The Federal Government has been releasing exposure draft legislation intended to give effect to most of its 2016–2017 Budget superannuation proposals. The first and second tranches of exposure drafts were released for public consultation in September, with submissions due by 16 September 2016 for the first tranche and by 10 October 2016 for the second tranche.
On 7 September 2016, the Federal Government released its first tranche of exposure draft legislation. This draft legislation includes:Exposure Draft:
The draft legislation proposes to amend the Income Tax Assessment Act 1997 (ITAA 1997) and Superannuation Industry (Supervision) Regulations 1994 (SIS Regs) to implement the following Budget measures:
- Objective of superannuation: to be enshrined in stand-alone legislation. Namely, "to provide income in retirement to substitute or supplement the age pension". According to the Government, enshrining the primary objective of the superannuation system in legislation, in combination with the subsidiary objectives, will provide a framework against which future superannuation policy proposals can be assessed.
- Deducting personal contributions: all individuals up to age 75 would be able to deduct personal superannuation contributions, regardless of their employment circumstances. This would be achieved by repealing the existing 10% test in s 290-160 of ITAA 1997, which requires that an individual earn less than 10% of their income from their employment-related activities in order to be able to deduct a personal superannuation contribution. Of course, such deductible contributions would still effectively be limited by the concessional contributions cap of $25,000 proposed from 1 July 2017.
- Work test: the work test for making contributions between the ages 65 and 74 would be removed from reg 7.04 of the SIS Regs. Consequential amendments would also amend the "Attaining age 65" condition of release in Sch 1 to the SIS Regs, allowing the release of amounts held in superannuation at any time after a member attains the age of 65. However, see also Revisions to super reforms below.
- Spouse contributions tax offset: the low income threshold would be increased to $37,000 (phasing out up to $40,000) for a tax offset (up to $540). Proposed changes to s 290-230(4A) of ITAA 1997 would also mean taxpayers would not be entitled to a tax offset when making contributions for a spouse whose non-concessional contributions exceed the non-concessional contribution cap in the corresponding financial year.
- Low income superannuation tax offset: this would replace the government low income superannuation contributions. The tax offset (up to $500) would apply to concessional contributions for those with adjusted taxable income up to $37,000.
This draft legislation would generally come into effect on 1 July 2017.
Source: Treasury, Superannuation reform package, 7 September 2016, https://consult.treasury.gov.au/retirement-income-policy-division/superannuation-reform-package.
On 15 September 2016, the Federal Government announced that it will not proceed with its 2016–2017 Budget proposal for a $500,000 lifetime cap on non-concessional superannuation contributions (backdated for contributions since 1 July 2007). Instead, the Government has proposed a non-concessional contributions cap of $100,000 per annum (down from the current $180,000 cap). Individuals under age 65 would still be able to use the three-year "bring forward" rule for non-concessional contributions (ie to make $300,000 of contributions over a three-year period).
Individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional (after tax) contributions from 1 July 2017. This limit will be tied and indexed to the proposed $1.6 million transfer balance cap for retirement accounts (ie pension phase). This $1.6 million eligibility threshold will be based on the individual's superannuation balance as at 30 June the previous year. According to the Government, individuals will be able to contribute a total of $125,000 per year – that is, $25,000 of concessional contributions plus $100,000 of non-concessional contributions – until they reach $1.6 million. If a taxpayer takes advantage of the "bring forward" rule, total contributions of $325,000 could be made in any one year, the Treasurer said.
In addition, as part of the Coalition's compromise on its superannuation package, it will not proceed with the Budget proposal to remove the work test for making contributions between ages 65 and 74. As such, people aged 64 to 75 will still need to satisfy the work test (ie undertake gainful employment for at least 40 hours in a 30-day period in the financial year) to make voluntary superannuation contributions. The Government also announced that the start date for the proposal to allow catch-up concessional contributions for superannuation balance less than $500,000 would be delayed to 1 July 2018 (instead of 1 July 2017).
