Issue 703, 2 April 2019 Budget 2019/20 edition
In this issue:
- Overview
- Details of specific superannuation measures
- Other measures to note
Overview
As expected, this year’s Budget provides for implementation of the Government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. It also includes a diverse range of reforms impacting superannuation and confirms a number of previously announced measures.
Changes to the tax rules for superannuation are targeted rather than sweeping and—consistent with media reports last week—there is no change to the legislated schedule for increasing the superannuation guarantee contribution rate to 12 per cent.
The major measures with direct impact on superannuation include:
- funding announcements for implementation of the Government’s response to the Royal Commission
- permanent tax relief for merging superannuation funds
- changes to the contributions work test and ‘bring forward’ rules, extending the ability of some older individuals to make voluntary contributions to superannuation
- expansion of the SuperStream rollover standard to include release authorities, but deferral of the inclusion of SMSF rollovers in SuperStream
- simplification of the administrative processes for funds claiming exempt current pension income
- funding for a process to identify options to establish a Superannuation Consumer Advocate
- additional funding to extend the operation of the Superannuation Complaints Tribunal for a further six months and provide for its closure.
Details of specific superannuation measures
- Government response to the Royal Commission
The Budget includes in excess of $600 million in funding over five years to facilitate the Government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission).
The package comprises a suite of measures that fulfil the Government’s commitment to take action on the 76 recommendations contained in the Royal Commission’s Final Report, including:
- designing and implementing an industry funded compensation scheme of last resort for consumers and small business
- providing the Australian Financial Complaints Authority with additional funding to help establish a historical redress scheme to consider eligible financial complaints dating back to 1 January 2008
- paying compensation owed to consumers and small businesses from legacy unpaid external dispute resolution determinations
- resourcing ASIC to implement its new enforcement strategy and expand its capabilities and roles
- resourcing APRA to strengthen its supervisory and enforcement activities, including with respect to governance, culture and remuneration and supporting the extension of the Banking Executive Accountability Regime to all APRA-regulated entities, including superannuation funds
- establishing an independent financial regulator oversight authority, to assess and report on the effectiveness of ASIC and APRA in discharging their functions and meeting their statutory objectives
- undertaking a capability review of APRA which will examine its effectiveness and efficiency in delivering its statutory mandate, as well as its capability to respond to the Royal Commission
- establishing a Financial Services Reform Implementation Taskforce within the Treasury to implement the Government’s response to the Royal Commission, and co-ordinate reform efforts with APRA, ASIC and other agencies through an implementation steering committee
- funding additional judges for the Federal Court of Australia, for the expansion of its jurisdiction to include financial sector criminal misconduct
- providing the Office of Parliamentary Counsel with additional funding for the volume of legislative drafting that will be required to implement the Government’s response to the Royal Commission.
The APRA and ASIC funding components of this package are substantial and were largely pre-announced by the Government in late March. These will be partially offset by revenue received through ASIC’s industry funding model and increases in the financial institutions supervisory levies collected by APRA.
- Permanent tax relief for merging superannuation funds
The Government will make permanent the current tax relief for merging superannuation funds that is due to expire on 1 July 2020.
Since December 2008, tax relief has been available for superannuation funds to transfer revenue and capital losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets. This relief has applied on a transitional basis and has been extended several times.
The Budget papers indicate that tax relief will be made permanent from 1 July 2020, ensuring fund member balances are not affected by tax when funds merge. It will remove tax as an impediment to mergers and facilitate industry consolidation, consistent with the recommendation of the Productivity Commission’s final report, Superannuation: Assessing Efficiency and Competitiveness.
- Superannuation contributions: changes to work test and bring forward rules
As announced by the Treasurer on 1 April, the Budget includes measures exempting Australians aged 65 and 66 from the contributions work test and allowing them to access the ‘bring forward’ rules for non-concessional contributions. The reforms to the superannuation contributions rules also increase the age eligibility limit for spouse contributions.
Currently, a person over age 65 can only make ‘voluntary’ contributions (including personal contributions and non-mandated employer contributions) if they meet the work test prescribed in the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). This requires that they work a minimum of 40 hours over a 30-day period.
From 1 July 2020, individuals aged 65 and 66 will be able to make voluntary contributions, both concessional and non-concessional, without meeting the work test. This change will align the age from which the work test applies with the eligibility age for the Age Pension, which is scheduled to reach 67 from 1 July 2023. The Government estimates there are around 55,000 Australians aged 65 and 66 who will benefit from this reform in 2020-21.
Access to the ‘bring forward’ arrangements will also be extended to those aged 65 and 66. The bring forward rule currently allows those under age 65 years to make up to three years’ worth of non-concessional contributions (which are otherwise capped at $100,000 a year) in a single year. A number of other eligibility conditions apply to the bring forward rule and the Budget papers do not indicate any change to these.
In addition, the Government has indicated that it will increase the age limit for spouse contributions to 74 years. Currently, those aged 70 years and over cannot receive contributions made by another person on their behalf.
The work test rules in the SIS Regulations do not specifically recognise ‘spouse contributions’ as a category of contribution – rather, ‘spouse contributions’ fall within a broader category of contributions made on behalf of a fund member by a party other than an employer, for example by a family member other than a spouse. ASFA understands that the extension of the age limit is potentially intended to apply to all such contributions, however the precise details will become clearer when Treasury consults on the regulations necessary to implement this measure.
