Regulatory Roundup – March 2020 Bonus Article
The SMSF Association held its annual conference recently, which was addressed by Assistant Minister for Superannaution, Senator Jane Hume, who stated that it remains government policy to see an increase in the maximum number of SMSF members from four to six. Implementation of the Hayne banking commission recommendations was however a priority, she said. (See full speech here.)
“This proposed change is significant,” Hume said, “because it increases the flexibility of our self-managed superannuation sector. It will allow situations such as families with up to four children to be part of a single family superannuation fund.”
The Senator also emphasised to the SMSF professionals audience that the government is also committed to “improving the flexibility” of the super system for older Australians, with announcements made as part of the 2019-20 Budget still official policy, although not yet introduced as legislation.
These include allowing people aged 65 and 66 to be able to make voluntary contributions without meeting the work test, and giving the same group the ability to make up to three years of non-concessional contributions under the bring-forward rule. Another of these measures is to allow people aged below 75 to be able to receive contributions from their spouses.
Some changes however have made it to “bill” status. The Treasury Laws Amendment (2019 Measures No. 3) Bill includes a change to ensure that an appropriate debit value is given for market-linked pensions that are commuted or rolled over. “The current valuation method produces a debit value of zero in these circumstances, contrary to the policy intent,” Hume said. The legislation also seeks to ensure that death benefits that include life insurance proceeds are not subject to tax in the receiving fund when rolled over.
Other measures that are still committed to include allowing trustees with interests in both pension and accumulation phases during an income year to choose their preferred method for calculating exempt current pension income. The government has also announced plans to remove the requirement for superannuation funds to obtain an actuarial certificate when calculating exempt current pension income using the proportionate method, where all members of the fund are fully in the retirement phase.
Senator Hume stated that although the legislation for these changes is yet to be introduced, the government remains committed to passing this legislation ahead of the 1 July 2020 start date.
SG amnesty bill passes both houses and is set to become law
The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 has been passed by the Senate without amendment and is set to become law. The bill contains measures that allow employers to make deductible payments, without penalties, of outstanding superannuation guarantee charge (SGC) amounts if:
- they relate to the period 1 July 1992 until 31 March 2018; and
- they are paid during the amnesty period (24 May 2018 until 6 months after the date of royal assent — not received at time of writing).
However, interest calculated at a rate of 10% a year on the SG shortfall will still apply to compensate employees for late payment.
The concessions provided by the amnesty include:
The SGC (comprised of the SG shortfall amounts, interest and the administration fee) will be deductible to the employer: Normally, payment of the SGC is non-deductible.
The administration fee (one of the three components of the SGC outlined above) will be waived: Normally, this is calculated at a rate of $20 per employee, per quarter.
No penalties will be applied for failing to lodge an SG statement: In usual circumstances this can be up to 200% of the SGC amount.
A further inventive to make payments during the amnesty period is that the minimum penalty applying to SGC for quarters covered by the amnesty (that is, undisclosed shortfalls during the period 1 July 1992 until 31 March 2018) will be 100% if they are later uncovered.
The Commissioner will not generally have the discretion to remit the penalty to below 100% of the SGC.
The SG amount will be automatically excluded from the calculation of the employee’s concessional contributions cap: This avoids a potential additional income tax liability for the employee as concessional contributions above the individual’s concessional contributions cap are included in the individual’s assessable income and assessed at their marginal tax rate.
The SG amount will be automatically excluded from the calculation of the employee’s “low tax contributed amounts” for the purposes of additional tax under Division 293 of the Income Tax Assessment Act 1997: This potentially avoids an additional 15% tax liability on superannuation contributions that is imposed when an individual’s income for Division 293 purposes exceeds the relevant threshold (currently $250,000).
Note that the benefits under the amnesty are only available if:
- The Commissioner has not previously advised the employer that they are examining, or intending to examine, the employer’s compliance with SGC;
- The SG shortfalls have not previously been disclosed to the Commissioner;
- The information is disclosed to the Commissioner in the approved form;
- The employer has not been disqualified from the beneficial treatment under the amnesty.
Inquiry into the tax treatment of employee share schemes
The House of Representatives Standing Committee on Tax and Revenue was tasked in early February this year with conducting an inquiry into the taxation of employee share schemes (ESSs), and issuing the Treasurer with a final report.
In 2015 the Government made a number of changes aimed at improving the taxation treatment and administrative arrangements for ESS. The current committee will inquire into the effectiveness of the 2015 ESS changes and examine the challenges faced by companies in setting up an ESS arrangement and how taxation treatment affects the structure of current ESS arrangements.
The committee says it will examine:
- how effective the changes in 2015 have been in their goal of bolstering entrepreneurship in Australia and supporting start-up companies
- the costs and benefits of these concessional taxation treatments, and deferred taxing points for options, to the broader community
- whether the current tax treatment of ESSs remains relevant to start-up companies and whether any changes are appropriate to ensure the taxation treatment remains relevant
- how companies currently structure their ESS arrangements and how taxation treatment affects these decisions
- the challenges faced by companies in setting up an ESS arrangement and how the standard documents by the ATO, and introduced in 2015, assist this process and whether additional improvements should be made.