Expert SMSF insights
Suspension of Parliament leaves proposed legislation in limbo
By Mark Ellem
The Federal Parliament has risen and will not return until August. Whilst this was to be the last sitting week before the May Federal Budget, with its deferral until later in the 2020 calendar year, there will be no sitting days until 11 August, according to the revised sitting calendar. This means that a number of new measures, affecting superannuation, that were to apply from 1 July 2020 will not be passed into law in time.
Bills before Parliament
The following superannuation related Bills are before Parliament, however, cannot pass until it resumes on August 11:
Treasury Laws Amendment (2019 Measures No. 3) Bill 2019
This Bill amends the 1936 Tax Act in relation to tax concessions for minors for income from a testamentary trust, amends the Corporations Act 2001 to defer the transitional time frames for existing providers to comply with the education and training standard, and amends 30 Acts to make minor and technical amendments to laws and regulations relating to taxation, superannuation, corporations and credit. It passed the lower house on 12 February 2020 and is currently before the Senate.
The measures in this Bill which are super related are:
Downsizer contributions amendments to apply from 1 July 2018:
• Main resident test – rule applied correctly if dwelling was acquired prior to 20 September 1985, and held by the individual’s spouse;
• Individual’s cap not impacted by downsizer contributions made by spouse in relation to the disposal of an interest in another property;
• Market value substitution rule cannot increase the capital proceeds counted against the cap (this measure to apply from date of Royal Assent).
Transfer Balance Cap (TBC) & Capped Defined Benefit Income Streams (CDBIS) amendments to apply from 1 July 2017:
• Fixes the legislation so that a debit amount, other than zero, is calculated in relation to the commutation of a market linked pension after 1 July 2017. Note, this fix is quite different from the Explanatory Memorandum to the original version of the provision – refer to our blog article “Proposed 'special debit fix' far cry from original intent”.
• Generates a debit entry for certain reduction in reversionary defined benefit pensions. Basically, where a spouse receives a reversionary defined benefit pension and the second and subsequent payments are lower than the first payment, a debit will apply to account for the lower amount. This generally occurs where a pension has a reversionary percentage of less than 100 percent, however, the first payment to the surviving spouse is at the level of 100 percent of the original pension amount, before reduces to a lesser percentage. Currently, the law will effectively assess the surviving spouse on the 100 percent pension amount, rather than the lower percentage reversion.
Death benefit rollovers amendments to apply from 1 July 2017:
• Ensures any untaxed element as a result of the rollover, is not required to be included in the assessable income of the new fund.
The delay in passage of these amendments means that the technical issues will continue and need to be considered, including any practical compliance guidelines from the ATO, when discussing with affected fund members.
Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020
This Bill amends the relevant legislation to facilitate the closure of eligible rollover funds by 30 June 2021 and enable the Commissioner of Taxation to reunite amounts received from eligible rollover funds with a member's active account. It passed the lower house on 11 February 2020 and is currently before the Senate.
The delay in passage of this Bill until the August 2020 sitting should not create any issues with compliance by 30 June 2021.
Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019
This Bill amends the Superannuation Guarantee (Administration) Act 1992 to provide that employees under workplace determinations or enterprise agreements have the right to choose their superannuation fund. It passed the lower house on 12 February 2020 and is currently before the Senate.
The Explanatory Memorandum to the Bill notes that the measure is to apply to new work place determinations and enterprise agreements made on or after 1 July 2020. The delay in passage of this Bill until August 2020 sitting may mean a delay to the commencement of this measure.
Exposure Draft Bill & Regulations
An Exposure Draft Bill was released on 5 March 2020, with a consultation period open until 3 April 2020, that will enable individuals aged 65 and 66 to make up to three years of non-concessional superannuation (known as the bring forward rule). Currently, a person has to be aged under 65 at the start of the income year to be able to utilise the bring forward rule.
