technical matter.

It is also proposed that it be not compulsory to transition from such legacy retirement products given that certain of these products (referred to as “capped defined benefit income streams”) were able to be established in such a manner that they were considered to be within the transfer balance cap of $1.6 million supporting such pensions in pension phase (notwithstanding that there may be some tax applicable to certain income streams currently paying above $100,000 per annum) against the simplification of pension arrangements and the individual’s transfer balance cap position.

Importantly, income streams not included in this measure include flexi-pensions offered by any provider and lifetime products offered by a large APRA-regulated defined benefit scheme (e.g. some older corporate funds) or public sector defined benefit scheme (e.g. CSS, PSS)



Covid 19 and the incapacity for many people to travel to and from Australia has also spotlighted the  constraints with respect to the residency of SMSF members and the capacity for an SMSF to continue to meet  the necessary tests to be considered a complying fund and be eligible for concessional tax treatment. Simply,  there are three tests that are applied, the first of which is relatively easy to satisfy but the remaining two – the  central management and control test and the active member test – are more difficult and all three tests must  be met at all times.

The central management and control test requires that the strategic and high-level decision-making of the  fund is ordinarily [my emphasis] in Australia. Central management control can, at times, be exercised outside  Australia providing this is a temporary situation. What constitutes “temporary” is determined on a case-by case basis but the current law includes a “two-year safe harbour rule”. Whilst this can be described as a safe  harbour rule, it is not a blanket exemption allowing trustees to exercise control outside Australia for no more  than two years. In fact, absences of greater than two years may be acceptable provided they were always  intended to be temporary or, conversely, absences of less than two years may not be acceptable if the  absence was never intended to be temporary.

The proposal by the Government is that SMSFs and small APRA funds will have relaxed residency  requirements through the extension of the central management and control test “safe harbour” from two to five  years. Given that the two-year period currently enshrined in the legislation still produces situations in which  there is a considerable grey area, extension of the two-year period to a five year period doesn’t fundamentally  improve this position. In our view, the government could have proposed a more cut and dried change and  made the five year period a truly genuine “safe harbour” with, say, a further two years to remediate the  position or wind the fund up than immediately become noncomplying.

Given that we are unlikely to see the enabling legislation receive Royal assent and become effective  (presumably from 1 July 2022 at the earliest), we believe that the residency issue will continue to be of a  concern to SMSF members who travelled on a temporary basis prior to Covid related travel restrictions and  who have been unable to return to Australia and who may conceivably be “temporarily absent” for a period of  greater than two years prior to the earliest anticipated promulgation and implementation of the legislation. The  ATO has provided some general guidance but there is some concern, in the absence of any further guidance  from the ATO in its capacity as the Regulator, as to any compliance action and/or substantiation requirements  that may be envisaged by the ATO.

The active member test will also be removed, allowing members who are temporarily absent to continue to  contribute to their SMSF. The proposal to remove the active member test is a welcome change. It will allow,  for example, individuals who have arrived in Australia but who do not yet qualify as Australian tax residents to  set up an SMSF and, similarly, individuals who are no longer Australian tax residents won’t need to change  their contribution arrangements and will be able to continue to make contributions to their SMSF (subject to all  other eligibility considerations).


The Government will increase the maximum releasable amount of voluntary concessional and non concessional contributions under the First Home Super Saver Scheme (“FHSSS”) from $30,000 to $50,000.

Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards  the total amount able to be released. The increase in maximum releasable amount will apply from the start of  the first financial year after Royal Assent of the enabling legislation, which the Government expects will have

occurred by 1 July 2022. This measure will ensure the FHSSS continues to help first home buyers in raising a  deposit more quickly.

The Government will make four technical changes to the legislation underpinning the First Home Super Saver  Scheme to improve its operation as well as the experience of first home buyers using the scheme. These four  changes assist FHSSS applicants who make errors on their FHSSS release applications.

