Understanding the changes and advantages to superannuation and SMSF

As a qualified and experienced wealth advisor, in this article I break down the two recent budget updates to superannuation rules and Self-Managed Super Funds (SMSF) to help you understand how these changes can benefit you.

The Non-Arms Length Income or NALI rules have been updated. These rules are designed to prevent superannuation trustees from artificially inflating their fund balances by recognising reduced-rate expenses provided by related parties. For instance, if your brother, a qualified accountant, offers his accounting services for your SMSF for free—services typically cost $5,000—this could be flagged under NALI.

Historically, any income derived from such non-arms length transactions could be taxed at the top marginal tax rate, which is substantial. Expenses were categorised into general expenses (like accounting and audit fees) and specific expenses (like maintenance costs on SMSF-owned property).

Recent Treasury consultations have recommended some significant changes. The most notable amendment is capping the taxable income as NALI to twice the level of the breach in general expenses instead of the previous uncapped amount. Additionally, fund income is taxable as NALI will no longer include contributions, and any expenditure before the 2018-19 income year will be exempt from these provisions.

In a previous article, we delved into the DIV296 tax. Starting from July 1, 2025, an additional 15% tax on earnings will apply to individuals whose total superannuation balance (TSB) exceeds $3 million at the end of a financial year. The definition of TSB remains the same and includes amounts in retirement phase pensions. This new tax calculation will capture growth in TSB over the financial year, accounting for contributions (including insurance proceeds) and withdrawals.

This method captures both realised and unrealised gains, which allows negative earnings to be carried forward and 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 nominate which fund will cover the tax.

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-arm’s length expenses. This change can significantly reduce the potential tax burden on your SMSF, allowing for better financial planning and optimisation.

The new tax on balances over $3 million is a critical consideration for high-net-worth individuals. While it introduces an additional tax layer, the ability to carry forward negative earnings and choose how to pay the tax offers some flexibility in managing your superannuation funds. This measure is expected to increase tax receipts by $950 million over five years, demonstrating the government’s intent to ensure a fairer superannuation system.

As a professional and experienced wealth advisor, I’m here to guide you through these changes, helping you leverage these updates to maximise your retirement benefits. Our team specialises in SMSF Management, wealth management, superannuation, and estate planning. With tax time on the horizon, now is the perfect time to get in touch and get reputable and qualified financial advice.

North Advisory offers businesses affordable and flexible bookkeeping services, comprehensive business tax advisory, SMSF management and wealth management services. Contact our team today for a no-obligation discussion.