Exposure Draft Regulations were also released on 5 March 2020, with a consultation period open until 3 April 2020. The purpose of the draft regulations is to:
• Increase, from 65 to 67, the age at which the work test starts to apply for voluntary concessional and non-concessional superannuation contributions; and
• Increase the age limit for spouse contributions from 69 to 74.
These three measures were to apply from 1 July 2020, however, with the deferral of the next sitting of Parliament, it may also mean a deferral to the start date.
The fact that these proposed changes have not been passed into law well before the proposed start date, has caused some uncertainty for those who have turned 65 or turning 65 this current 2019/20 financial year and who do not meet the work test. Should they utilised the bring forward rule, for the last time, before they turn(ed) 65 or assume the proposed changes will be in place as law by 1 July 2020, which would allow deferral of use of the bring forward rule until the year they turn 67 – looks like we may have our answer.
You can read more about this in our blog articles “Added flexibility to contribute depends on law change” and “Government clarity needed for contribution strategies”.
Announced measures – no Exposure Drafts
The following measures have been announced by the Federal Government, but no exposure drafts (legislation) has been made available.
Exempt Current Pension Income (ECPI) – streamlining administration requirements
The Federal Government announced in the 2019 Federal Budget that from 1 July 2020 they will enact measures to streamline the requirement for the calculation of ECPI.
ECPI provides tax exemption on income that is earned from fund assets that support the payment of a fund’s current pension liabilities. It can be calculated by segregating assets between accumulation and retirement phases or by using the proportional method which requires an Actuary to provide the fund with a certificate that states the percentage of fund eligible income that is exempt from 15% fund income tax.
In view of confusion that has evolved for ECPI calculations from 1 July 2017, The Treasurer announced some changes to simplify the current requirements. If your fund is in accumulation and retirement phases during the financial year, then you will be able to choose your preferred method for calculating ECPI. These methods are:
• using an averaging method to calculate tax exempt income throughout the income year; or
• calculating the tax-exempt income for discrete periods during the income year when the fund is required to use the proportional method.
Another part of the simplification of the ECPI administration is that there will be no requirement for funds that are wholly in retirement (pension) phase for all of the financial year to obtain an actuarial certificate. This applies to funds which have selected to use the proportional method or are required to use the proportional method because they have ‘disregarded small fund assets’.
The delay until August 11 of Parliament sitting again may defer the start date for these simplified measures. However, as the ECPI calculation is normally done as part of the preparation of annual financial statements and the first year that the proposed simplification rule was to apply is the 2020/21 year, if the changes are passed by 30 June 2021, then they may still be able to apply from 1 July 2020.
Increasing the maximum number of SMSF members from 4 to 6
The Government was not successful, prior to the 2019 Federal election, in passing legislation to increase the maximum number of members in an SMSF from four to six.
Whilst legislation to give effect to this measure has not been re-introduced since the 2019 Federal election, at the SMSF Association National Conference in February 2020, the Assistant Minister for Superannuation, Financial Services and Financial Technology,
Jane Hume, confirmed that “legislating to increase the maximum number of SMSF members from four to six remains government policy”.
However, the minister further noted that this change would progress in line with the Government’s legislative priorities. Given the current priorities, it would be expected that this is now well down the list.
The 2020 Federal Budget
The Prime Minister announced the deferral of the 2020 Federal Budget from 12 May to 6 October. Many Federal Budget submissions have been made on various superannuation related issues. For example, the SMSF Association lodged a submission that, “focuses primarily on improving the simplicity and accessibility of the superannuation system for the benefit of consumers and those who advise them”, as well as:
• A new licensing regime to replace the limited licence;
• Wider access to ATO portals by advisers to facilitate efficient advice;
• Spousal rollover measure to reduced the superannuation retirement gap between partners, particularly for women;
• Increase to contribution caps;
• Simplifying the residency rules for SMSFs;
• Death benefit complexity; &
• An amnesty for old legacy pensions in SMSFs.
It would be expected that the next Federal Budget, when brought down, would focus on measures to deal with the current COVID-19 pandemic and economic consequences. Superannuation reforms that are not directly related to this are unlikely to be a priority.
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