Australia: Holding Redlich expert guide to the 2017 Federal Budget - Superannuation & Financial Services

The Federal Budget includes a number of measures having an impact on the superannuation and financial services sectors. The most important of these are the following.

New Australian Financial Complaints Authority

From 1 July 2018, the Superannuation Complaints Tribunal (SCT), the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO), which deal with disputes regarding superannuation, banking, finance, insurance and trustee services, and financial services, respectively, will be replaced by a single external dispute resolution body, the Australian Financial Complaints Authority (AFCA). This is part of the Government's response to the report of the panel chaired by Professor Ian Ramsay, following a review of the current external dispute resolution framework.

The AFCA will be supervised by ASIC and all Australian Financial Services licensees will be required to be members. Decisions of the AFCA will be final and binding on all members, although the new regime will include the prospect of referral back to the relevant financial organisation or superannuation trustee for resolution by means of internal dispute resolution.

The SCT, FOS and CIO will keep operating until 1 July 2020, so that existing matters can be cleared.

Superannuation fund mergers – extended tax relief

The tax relief currently available for merging superannuation funds, due to cease on 1 July 2017, will be extended until 1 July 2020. The relief allows superannuation funds to transfer capital and revenue losses to the successor fund, and to defer tax implications on gains and losses where there is a merger. The extension encourages consolidation of funds, in that it removes adverse tax consequences as a deterrent to mergers.

Housing affordability measure: Reducing barriers to downsizing – contributing proceeds into super

This measure is designed to encourage older people to downsize from homes that no longer meet their needs and free up housing stock.

Under the measure, people aged 65 and over will, from 1 July 2018, be able to make a non-concessional (post-tax) contribution into their superannuation of up to $300,000 from the proceeds of selling their principal place of residence which has been held for at least 10 years. Both members of a couple will be able to take advantage of this measure for the same home – ie: $600,000 per couple can be contributed to super through the downsizing cap.

Contributions under the new downsizing cap will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps. These contributions will not be subject to the existing voluntary contribution rules for people aged 65 and older (work test, no contributions for those 75 and over) and restrictions on non-concessional contributions for people with balances above $1.6 million – ie. it is intended to assist people aged 65 and over who are currently unable to contribute proceeds of the sale of their home into super because of the existing restrictions.

The Government estimates this measure will have a cost to revenue of $30 million over the forward estimates.

Housing affordability measure: First Home Super Saver Scheme

This measure is designed to help first home-buyers save for their first home by allowing them to build a deposit inside their super.

Under the measure, from 1 July 2017, individuals will be able to make voluntary contributions of up to $15,000 per year ($30,000 in total) to their super account to purchase a first home. Pre-tax voluntary contributions will be taxed at the concessional 15% contributions rate, and can, along with deemed earnings (using a deemed rate of return based on the 90 day Bank Bill rate plus three percentage points), be withdrawn for a deposit. Withdrawals will be allowed from 1 July 2018, and taxed at marginal tax rates less a 30% offset. Note that compulsory superannuation contributions will not be eligible for withdrawal under the First Home Super Saver Scheme.

The Government estimates that, for most people, the First Home Super Saver Scheme could boost the savings they can put towards a deposit by at least 30% compared with saving through a standard deposit account. According to the Government, this is because of concessional tax treatment and the higher rate of earnings often realised within superannuation. In relation to the latter, we note that (at least currently) investment strategies and options offered by super funds are often based on a longer investment horizon than may be appropriate for a first home-buyer who is looking to save a deposit. Some super funds may look to adapt their product offering accordingly – although, as noted above, withdrawals will only be permitted based on deemed (rather than actual) earnings.

Voluntary contributions under the First Home Super Saver Scheme must be made within existing superannuation caps. The total concessional contributions an individual can make, from both compulsory employer contributions and voluntary contributions, including those made under the scheme, cannot exceed $25,000 in 2017-18.

The First Home Super Saver Scheme will be administered by the ATO. The ATO will determine the amount of contributions that can be released and instruct super funds to make these payments accordingly.

The Government estimates this measure will have a cost to revenue of $250 million over the forward estimates.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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