SMSF updates

Recent changes to the rules governing Self-Managed Superannuation Funds (SMSFs) are considerably altering the framework for trustees, investors, and SMSF members. These adjustments are designed to enhance the overall integrity of the superannuation system and address emerging issues, particularly regarding tax, contributions, and investment strategies.

From 1 July 2025, the transfer balance cap is set to increase to $2 million. This enables individuals to add additional funds into pension phase which are tax free.

SMSFs with balances above a certain threshold will face additional tax scrutiny. The government has proposed measures to limit the tax advantages for large SMSF balances, targeting those with funds exceeding $3 million. This is part of a broader effort to create a more equitable system and reduce reliance on the Age Pension.

With the growing interest in digital assets, the ATO has updated its guidelines for SMSFs investing in cryptocurrencies. Trustees will be required to ensure proper documentation, custodial arrangements, and valuation of crypto holdings within their funds, ensuring compliance with superannuation laws.

This is to ensure that income generated from transactions or investments that are not conducted at arms length is taxed at a higher rate. If an SMSF derives income from a related party transaction that is deemed non-arms length, the ATO can assess the income at the highest marginal tax rate, currently 45%. This is to prevent SMSFs from receiving preferential treatment or engaging in transactions that are not made on commercial terms. Trustees must ensure that all transactions with related parties comply with the arms length principle to avoid the NALI provisions and potential tax penalties.

The Australian Taxation Office (ATO) will impose tighter rules on SMSF borrowing arrangements, especially those involving property. Trustees using Limited Recourse Borrowing Arrangements (LRBAs) will face additional compliance checks and must meet more stringent criteria to ensure the safety and integrity of their investments.

The upcoming changes in SMSF rules for July 2025 reflect the evolving landscape of retirement savings in Australia. Trustees and SMSF members must be proactive in understanding these changes to ensure they remain compliant and make the most of the opportunities available for their retirement planning.