Well, it’s only taken 127 days for the Government to provide the first tranche of legislation for consultation through the release of an exposure draft on the proposed super reforms.
Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 sets out a part of the Government agenda with reforms to superannuation tax concessions – many of the more controversial amendments including the lifetime cap on non-concessional contributions and the $1.6m balance transfer cap amount for pensions remain in ‘limbo’ whilst the Treasurer continues to negotiate within his own ranks to gain support for these measures.
This Bill specifically covers:
- Setting the primary objective of the superannuation system, which will be enshrined in a separate act known as the Superannuation (Objective) Act 2016. Once royal assent has been received, certain future amendments to the superannuation laws proposed by a member of Parliament must incorporate a statement of compatibility against the primary objective of superannuation
- Removing the tax law requirement that requires an individual to be eligible to claim a tax deduction for personal super contributions (making these as concessional contributions) to have earned less than 10% of their total earnings from employment related activities (‘10% rule’);
- Harmonising the contribution acceptance rules to simply and improve the flexibility to make super contributions through to age 75, without a requirement to meet any ‘work test’;
- Expanding the spouse income threshold to $40,000 to be eligible for the tax offset on spouse contributions. The amount of this offset for an individual in an income year is equal to 18% of the lesser of:
- $3,000 less the amount by which total spouse income exceeds $37,000; and
- the sum of the spouse contributions made by the individual in the income year
- Introducing the Low Income Superannuation Tax Offset that provides a maximum amount payable of $500 per year for each eligible individual who has paid tax on concessional contributions in their fund. This amount effectively returns the tax paid back to a low-income earner (adjusted taxable income under $37,000) where their relevant marginal tax rate would have been lower than the 15% flat rate applied to the concessional contributions.
Points of interest
Many of these proposed changes within the exposure draft are relatively straight forward amendments to the various tax and superannuation laws. The exposure draft highlights a few interesting points worth noting:
- Deductions for personal super contributions – with greater flexibility to contribute and be eligible through to age 75 for a tax deduction on personal contributions, it is important to note that the obligations around a section 290-170 notice do not change – this means that the timing of completion of notices to elect to claim a tax deduction will remain critically important for the tax deduction to be allowed (e.g. 290-170 notice must be completed prior to the commencement of an income stream);
- Change to Schedule 1 of SIS Regulations – the current cashing condition ‘attaining age 65’, will be amended to ‘attaining, or have attained, age 65’. This is an important amendment to Schedule 1 as the extension to accept contributions for a member through to age 75 could result in circumstances where a member would not be able to satisfy a cashing condition as they are already over age 65 and may not have satisfied any other cashing condition throughout their lifetime. This would prevent the member from being able to access these benefits – as a result, the revised definition will allow for the release of amounts held in super at anytime after a member has reached age 65.
- Spouse contribution tax offset – with a proposed introduction of a lifetime cap for non-concessional contributions, it may be more likely that an individual could receive a spouse contribution tax offset for an amount that is an excess contribution. In this case, a consequential amendment will be made to the eligibility criteria for the tax offset to prevent individuals being entitled to the tax offset where a member (spouse) has exceeded their non-concessional contribution cap.
AD comment: I suspect we may need to see further changes to the new subsection 290-230(4A), reason being it discusses the NCC cap for a spouse based upon a financial year (not lifetime cap). Furthermore, clarification may be required where a lifetime cap is introduced and part of the contribution triggers an excess amount – in this case, is the individual entitled to a proportionate amount of the tax offset?
It is important to note that all of these changes once Royal Assent has been received will apply from 1 July 2017.
Now we await details of the remaining measures that were proposed by the Government including:
- Changes to the concessional contribution cap;
- Catch up contributions where a member’s account balance is under $500,000;
- Introduction of a lifetime NCC cap;
- Reduction in the Division 293 tax threshold;
- Changes to Transition to Retirement Income Streams;
- Introduction of $1.6m balance transfer cap; and
- Removal of anti-detriment payments
Let’s hope that progress can be made fairly quickly so that it provides adequate time for planning with clients…