Whilst, on the face of it, it is not expected that this measure will lead to significant uptake, it is still a worthwhile  scheme to assist in saving for a deposit through the superannuation infrastructure. However, with interest  rates at historical lows and which, according to the Reserve Bank commentary, are likely to stay that way for  some time and housing prices increasing, it’s not difficult to understand why this been only a limited uptake. It  also explains why it is somewhat difficult to find out how many people have utilised the scheme and how much  has been released with the ATO advising only upon a specific enquiry by a media outlet that, in the 2018/19  financial year, an amount of approximately $41 million was released 3,337 fund members.



Most changes to superannuation thresholds which have been previously advised are due to the normal  application of indexation provisions such as the increase in the concessional contributions cap from 1 July  2021 to $27,500, the increase in the non-concessional contributions cap to $110,000 from the same date and  the total superannuation balance threshold to $1.7 million (and associated thresholds to determine non concessional contribution cap amounts under the bring forward rules) also from 1 July 2021. There have also  been no changes announced to the total superannuation balance thresholds applying for those who wish to  make a “work test exempt” contribution (threshold currently $300,000 and not indexed) and those who wish to  utilise the unused concessional contributions cap amounts (threshold currently $500,000 and not indexed).

The Government also did not announce any changes to the increase in the rate of superannuation guarantee  which is legislated to increase to 10% on 1 July 2021 and then increase 0.5% each year until it reaches 12%  from 1 July 2025. While the Retirement Income Review supported the view that any SG increases will result in  a reduction in wages growth, we would expect the tax cuts announced in the previous Budget to help cushion  any actual impact, countering some of the arguments that have been made against the scheduled increases.  Going ahead with the SG increases provides an opportunity to rebuild retirement savings after the impact of  the COVID-19 Early Release Scheme, which has seen over 3 million members withdraw over $36 billion from  the superannuation system.

No extension was announced to the current halving of the pension drawdown rate for account based  pensions, transition to retirement income streams and market linked pensions) and full drawdown rates will  return from 1 July 2021.

With the Government through the Budget announcements giving appropriate weight and focus to women’s  issues, and, whilst successive Governments have conceded that women, on average, retire with significantly  less superannuation than men, there is little in this Budget that would give rise to a narrowing of the retirement  savings gap. The Government’s previously announced measures with respect to the capacity to utilise unused  concessional contribution cap amounts was an attempt to narrow the retirement savings gap but suffered from  a fundamental flaw: those who could take advantage of the measure are generally those who have the excess  cash flow to be able to do so and have the appropriate level of taxable income to be able to claim a deduction  which would generally preclude many lower paid women from being able to take advantage of the scheme.

An issue which has seemingly bypassed Governments of all natures and which also appears to have been  missed by many advocating strategies to reduce the retirement savings gap relates to the little-known  provision pertaining to the superannuation guarantee through which a person, who receives payment to do work wholly or principally of a domestic or private nature for less than 30 hours per week is not, in relation to  that work, considered to be an employee of the person for whom the work is done. Therefore, superannuation  guarantee contributions do not need to be made on their behalf. The Commissioner’s view is that work of a  domestic or private nature ordinarily means work relating personally to the individual making payment for the  work or to the person’s home, household affairs or family organisation: e.g. an individual employed to clean  someone’s home, to mind children or to effect repairs or maintenance of their home would be engaged in  domestic or private work. It could be reasonably assumed that a material percentage of such persons involved  in providing such services are lower paid women for whom the capacity to receive superannuation guarantee  contributions could assist in reducing the retirement savings gap. We are at a loss to understand as to why  this discrepancy has not been more vigorously pursued.


Whilst we, as superannuation professionals, welcome many of the proposed changes, in particular those  which simplify the currently overly complex superannuation system, there is still much to do in the  superannuation environment to produce a more equitable and efficient system, the capacity to contribute  more on a concessional basis during the pre-retirement phase and reducing red tape. On balance, this has  been a positive set of Budget proposals from a superannuation perspective.