The 2016 Budget, if enacted, will return to the superannuation system the complexity thought gone with the end of the RBLs and amendments to the excess contributions tax.
It is only in the last couple of years that the potentially severe penalties and complicated rules of the excess contributions tax were reduced, now the Government plans to bring back the complexity.
The 2016/17 Budget includes three measures in particular which will increase the complexity of the superannuation system: a lifetime cap for Non-Concessional Contributions, a ‘balance transfer cap’ of $1.6 million and rollover of unused concessional contribution caps – but only for people with super balances under $500,000.
The first two of these measures are, at least partially, retrospective. The lifetime non-concessional cap counts contributions from 1 July 2007, though contributions prior to the time of the budget speech will not trigger an excess. This still means that people who were planning to make non-concessional contributions can now find this would put them over the new lifetime cap.
The transfer balance cap is also retrospective – if legislated as announced people with over $1.6 million in pension phase will be required to move a portion of their balance back to accumulation phase.
“Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017.” says the Budget paper #2.
“A tax on amounts that are transferred in excess of the $1.6 million cap (including earnings on these excess transferred amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions.”
Though the pension-phase balance will be allowed to grow above $1.6 million from income, this will increase the level of record-keeping required.
The Budget papers do not mention if the $1.6 million cap will be indexed, like the $500,000 lifetime non-concessional cap.
The ability to roll-over unused concessional contributions cap will also increase complexity in the system, particularly for SMSFs.
“Access to these unused cap amounts will be limited to those individuals with a superannuation balance less than $500,000,” says the Budget Paper #2.
But when will this be calculated? Will it be based on the superannuation balance at the end of the previous financial year, when the contribution is made, at the end of the financial year? Depending on the answer this policy could be of particular issue for SMSFs – most of which only calculate member balances when the annual accounts are prepared, which can be many months after the end of the financial year.
All three of these policies also create issues for people with multiple superannuation accounts. The Budget papers say the ATO has been keeping track of Non-Concessional contributions since 1 July 2007, but super funds are only going to have limited information of what transactions members have done in other funds. This is a particular issue for the $1.6 million transfer balance cap.
These complexities are compounded by the imminent election campaign. It is unclear if Labor supports these measures, and have their own policies which will increase superannuation complexity. There is doubt that these policies will be implemented, and we won’t see the detail in the legislation until after the election.