On 30 Oct 2018, the Government has announced that it will amend the superannuation tax law to address some minor, but important issues, as part of the ongoing implementation of the July 2017 super reforms.
In a speech to the Alliance for a Fairer Retirement System, the Assistant Treasurer, Stuart Robert, said the new measures will:
- Market-linked pensions – fix an error in the way that market-linked pensions are valued under the pension transfer balance cap when they are commuted or rolled over, resulting in a nil debit in the individual’s transfer balance account. Mr Robert said the nil debit, which arises under the special value rule in s 294-145 of the ITAA97, is an issue because it doesn’t accurately reflect the individual’s transfer balance cap position, and may lead to an individual breaching their $1.6m cap. While the ATO has previously issued guidance to SMSFs on its compliance approach for this issue, the Government said it is committed to finding a more permanent legislative solution. The ATO described the situation where this can arise, in it’s guidance, as follows.
We are aware of circumstances where an individual was receiving a life expectancy or market-linked pension just before 1 July 2017, which was a capped defined benefit income stream; they then commuted the pension on or after 1 July 2017 and the transfer balance debit, worked out under the special value rule in the ITAA97, subsection 294-145(1), is nil. Where the individual then commences a new market-linked pension, this may cause them to exceed their transfer balance cap or have a higher than anticipated account balance.
- Successor fund transfers – amend the law to maintain the treatment of market-linked pensions under the transfer balance cap where they have been rolled over as a result of a successor fund transfer. The Government’s proposed amendment will seek to ensure the new market-linked pensions that commence as the result of a successor fund transfer will continue to be treated as a capped defined benefit under the transfer balance cap.
- Death benefit rollovers and insurance proceeds – amend the law to make sure that super death benefits that include life insurance proceeds are not subject to tax when they are rolled over to a new superannuation fund. This measure will ensure that death benefit lump sums remain tax-free for dependants, even if rolled over within the super system, Mr Robert said.
[Treasury website: Minister’s Speech, Minister’s Media Release; ATO website: Market-linked pensions guidance; LTN 210, 31/10/18; Tax Month – November 2018]
FJM 16.11.18
CPD questions (answers available)
- Does the ‘market linked pension’ announcement relate to the value given to pre 1 July 2017 pensions, that were subsequently commuted or rolled over, for the purposes of the $1.6m ‘transfer balance cap’?
- Was it possible that a market-linked pension, received after a ‘successor fund’ roll over, to not be treated as a ‘capped defined benefit’, again under the $1.6m ‘transfer balance cap’ rules?
- Was it possible for super death benefits, that include life insurance proceeds, were subject to tax, when they are rolled over to a new superannuation fund, so they could not be tax-free, for dependants, when paid from the transferee fund?
[Answers:1.yes;2.yes;3.yes]