SMSF Association’s Pre-Budget Submissions – simplify super TBCs & TSB caps; NALE; index SB CGT thresholds; non-geared unit trust rules; and unused concessional cap

The ‘Executive Summary’ of the Submissions contains the following.

Summary of Recommendations

Our 2022 Federal Budget submission seeks to highlight and address several key issues impacting on the SMSF and broader superannuation sectors. Simplification, review and the modernisation of the sector are the overarching themes of our submission.

We believe this can be achieved by:

• Simplifying Transfer Balance Caps. The indexation of the Transfer Balance Caps on 1 July 2021 has added further complexity to the superannuation system. The system has shifted from having a single cap to individual caps ranging from $1.6 to $1.7 million. This is causing confusion and increased costs across the sector. The use of a single cap will reduce costs, uncertainty and benefit all stakeholders.
• Reducing the number of Total Super Balance thresholds. The introduction of multiple Total Super Balance thresholds is unnecessarily adding to the complexity of the superannuation system. This has made it increasingly difficult for individuals to understand the superannuation system and their options. The SMSF Association believes the number of Total Super Balance threshold could be significantly reduced.
• Rewording or modifying the non-arm’s length income provisions with new principles. The introduction of the non-arm’s length expenditure rules with effect from 1 July 2018, will have far- reaching and unjustifiable consequences for the superannuation industry. The rules should be re-worded or re-drafted to require the Commissioner of Taxation to make a determination that the section applies and to allow trustees to rectify transactions in certain situations.
• Removing the registration cancellation fee that applies to approved SMSF auditors. This will provide equitable treatment with registered company auditors and removes a significant financial barrier to exit.
• Design and distribution obligations and target market determinations – removing ambiguity regarding their application to SMSFs. The SMSF Association believes these provisions should not apply to the establishment of an SMSF, when adding a new member to an SMSF, or when commencing a pension in an SMSF.
• Indexing key small business capital gains tax concession thresholds. Some of these thresholds have not been reviewed or updated for a considerable period.
• Protecting an individual’s unused concessional contributions cap due to the late payment of prior years’ superannuation guarantee amounts. Under this measure the Commissioner of Taxation would be given the necessary powers to apply such amounts to the relevant year of income.
• Minor breaches of the non-geared unit trust rules – provide practical regulatory and compliance relief. Currently remediation is strictly limited to the winding up of the unit trust which can be costly and have a severe impact on the fund. Temporary measures adopted by the Commissioner of Taxation due to Covid-19 have demonstrated that such a framework with the right setting, can function appropriately.