Submission: superannuation reform package – tranche two

Thank you for the opportunity to make a submission in relation to the second tranche of draft superannuation reform package Bills and regulations. This submission will deal with several issues: the insufficient time allowed for consultation on these complicated changes, how the transitional rules for the Transfer Balance Cap should be extended for SMSFs and the need for reporting of the Transfer Balance Cap for individuals given proportional indexation.

Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016

Insufficient time for consultation

Less than two weeks has been allowed for submissions to be prepared in response to this draft legislation. This is an insufficient amount of time given the complicated nature of several of the changes. As noted in the explanatory materials about the CGT relief arrangements:

The Government acknowledges that these provisions are complex and include a range of interactions with the CGT and other Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 income tax provisions of the ITAA 1997.

Though the broad policy was announced in the 2016 Budget, many of the details have only become public knowledge with the release of the draft legislation.

I encourage the Government to extend the consultation period before legislation is introduced to Parliament, particularity on the Transfer Balance Cap and catch-up concessional contributions measures.

Transfer Balance Cap – Transitional provisions should be extended for SMSFs

The transitional provisions for the Transfer Balance Cap, allowing 60 days for an excess to be rectified before excess transfer balance tax liability and notional earnings are applied for some breaches, is insufficient, particularly for SMSFs.

According to the explanatory materials:

The rationale for this relief is that it will be difficult for individuals with existing superannuation income streams to predict their retirement phase balances as at 30 June and ensure they are not in breach of their $1.6 million transfer balance cap.

I agree with this statement, but also suggest that 60 days is not enough time to calculate the retirement phase balance and take corrective action. Depending on the investments held, some SMSF trustees will not be able to accurately calculate pension balances as at 30 June 2017 until some months after this date. As such, the 60 day period for the transitional rules should be extended – to 180 days, for instance – to give SMSFs sufficient time to prepare accurate financial records and take action to rectify excesses of the Transfer Balance Cap.

This would also assist people with pensions across multiple superannuation funds – especially where none of the pensions are separately over the Transfer Balance Cap but combined do result in an excess. Thought should also be given to how information on the Transfer Balance Cap will be shared between superannuation funds, particularly between APRA-regulated funds and SMSFs – where there is likely to be significant time lags in reporting.

Transfer Balance Cap – Proportional Indexation and reporting

Consideration should be given to how the Transfer Balance Cap will be reported to individuals in the future, especially given the proposed proportional indexation.

Over time 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.

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.