Superannuation reform bills – ‘objectives’ of superannuation; the $1.6m cap; lower $25k cap; 5 year ‘catch up’; lower Div 293 threshold to $250k; remove the 10% employment income rule; remove TRIS & ‘anti-detriment’ etc.

The 3 following superannuation Bills were introduced into the House of Reps on Wed 9.11.2016, 2 of which have received Royal Assent as noted below.

Superannuation (Objective) Bill 2016 (Referred to Committee (10/11/2016): Senate Economics Legislation Committee; Report due 14/02/2017).
Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 (Royal Assent on 29 Nov 2016 as Act No. 80).
Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (Royal Assent on 29 Nov 2016 as Act No. 81).

(1) The Superannuation (Objective) Bill 2016 – will enshrine the primary objective of the superannuation system in legislation and the subsidiary objectives of the superannuation system in regulation. It will require new Bills and regulations relating to superannuation to be accompanied by a statement of compatibility with the objective of the superannuation system. This Bill has not progressed beyond a second reading (on 23/11/16) because the Bill was referred to the Senate Economics Legislation Committee for report by 14 Feb 2017.

DATE OF EFFECT: The Bill would apply from commencement, which is the start of the first day of the first quarter following Royal Assent of the Bill.

[APH website – Objectives Bill: Bill Tracker; Bill & EM] [LTN 217, 8/11/16] [LTN 227, 23/11/16]

(2) The Excess Transfer Balance Tax Act imposes an excess transfer balance tax on the notional earnings of capital moved into a retirement phase superannuation account that is in excess of $1.6 million.

Explanation per para 3.19 of the EM – “If an individual exceeds their transfer balance cap, the Commissioner of Taxation (the Commissioner) will direct an individual’s superannuation income stream provider to commute (reduce) their retirement phase interests by the amount of the excess (including excess transfer balance earnings) to rectify the breach. The individual will also be liable for excess transfer balance tax on their excess transfer balance earnings to neutralise the benefit received from having excess capital in the earnings tax exempt retirement phase. Breaches in the 2017-18 financial year attract a single tax rate. The tax rate on excess transfer balance earnings increases for second and subsequent breaches occurring in the 2018-19 financial year or a later financial year.”

[APH website – Objectives Bill: Bill Tracker; Final Bill & EM] [LTN 217, 8/11/16] [LTN 227, 23/11/16]

(3) The Fair and Sustainable Super Bill passed both houses on 23 November 2016 and will do the following.

Impose a $1.6 million cap (the transfer balance cap) on the amount of capital that can be held in the tax-free earnings retirement phase of superannuation. DATE OF EFFECT: would apply from 1 July 2017;
For certain income streams in excess of $100,000 pa introduce new tax rules achieve a broadly commensurate taxation outcome (to the $1.6m cap). DATE OF EFFECT: would apply from 1 July 2017;
Reduce the concessional contributions cap to $25,000, (which has been $30,000 for those aged under 49 at the end of the 2015/16 financial year and $35,000 otherwise). DATE OF EFFECT: would apply from 1 July 2017;
For ‘constitutionally protected funds’ and ‘unfunded defined benefit funds’ – further supporting the lower $25k concessional contributions limit by changing the way contributions count towards an individual’s concessional contributions cap. DATE OF EFFECT: would apply from 1 July 2017;
Reduce the $300,000 Div 293 income threshold to $250,000 – that is, the income threshold at which a superannuation fund pays an extra 15% contributions tax (a total of 30%) on deductible contributions for members with more than this level of income. DATE OF EFFECT: would apply from 1 July 2017;
Reduce the non-concessional contributions cap from $180,000 pa to $100,000 pa; introduce criteria for an individual to be eligible for the non-concessional contributions cap and make other minor amendments in respect of the non-concessional contributions rules. DATE OF EFFECT: would take effect from 1 July 2017, applying to the 2017-18 and later financial years;
Enable eligible low income earners to receive the low income superannuation tax offset by amending the Superannuation (Government Co-contribution for Low Income Earners) Act 2003. DATE OF EFFECT: would apply to the 2017-18 income year and later income years;
Widen deductibility of member contributions to remove the 10% of employment limit – currently an individual must earn less than 10% of their income from their employment related activities to be able to deduct a personal contribution to a superannuation fund. This will also turn it into a concessional contribution. DATE OF EFFECT: would apply to the 2017-18 income year and later income years.
Introduce ‘catch-up’ concessional contributions so individuals can carry forward their unused $25k annual limit for up to 5 years (that is deductible in the 6^th year). This carry forward will depend the individual’s total superannuation balance just before the start of the financial year is less than $500,000. DATE OF EFFECT: would apply in relation to working out an individual’s concessional contributions cap in the 2019-20 financial year and later financial years;
Increase the spouse income limit to encourage individuals to make superannuation contributions for their spouse (low income spouse). The spousal contribution attracts a tax offset. DATE OF EFFECT: would apply to the 2017-18 income year and later income years;
Amend the earnings tax exemptions in the ITAA 1997 (from the 2017-18 income year and later income years) to:
- extend the earnings tax exemption to new lifetime products such as deferred products and group self-annuities;
- remove the earnings tax exemption in respect of transition to retirement income streams; and
- introduce an integrity measure that will apply to self-managed superannuation funds and small Australian Prudential Regulation Authority funds to support the operation of the transfer balance cap
Remove the ‘anti-detriment’ deductions available to a complying superannuation fund, life insurer, or complying approved deposit fund that pays an increased lump sum, because of the death of a member for the benefit of their spouse, former spouse or child, which can effectively result in a refund of income tax paid by the fund in respect of contributions made for the member during their lifetime. DATE OF EFFECT: would take effect on and from 1 July 2017;
Simplify and consolidate the ‘release authority’ provisions. The amendments would replace existing release authorities (except those relating to deferred debt account discharge liabilities for Div 293 tax). DATE OF EFFECT: would apply for financial years commencing on or after 1 July 2018;
Simplify and streamline the administration of the Div 293 tax regime. The amendments would seek to reduce compliance costs for superannuation providers and individuals, where superannuation benefits become payable from defined benefit interests, by removing the requirements in the taxation law relating to superannuation interests for which a Div 293 tax debt account is being kept for: (i) superannuation providers to notify the Commissioner of Taxation (Commissioner) of the amount of end benefit caps for their members in some circumstances; and (ii) individuals to notify the Commissioner in any circumstance when their superannuation benefits from such interests first become payable. DATE OF EFFECT: would end benefit notifications for which the obligation to provide the notification arises on or after 1 July 2017.

[APH website – Fair and Sustainable Bill: Bills Tracker; Final Bill & EM] [LTN 217, 8/11/16] [LTN 227, 23/11/16]

Superannuation reform bills – ‘objectives’ of superannuation; the $1.6m cap; lower $25k cap; 5 year ‘catch up’; lower Div 293 threshold to $250k; remove the 10% employment income rule; remove TRIS & ‘anti-detriment’ etc.

Author: John Morgan