- SuperStream rollover standard: deferral for SMSF rollovers and inclusion of release authorities
The Government will provide additional funding to the ATO to defer the application of the SuperStream rollover standard to Self-Managed Superannuation Fund (SMSF) rollovers and expand it to include electronic requests to superannuation funds for the release of money required under a number of superannuation arrangements.
The funding will enable the ATO to send electronic ‘release authorities’ to funds from 31 March 2021, by expanding the electronic SuperStream rollover standard used for the transfer of information and money between employers, superannuation funds and the ATO.
Under this measure, the start date for the inclusion of SMSF rollovers in SuperStream will also be delayed until 31 March 2021, to coincide with the expansion of the SuperStream rollover standard. Currently, SuperStream is due to apply to SMSF rollovers requested on or after 30 November 2019.
- Exempt current pension income: administrative process simplified
Some administrative requirements for the calculation of exempt current pension income (ECPI) will be streamlined from 1 July 2020.
The ECPI rules provide a fund with a tax exemption on the income derived from assets that support payment of the fund’s current pension liabilities. ECPI may be calculated using either a proportional method, or via the segregation of assets.
The Government has announced it will allow fund trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method of calculating ECPI. In addition, funds will no longer be required to obtain an actuarial certificate when calculating ECPI using the proportionate method if all members of the fund are fully in the retirement phase for all of the income year.
- Superannuation Consumer Advocate
The Government will provide funding to undertake an expression of interest process to identify options to support the establishment of a Superannuation Consumer Advocate.
The Budget papers note that the Advocate would provide input on behalf of consumers in policy discussions and provide information to educate and assist consumers navigate the superannuation system.
- Superannuation Complaints Tribunal: completion of casework
The Government will provide additional funding to ASIC for the Superannuation Complaints Tribunal (SCT), to allow it to finalise its caseload and conduct closedown activities.
The additional funding is intended to allow the SCT to resolve outstanding complaints by 31 December 2020, when it will cease operations. This recognises the additional caseload received by the SCT due to the delayed commencement of the Australian Financial Complaints Authority (1 November 2018 instead of 1 July 2018 as originally proposed) and will allow ASIC to manage the closure of the SCT. Previously, the SCT was only funded to operate until 30 June 2020.
The cost of this measure will be recouped via an increase in the financial institutions supervisory levies collected by APRA.
- Opt-in insurance within superannuation: recognition of 1 October 2019 start date
The Budget recognises the delayed commencement date—1 October 2019—for the Government’s proposed reforms requiring superannuation fund trustees to offer insurance to members on an opt-in (rather than opt-out) basis.
In last year’s Budget, the Government announced an extensive package of reforms as part of its Protecting Your Super package. These included making insurance within superannuation opt-in for accounts with balances of less than $6,000 and new accounts belonging to members under the age of 25 years with effect from 1 July 2019.
Prior to the passage of the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 in February, the insurance reforms were removed and transferred to a new Bill, the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019 with a new start date of 1 October 2019. This Bill remains before Parliament.
The Budget papers recognise this deferral of the originally proposed start date for the opt-in insurance measure. The Budget does not contain any further deferral of the commencement date for the insurance reforms.
- Protecting Your Super Package: recognition of amendments
The Budget recognises that a number of amendments were made to the Protecting Your Super package before the legislation was passed by Parliament, in addition to the removal of the opt-in insurance reforms (see above).
Prior to the passage of the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 in February, the Government agreed to amendments to:
- extend to 16 months the period after which an account that has not received any contribution is considered inactive
- expand the definition of when an account is considered active for the ATO-led consolidation regime
- require the ATO to consolidate to an active account, where possible, within 28 days of receipt.
The Budget recognises and accounts for these amendments but does not contain any new announcements in relation to Protecting Your Super.
- Recovering unpaid superannuation liabilities: additional funding for the ATO
The Government will provide the ATO with additional funding to increase activities to recover unpaid tax and superannuation liabilities from larger businesses and high wealth individuals.
- Australian Defence Force Superannuation Scheme: offering choice
The Government will extend membership eligibility for the Australian Defence Force Superannuation Scheme (ADF Super) to allow ADF Super members to choose to remain contributory members when they discharge from the Australian Defence Force. This measure will align ADF Super arrangements with superannuation arrangements available in broader industry and other public superannuation schemes.
Other measures to note
The Budget also contains some measures that are not targeted specifically toward superannuation but may have an impact or are of interest from a broader perspective. These include:
- Expansion of Single Touch Payroll
The Government will provide additional funding to the ATO and the Department of Veterans’ Affairs to support the expansion of the data collected through Single Touch Payroll (STP) by the ATO and the use of this data by Commonwealth agencies.
The Budget papers state that “STP data will be expanded to include more information about gross pay amounts and other details”. It is not possible to determine, from the information provided with the Budget, whether this will include any additional superannuation-related information.
- Addressing sham contracting
The Government will provide $9.2 million over four years from 2019-20 (and $2.3 million per year ongoing) to establish a dedicated sham contracting unit within the Fair Work Ombudsman to address sham contracting behaviour engaged in by some employers, particularly those who knowingly or recklessly misrepresent employment relationships as independent contracts to avoid statutory obligations and employment entitlements.
The unit will more effectively tackle sham contracting by increasing education, compliance and enforcement activities, and dedicating additional resources to investigate and litigate cases.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
