On 10 May 2011, the Treasurer, Mr Swan, delivered a restrained budget with a number of savings initiatives and conservative measures and few major new spending initiatives in order for the Federal Government to meet its commitment to return the Budget to surplus by 2012-2013.
As expected, there were no headline Budget measures concerning superannuation compared with previous years. Key superannuation announcements include measures to address criticisms of the excess contributions tax regime, a reduction in the minimum pension drawdown relief, and clarification on the concessional contributions cap. There have also been increases to a number of levies on superannuation funds to fund proposed reforms in the superannuation sector.
An outline of the major superannuation announcements in the 2011-2012 Federal Budget is set out below.
EXCESS CONTRIBUTIONS TAX – REFUND OPTION FOR EXCESS CONCESSIONAL CONTRIBUTIONS UP TO $10,000
Effective from 1 July 2011, the Government will provide individuals who have breached the concessional contributions cap by up to $10,000 (not indexed) with the one-off option to request a refund of such excess contributions to them. This provides eligible individuals with the option to have their excess concessional contributions taken out of their superannuation fund and assessed as income at their marginal tax rate, rather than incurring tax at the potentially higher tax rate applicable to excess contributions of 31.5% (in addition to the 15% contributions tax rate for the superannuation fund).
This option will only be available to individuals who have breached their concessional contributions cap for the first time, from the 2011-2012 financial year onwards.
The Government has announced that it will consult with the superannuation industry on the implementation of this measure.
Although this proposed reform is expected to reduce the number of occasions on which excess concessional contributions tax is paid, the relief is extremely limited. An individual will only be able to rely on this relief once, and no retrospective relief is provided for breaches prior to the 2011-2012 financial year.
There were no measures announced in respect of breaches of the non concessional contributions cap. Nor were there any announcements about the position of individuals facing assessments in respect of previous breaches. As has been widely reported, the excess contributions tax regime has given rise to a number of anomalous results, such as the imposition of tax in the vicinity of $70,000 in consequence of a mistaken over contribution of as little as $100. It is hoped that the Government is continuing to work on a solution for these issues.
CONCESSIONAL CONTRIBUTIONS CAP
The Government has confirmed its previous announcement that from 1 July 2012, the annual concessional contributions cap for individuals aged 50 and over whose total superannuation account balances are less than $500,000 will be set at $25,000 in excess of the general concessional contributions cap – currently $25,000.
It remains to be seen how this measure will be implemented and, in particular, how individual balances will be calculated and assessed. Treasury has received numerous submissions in response to its Consultation Paper on 'Concessional Superannuation Contributions Caps for Individuals Aged 50 and over', pointing out a number of conceptual and practical difficulties that will need to be resolved.
MINIMUM PENSION DRAWDOWN RELIEF – REDUCTION FROM 50% TO 25% FROM 1 JULY 2011
A minimum pension payment must be made at least annually to ensure that retirees draw down on their superannuation savings over the course of their retirement. Minimum payments are determined by age, varying between 4% and 14% of the pension account balance at 1 July each year.
Over the last three financial years from 1 July 2008 to 30 June 2011, in order to assist pension account balances recover from capital losses associated with the global recession, the Government has provided a 50% reduction in the minimum payment amounts required for account-based, allocated and market-linked (term allocated) pensions.
The Government has announced that this pension drawdown relief will be phased out so that the minimum payment amounts for account-based, allocated and market-linked (term allocated) pensions will be reduced to 25% for the 2011-2012 financial year and will return to the legislated minimum payment amounts from the 2012-2013 financial year onwards.
SELF-MANAGED SUPERANNUATION FUND (SMSF) REFORMS – REGULATOR FUNDING AND INCREASED LEVY
To enable the implementation of the "Stronger Super" reforms to the self-managed superannuation fund (SMSF) sector, the Government will provide $40.2 million to the ATO and $8.4 million to ASIC over the next four years (ie from 2010-2011 to 2014-2015). These reforms were previously announced by the Government in December 2010 with the aim of improving the operation, efficiency and integrity of the SMSF sector.
