New non-concessional bring forward rules complex, will lead to mistakes

Changes to the non-concessional contribution cap, including the bring forward rules, are complex and likely to lead to mistakes, according to submissions in response to the draft legislation. However industry bodies are split over if more time should be allowed for consultation, or if the legislation should be passed as soon as possible to give more time to adjust.

Third tranche of draft super bills: lower non-concessional contributions cap

Non-concessional contributions cap changes “complex”

According to ASFA, super funds have observed the bring forward rules appear to be complex and may create difficulties in providing information and advice to members.

“There is considerable potential for members, call centre staff and even advisers to become confused and make mistakes in interpretation/application, which will cause errors and necessitate re-work,” said ASFA.

The Tax Institute is also concerned by the “overly complex” bring forward rules, particularly around the different caps which apply depending how close a member is to the general Transfer Balance Cap.

“The Institute submits that the proposed regime is likely to lead individuals to inadvertently exceeding their NCC caps, including where advisors will struggle to access accurate up-to-date information (noting that the ATO records cannot necessarily be relied upon to present real time information) and to correctly apply and advise individuals on the numerous different threshold tests.”

“The Institute expects some errors will simply be due to members not accurately knowing their total account balances at 30 June. Particularly for self-managed superannuation funds, individuals will often not know their account balances until a much later date.”

The Tax Institute calls for “further consideration” be given to providing flexibility for SMSFs.

“As a minimum the extent to which protective measures might be introduced to allow individuals who are members of SMSFs to place reasonable reliance on a genuine estimated position should be further examined.”

Split over certainty versus more time for consultation

There appears to be a split between the superannuation industry bodies, which want the legislation to pass quickly so systems can be updated, and tax bodies, which want further consultation to reduce the complexity of the measures.

“While these changes can be drafted over 4-6 week period, the approval and compliance process associated with them will take between 4-6 months, and will depend on the schedule for Board meetings and Board sub-committees. This means that the change and approval process for a PDS scheduled for release on 1 July 2017 should commence prior to Christmas 2016. This process cannot commence until there is certainty about the nature of the change,” said AIST.

ASFA has a similar view: “While the release of draft legislation will assist in preliminary planning, funds will be unable to commit fully to implementation, especially finalising system design, until the legislation is passed and the requirements are finalised.”

“Accordingly, in order to provide legislative certainty, it is critical that the Bill be introduced and passed as soon as possible.”

However the Tax Institute calls for an extension to the “very short and limited consultation period”.

“We submit that these should be extended to allow a more considered review of alternative and simplified measures that will achieve the revenue outcomes but with less cost to industry,” says the Institute in their submission.

“The very short consultation periods and having staggered tranches of legislation to review and comment on with very tight deadlines is inappropriate as it does not allow sufficient consideration of how each tranche interacts with the other. This also results in inefficiency when dealing with such complex measures that will impose great cost on industry, which taxpayers and their advisers will be dealing with for decades to come.”

Indexation of the general Transfer Balance Cap – AWOTE v CPI

The draft legislation has the non-concessional contributions cap indexed by AWOTE (Average Weekly Ordinary Time Earnings), but the initially $1.6 million general Transfer Balance Cap will be indexed by CPI.

“This will result in the relationship between the general transfer balance cap and the contributions cap changing over time,” said AIST.

“Given that the rate of change in AWOTE tends to be historically higher than that of CPI, one consequence of this is that there will be reducing capacity for individuals to use the carry-forward mechanism over time.”

AIST recommends that the Transfer Balance Cap be indexed by AWOTE.

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