Further details and fact sheets are available on the Treasury website at www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/Superannuation-Reforms.
Source: Treasurer and Minister for Revenue, joint media release, 15 September 2016, http://sjm.ministers.treasury.gov.au/media-release/096-2016/.
On 27 September 2016, the Federal Government released the second tranche of its exposure draft legislation proposing to give effect to some of its 2016–2017 Budget superannuation proposals. Tranche two includes:
The draft legislation proposes to amend ITAA 1997, the Taxation Administration Act 1953 (TAA), the Superannuation Industry (Supervision) Act 1993 (SIS Act), the SIS Regs and related legislation to implement the following budget measures:
- Pension $1.6 million transfer balance cap: the total amount of accumulated superannuation an individual can transfer into retirement phase (where earnings on assets are tax-exempt) would be capped at $1.6 million from 1 July 2017. Those with pension balances over $1.6 million at 1 July 2017 would be required to "roll back" the excess amount to accumulation phase by 1 July 2017 (where it would be subject to 15% tax on future earnings).
- Concessional contributions cap: to be reduced to $25,000 for all individuals (regardless of age) from 1 July 2017. The concessional cap would be indexed in increments of $2,500 (down from $5,000). Contributions to constitutionally protected funds and untaxed or unfunded defined benefit superannuation funds would count towards an individual's concessional contributions cap. However, any excess concessional contributions in respect of such funds would not be subject to tax, but instead limit an individual's ability to make further concessional contributions.
- Division 293 contributions tax: the income threshold above which the additional 15% Division 293 tax cuts in for concessional contributions would be reduced from $300,000 to $250,000 from 1 July 2017. The notification requirements for Division 293 tax debt accounts in relation to defined benefit interests would also be simplified.
- Catch-up concessional contributions: individuals with total superannuation balances less than $500,000 would be allowed to make additional catch-up concessional contributions for unused cap amounts for the previous years. Unused cap amounts would be carried forward on a five-year rolling basis (starting from 1 July 2018). The draft legislation introduces the new concept of a "total superannuation balance" to ensure consistent treatment for the valuation of an individual's total superannuation balance across various 2016–2017 Budget measures, including the $500,000 superannuation balance threshold.
- Transition to retirement income streams: the tax exemption on earnings for pension assets supporting transition to retirement income streams (TRIS) would be removed from 1 July 2017 (irrespective of when the pension commenced). As a result, earnings from assets supporting a TRIS would be taxed at 15% (instead of the current 0%). In addition, reg 995-1.03 of the Income Tax Assessment Regulations 1997 (ITA Regs) would be repealed so that individuals can no longer make an election to treat certain TRIS payments as lump sums for tax purposes.
- Retirement income products: a new category of tax-exempt pensions rules is proposed to remove tax barriers to the development of new retirement income products. The earnings tax exemption would be extended to cover a "deferred superannuation income stream" (which would include guaranteed annuities and group self-annuities).
- Anti-detriment deduction: s 295-485 of ITAA 1997 would be repealed so that complying superannuation funds will no longer be entitled to an anti-detriment deduction for paying certain lump sum death benefits to the spouse, former spouse or child of the deceased member.
This draft legislation would generally come into effect on 1 July 2017 (except for the catch-up provisions for concessional contributions, which would apply from 1 July 2018).
Source: Treasury, Superannuation reform package – tranche two, 27 September 2016, https://consult.treasury.gov.au/retirement-income-policy-division/super-reform-package-tranche-2.
Exposure draft legislation for the changes to the non-concessional caps (ie tranche three) "will be released in the coming weeks". The Treasurer said the Government remains on track to have its budget superannuation measures introduced into Parliament before the end of 2016. With the support of the Senate, there will be no impediment to this occurring, Mr Morrison said.
Source: Treasurer and Minister for Revenue, joint media release, 27 September 2016, http://sjm.ministers.treasury.gov.au/media-release/105-2016.