The cost of this measure will be offset by an increase to the SMSF levy from $150 to $180 for the 2010-2011 financial year and the introduction of an SMSF auditor registration fee from 1 July 2012.
SMSF auditor registration
The Government will also provide $2.8 million over two years to ASIC to develop an online registration facility for approved auditors of SMSFs from 1 July 2012.
The Government will provide $14.6 million over two years to the ATO for the development of a business case and initial capital related expenditure to implement a mechanism for members to view their superannuation accounts that have been reported to the ATO. The funding is also to enable the ATO to establish governance and project teams during consultation to undertake detailed design of ATO IT systems to support the SuperStream measures.
The Government will provide $26.2 million and $3.7 million over four years to APRA and ASIC respectively to introduce MySuper. This measure will be funded by an increase in the levy on APRA regulated superannuation funds.
The freeze of the indexation of the income thresholds under the government superannuation co-contribution scheme has been extended for an additional year to 2012-2013. Under the scheme, the Government provides a matching co-contribution for superannuation contributions made out of after-tax income.
In the 2010-2011 financial year, the matching Government co-contribution is up to $1,000 for people with incomes of up to $31,920, with the co-contribution amount gradually phasing down to nil for those with incomes up to $61,920. This measure will continue to freeze the co-contribution thresholds at $31,920 and $61,920 respectively.
SCRIP FOR SCRIP ROLL-OVER INTEGRITY ISSUES
The Government will amend the scrip for scrip roll-over integrity provisions that apply to individuals and companies to ensure that they also apply appropriately to trusts, superannuation funds and life insurance companies.
Currently, the scrip for scrip roll-over integrity provisions apply to transactions where stakeholders in the target and acquiring entities have the potential to influence both entities. As such, some trusts, superannuation entities and life insurance companies may adopt the view that these integrity provisions do not apply to them on the basis that they own the interests for the benefit of others (ie beneficiaries), rather than for their own benefit. The Government has indicated that this is inconsistent with the intended interpretation of the integrity provisions, thus necessitating their amendment to ensure that they apply effectively to all stakeholders.
TRADING STOCK EXCEPTION FOR SUPERANNUATION FUNDS
The Government has announced that the trading stock exception to the CGT primary code rule for complying superannuation entities for specified assets will be removed, effective from 7.30pm (AEST), 10 May 2011.
This will ensure that gains or losses on specified assets that are traded (primarily shares, units in a trust and land) are subject to CGT (and not the trading stock provisions), given that the CGT regime is the primary code for the taxation of investments of complying superannuation entities. A small number of complying superannuation entities are seeking to treat shares as trading stock, so as to deduct losses on their shares against income other than capital gains.
Transitional rules will apply to ensure that assets held or accounted for as trading stock before the time of the announcement are unaffected.
COUNTERING FRAUDULENT PHOENIX ACTIVITIES BY COMPANY DIRECTORS – SUPERANNUATION GUARANTEE MEASURES
From 1 July 2011, the director penalty regime that applies to the failure to remit PAYG will be extended to superannuation guarantee amounts. Directors will be personally liable for their company's failure to pay the superannuation guarantee charge.
OTHER SUPERANNUATION-RELATED MATTERS
Other superannuation measures announced include:
- the Government has confirmed its previous announcement that superannuation fund trustees and RSA providers will be allowed to make greater use of Tax File Numbers (TFNs) to locate member accounts (from 1 July 2011) and to facilitate consolidation of multiple member accounts (from 1 January 2012);
- effective from 1 July 2012, the Government will ensure that employees receive information on their payslips about the amount of superannuation actually paid into their account. Superannuation funds will also be required to notify employees and employers on a quarterly basis if regular contributions cease;
- the Government will amend the superannuation legislation so that where the trustee of an SMSF is a body corporate, a parent or guardian may be director of the body corporate in place of a member that is a minor; and
- an extension of the temporary CGT loss relief for complying superannuation fund mergers by three months from 30 June 2011 to 30 September 2011 to provide additional time for mergers in progress to be completed.
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