The 60 days allowed to fix excesses of the Transfer Balance Cap from 1 July 2017 is insufficient and should be extended to one year, according to submissions to Treasury.
The Transfer Balance Cap, announced in the 2016 Budget and included in draft legislation recently subject to consultation, limits the amount of superannuation that a person can have in pension phase. This limit will initially be $1.6 million. The draft legislation says: “An excess transfer balance is disregarded if it is less than $100,000; is caused by existing superannuation income streams on 1 July 2017; and the individual rectifies the breach within 60 days…”
However submissions in response to the draft legislation say 60 days is too short and this transitional period should be extended to 12 months.
“While we support the concept of a leeway period in the transitional stages of these amendments, and we understand the need to impose penalties for breaches of the transfer balance cap, we believe that, in many instances, 60 days is insufficient time to remedy such a breach,” says the FPA submission.
The FPA recommends that the grace period be 12 months, which will better allow super fund members to seek advice. The ASFA submission also calls for a 12 month transition period.
“Funds are concerned that, if there are reporting delays by funds (especially in circumstances where a member has multiple pension accounts or where a fund has difficulty segregating the assets and calculating the earnings tax) a member will be unfairly penalised through an unintended breach of the new requirements,” says the ASFA submission.
“Accordingly our recommendation is to provide a transitional period for members and funds by providing a 12 month amnesty on the proposed penalty provisions, including the excess balance transfer tax (on the notional earnings on the excess amount). This will allow members and the industry an adequate period during which to transition to the new regime and system development to be completed,” said ASFA.
The FPA is also concerned by the “excessive complexity” of some of the changes from the 2016 Budget.
“We are concerned that the proportionally indexed transfer balance cap concept adds significant complexity and uncertainty for super fund members around the new concept of transfer balance caps. Not only do super members need to keep track of a new $1.6 million figure, but also the percentage of unused cap, which is then indexed.”
The FPA instead proposes that increases to the Transfer Balance Cap are measured against how much of the threshold has previously been used in dollar terms, as is the case with other superannuation caps – such as the low rate cap.
“Using a percentage-based approach increases complexity and uncertainty and in many circumstances will not lead to significant difference in the additional amounts which could be transferred into a retirement pension.”