How the election result impacts super

From

John Perri

The re-election of the Coalition Government has provided more certainty for super fund members as they can focus on using the current rules to 30 June 2019 and beyond, rather than considering how they could have been impacted by a range of changes proposed by the ALP.

In this article, we briefly examine the super rules and strategies which will continue to apply, as well as new proposals raised by the Government prior to the election, yet to be legislated.

Super rules and strategies that will continue

  1. The yearly Non-Concessional Contributions (NCC) cap of $100,000 pa will remain, along with the ability to ‘bring forward’ over 3 years a maximum contribution of $300,000.
  2. From 1 July 2019, individuals with a total super balance of less than $500,000 as at 30 June 2019 will be able to take advantage, for the first time, of any ‘unused concessional contributions cap’ from the 2018-19 financial year. This rule is referred to as the ‘catch-up of concessional contributions’ and is carried forward for a rolling 5-year period. For example, say an individual used up $10,000 of their $25,000 concessional cap for the 2018-19 financial year. Under the new ‘catchup rule’ applying from 1 July 2019, the individual would have a total concessional cap of $40,000 for 2019-20, being the standard cap of $25,000 plus the unused cap of $15,000 from 2018-19 (provided of course that their total super balance as at 30 June 2019 is less than $500,000). This provides more flexibility for some individuals to make larger tax concessional contributions into super, where they have the financial means to do so.
  3. Individuals, including employees, can still make and claim a tax deduction for personal super contributions made to their super fund, up to their concessional cap. This rule allows an individual to monitor the use of the concessional cap during the financial year, providing flexibility to make a personal tax-deductible contribution, before the end of the financial year, after they have determined how much of their concessional cap remains.
  4. From 1 July 2019, a new work test exemption will apply for recent retirees. It will allow individuals aged 65 to 74, with a total super balance below $300,000, to make voluntary super contributions for 12 months from the end of the financial year in which they last met the work test.
  5. Individuals earning between $200,000 pa to $249,999 pa will continue to be subject to the 15 per cent contributions tax on concessional contributions made up to the concessional cap.
  6. First home buyers will still be able to access the First Home Super Saver scheme to save for a deposit for their first home via the superannuation system.
  7. Self-Managed Super Funds will continue to benefit from the refund of any excess franking credits and will still be able to arrange new Limited Recourse Borrowing Arrangements (LRBAs).

Government superannuation proposals not yet legislated

With the calling of the federal election, all legislation that was progressing, but yet to be passed by federal parliament, has lapsed.

There were also a number of proposals yet to be finalised and introduced into federal parliament including the further personal tax cuts and some other proposals announced in the April 2019 federal budget.

In many instances the required legislation to implement these other proposals was still only in draft form.

The lapsed legislation and other proposals will now need to be reintroduced and debated in the new parliament.

Lapsed legislation

  1. Require Superannuation Guarantee (SG) liability to be calculated on an employee’s presalary sacrifice salary. This is to stop some employers using an employee’s salary sacrifice contributions to reduce or eliminate their employer’s SG contribution, which results in an effective pay cut for affected employees.
  2. Enable individuals with multiple employers who would otherwise inadvertently exceed their concessional contribution cap to elect to “opt out” of the superannuation guarantee (SG) system with certain employers.
  3. Allow a once-off 12-month SG amnesty for employers wanting to correct past SG noncompliance without penalty.
  4. Amend the definition of Total Super Balance to include in certain circumstances, the outstanding balance of Limited Recourse Borrowing Arrangements, and
  5. Correct a technical deficiency in the non-arms length income tax provisions relevant to superannuation funds.

Proposals yet to be legislated

1. Work test changes for voluntary super contributions

Currently, to make voluntary super contributions people aged 65 to 74 must be in paid work for a minimum of 40 hours in any consecutive 30-day period in the financial year. This “work test” requirement does not apply to super contributions made before age 65 and when making downsizer contributions. The federal budget announcement proposed to change the application of this work test so that from 1 July 2020 the work test would only be necessary where contributions are made by clients aged 67 to 74. This was to align the work test requirement with the eligibility age for the Age Pension, which is scheduled to reach 67 from 1 July 2023. This proposed change would mean that people aged 65 or 66 who don’t meet the work test because they, for example, only work one day a week, or do volunteer work, would be allowed to make voluntary super contributions.

2. Triggering non-concessional contribution cap bring-forward to age 67

The federal budget announcement also proposed to extend the non-concessional contribution “bring-forward” rules.

These bring-forward rules currently allow people aged less than 65 at the start of the financial year to make up to three years’ worth of non-concessional contributions to their super in a single financial year.

From 1 July 2020, it proposed the bring-forward rules be extended so they also apply to people aged 65 and 66 at the start of the financial year.

3. Spouse super contributions – Increased age limit

Currently, people aged 70 years and over cannot receive contributions made by their spouse on their behalf. From 1 July 2020 the federal budget announcement proposed to increase the age limit for spouse super contributions from 69 to 74 years.

It was expected that the receiving spouse would be required to continue to meet the work test from the work test age (see above). Spouse super contributions are counted towards the receiving spouse’s non-concessional contribution cap.

Other unfinalised proposals

It is expected that the Coalition government will revisit the following issues:

1. SMSFs – proposal to increase maximum number of members

The proposal to increase the maximum number of members of a SMSF or Small APRA fund from the current four to six members was removed from the relevant legislation in Parliament and did not proceed at that time. It may be a measure that is revisited.

2. Transfer balance cap errors

Legislation still in draft form aims to correct an error whereby the commutation of market-linked income streams (often referred to as Term Allocated Pensions (TAPS)) commenced before 1 July 2017 currently results in a nil debit for transfer balance account purposes.

A nil debit can clearly have adverse transfer balance cap consequences. This is because the commutation typically occurs to rollover to commence a required replacement income stream with a resulting credit added to, and effectively double counted, in the transfer balance account.

Also, still in draft form is the proposal to fix the valuation of defined benefit pensions under the transfer balance cap rules, when these pensions are commenced with an initial higher pension payment amount that is subsequently permanently reduced, maybe after only a few months. Typically, this occurs for some public sector defined benefit reversionary pensions i.e. death benefit pensions.

3. Death benefit rollovers-untaxed element

Also, still in a draft bill is the measure to ensure that lump sum superannuation death benefits, with an untaxed element because of life insurance cover, will not be subjected to tax when they are rolled over to another superannuation fund.

 By John Perri, Technical Strategy Manager

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