The $1.6 million Transfer Balance Cap, proposed in the 2016 Budget, is unnecessarily complicated and unlikely to be able to be implemented by the 1 July 2017 start date, according to submissions in response to the draft legislation.
Treasury recently released draft legislation, the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016, for consultation. Included in the draft Bill is the Transfer Balance Cap.
In its submission the Australian Institute of Superannuation Trustees (AIST) says there are “considerable impediments”, including in terms of time and cost, to implementing the Transfer Balance Cap by the set date.
“Superannuation funds are unlikely to be able to fully implement this measure by 1 July 2017 if the establishing legislation and regulation has not passed both houses of parliament by the end of 2016,” says the AIST submission.
“Even if the legislation passes both houses of Parliament before the end of March 2017, there will be a great deal of work required in order to merely ensure that funds are able to report retirement income stream information to the ATO accurately.”
Additionally AIST says that the method to calculate Transfer Balance Cap account balances is “unduly complicated” and the costs will be paid by all superannuants, not just those with high balances.
“While the Government has emphasised that very few people will be impacted by this measure, processes, business rules and system changes need to be made by all superannuation funds. This an expensive and time-consuming process, and means that the costs will be borne by all superannuation fund members, and not just the few who are directly impacted by the measures.”
The Tax Institute, in its submission on the draft legislation, also says that the 1 July 2017 start date is unrealistic.
“Members of the Institute’s Superannuation Committee also consider a start date of 1 July 2017 for many of the measures in the package is not realistic given the uncertainty around the final form of the legislation and the considerable systems and other work that trustees and administrators need to do to implement the measures.”
The Institute is also critical of the amount of time allowed for consultation on the changes.
“We submit that the consultation period for the superannuation reform package should be extended to allow a more considered redrafting of the exposure drafts. A consultation period of nine business days has been provided for the public to provide comments on Tranche 2, which comprises approximately 220 pages of exposure drafts and explanatory memoranda. This is an insufficient period to provide considered comments on this significant and complex material, which taxpayers and their advisers will be dealing with for decades to come.”
Though there apparently has been some confidential consultation on the draft legislation.
“While the explanatory memoranda for Tranche 2 predicts further consultation on some discrete issues, this form of ad hoc consultation coupled with the release of the superannuation reform package in tranches increases the risk of interaction issues, consequential amendments and any necessary transitional relief not being fully considered or identified.”
“We are concerned that the exposure drafts are inconsistent with the subsidiary objective of superannuation that the superannuation system be simple, efficient and provide safeguards. In particular, the drafting of Tranche 2 is overly complex and cannot be readily understood without reference to explanatory memoranda, which do not have legal force on a standalone basis.”
The Institute concurs with AIST, in that the costs of administering the Transfer Balance Cap will be borne by all super fund members. It is noted in the submission that the Treasurer has said that 96% of people will be better off or unaffected by the superannuation changes announced in the 2016 Budget. “The Institute wishes to point out that the likely substantial administrative costs of implementing these measures will not be limited to those individuals directly impacted by the measures in revenue terms.”
“Significant education, updating documentation, upskilling process and reporting costs will also be incurred by the industry and that will be incurred all members to implement the systems necessary to comply with these measures.”
The Tax Institute says introducing legislation to enact the Transfer Balance Cap to Parliament before the end of the calendar year is “ambitious” and a 1 July 2017 start date “provides insufficient lead time to finalise and implement the measures”.