Submission to Inquiry into Superannuation (Excess Transfer Balance Tax) Bill 2016 [Provisions] and Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 [Provisions]
Thank you for the opportunity to make a submission to the inquiry into these Bills. This submission will deal with:
- 1.0 Insufficient time for consultation
- 2.0 The overly complicated nature of the changes
- 3.0 Indexing LISTO to increases in Super Guarantee rate
- 4.0 Welcome extension of time for Transfer Balance Cap transitional relief
1.0 Insufficient time for consultation
I am concerned that insufficient time has been allowed for public consultation on some 500 pages of legislation and explanatory materials. By my count, the time allowed for public consultation on the draft superannuation Bill tranches is as follows (including weekends):
- Tranche 1 – 9 days
- Tranche 2 – 13 days
- Tranche 3 – 7 days
In my opinion this indicates a rushed process with little regard for actual public consultation. The exact amount of time for consultation for the third tranche is unclear, the original media release says the consultation would close on Friday the 21st of October, after being released late on a Friday afternoon. However the Treasury website, currently, says that the consultation was open until Sunday the 23rd of October. The above figure is based on the media release from the Treasurer.
All these consultation periods are short, both in terms of time for interested parties to draft a submission but also to give proper consideration to the complicated details and potential interactions, likely leading to poor outcomes.
Apart from the short time allowed for public consultation, splitting the legislation into tranches could impede consideration of how these complicated measures interact.
The limited time for consultation is particularly concerning in regards to the third tranche. This tranche includes complicated measures involving limiting non-concessional contributions based on if a superannuation balance is close to or over the general Transfer Balance Cap. Unlike many of the other measures, this was not announced in the 2016 Budget, but is a much more recent change and also includes a substantial reduction in the non-concessional contributions cap.
I am calling for further time to be allowed for consultation on these measures. The changes, if legislated, could impact the superannuation system and retirement savings for decades to come and should not be rushed.
2.0 Changes are overly complicated
Some of the measures contained in the Bill are overly complicated, in particular those dealing with the Transfer Balance Cap – including proportional indexation and issues with linking non-concessional contributions to the general Transfer Balance Cap.
2.1 Bring forward rules
The changes to the non-concessional contributions cap are particularly complicated in regards to the provisions dealing with people who are near the, initial, $1.6 million cap or who have triggered the bring forward rules.
I recommend that where the bring forward rules have already been triggered that the existing rules continue to apply until the end of that bring forward period.
Some super funds, in particular SMSFs, will have issues in accurately determining the balance of a member in a timely manner. This could be an issue for people considering using the bring forward provisions in the future. Small misestimations of balances, for instance between $1,399,999 and $1,400,001, can mean a $100,000 difference in the amount of non-concessional contributions that can be made in a single year.
This issue was recognised in regards to the Transfer Balance Cap, with transitional relief provided (see 3.0). However no such measure is included for the new non-concessional contribution cap rules. I recommend that relief be provided for, relativity, small and unintentional excesses of the limit on non-concessional contributions linked to the general Transfer Balance Cap.
These issues are discussed further in Appendix 3.
2.2 Proportional indexation
The proposed proportional indexation of the Transfer Balance Cap is also overly complicated. Going forward, as some people use portions of their Transfer Balance Cap and proportional indexation is applied, the amount of the Transfer Balance Cap will vary from individual to individual. The Transfer Balance Cap could remain a relevant figure for decades to come, by which time original records needed to recalculate the Cap – including transaction amounts, dates and details – would likely no longer be kept.
If proportional indexation is to apply to the Transfer Balance Cap then a reporting system should be put in place. Given the ATO will need to collect detailed information about transactions in order to administer the Transfer Balance Cap, this information should also be made available to taxpayers. The Low Rate Cap could provide an example of how this could be implemented. Though information available to individuals on their Transfer Balance Cap should include all details reported to the ATO, not just the final calculated figure.
This issue is discussed further in Appendix 2.
3.0 Welcome extension of time for Transfer Balance Cap transitional relief
I welcome the extended time period for transitional relief to apply for limited breaches of the Transfer Balance Cap on 1 July 2017.
The draft legislation (explanatory materials 1.266 – 1.268) only allowed 60 days for breaches of the Transfer Balance Cap as at 1 July 2017 of less than $100,000 to be rectified before giving rise to notional earnings or an excess transfer balance tax liability. This would have caused issues, in particular for SMSFs, which may not have been able to accurately determine a member balance within this time frame. The first reading version of the Bill extends this time period to 6 months (explanatory memorandum 3.315 – 3.317). Though it should be noted that some SMSFs will not have financial accounts, and so member balances, prepared until the 2016/17 tax return is due to be lodged – which for some will be around 11 months after 1 July 2017.
4.0 Indexing Low Income Superannuation Tax Offset to increases in Superannuation Guarantee rate
The Low Income Superannuation Tax Offset (LISTO) should be increased and indexed so that it keeps pace with increases to the Superannuation Guarantee rate.
When the Low Income Superannuation Contribution (LISC) was introduced, which is effectively replaced by the LISTO, it offset the full amount of contributions tax a low income earner would incur on their Superannuation Guarantee (SG) contributions ($37,000 x 9.0% = $3,330, $3,330 x 15% = $499.50). However allowance was not made for increases in the SG rate, meaning over time the LISC/LISTO doesn’t offset the full amount of contributions tax for low income earners. This should be rectified as part of the introduction of the LISTO.
This issue is discussed further in Appendix 1.
This is a submission to the Senate Inquiry into Superannuation (Excess Transfer Balance Tax) Bill 2016 [Provisions] and Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 [Provisions] by SolePurposeTest writer Luke Smith, it has been published here with permission, he retains all copyright.