The SMSF Association (SMSFA) has called on the federal government to tackle the increasing complexity around the transfer balance cap (TBC) and total super balance (TSB) caused by indexation and to get some “quick wins” by dealing with issues left unresolved by the previous government.
In its pre-budget submission, the SMSFA stated the indexation of the TBC from 1 July 2021 added further complexity to the superannuation system, which will be magnified with the further indexation of the cap on 1 July 2023.
“Due to the complex nature of proportional indexation, it is inevitable that mistakes will be made, leading to inadvertent breaches of the TBC,” the industry body stated in the submission.
“One simple way of addressing the complexities associated with proportional indexation would be to align all members’ TBC with the general TBC.
“This would provide certainty, reduce costs and simplify the administration involved for the Australian Taxation Office, financial advisers, SMSF administrations and tax agents, as well as the members themselves.”
In line with this simplification, it also called for a reduction in the number of TSB thresholds by removing the tiered TSB thresholds for bring-forward non-concessional contribution (NCC) thresholds and their replacement with a single threshold for NCCs, spousal contributions and co-contributions aligned to the general TBC. The general TBC would also be the threshold applied to disregarded small fund assets, ensuring it was indexed at the same time as other measures using this cap.
The submission also called for the government to allow individuals to apply to the Commissioner of Taxation to allocate late superannuation guarantee payments to the relevant year of income.
The SMSFA noted in some instances the late payment of the superannuation guarantee may deny some individuals access to their unused concessional contribution and there was no distinction in the reporting of super guarantee amounts received by a superannuation fund that relate to a previous financial year or the current year’s concessional contributions.
It also repeated its call that the application of the design and distribution obligations (DDO) and target market determinations (TMD) should not apply to the establishment of an SMSF, when adding a new member to a fund or when commencing a pension in an SMSF.
“We believe that there are grounds for treating SMSFs differently, including the fact that they are more of a service than a product and are typically used to house other products that will be caught under the DDO legislation,” it said.
“The financial products acquired by and held in the SMSF are subject to the DDO and TMD requirements. This is entirely appropriate and aligns with the policy intent of these measures.”
While not making specific comments regarding breaches of the non-arm’s-length expenditure (NALE) provisions, the submission stated “the potential for disproportionately severe outcomes for breaches relating to fund expenses remains a live issue for the entire superannuation sector”.
“We note the release of the government’s consultation paper on this issue and encourage the government to implement a solution which maintains tax neutrality across the superannuation sector,” it said.
The submission also urged the government to implement the proposed two-year amnesty for legacy pension conversions and reform the SMSF residency rules with the removal of the active member test and the extension of the temporary absence rule for non-residents from two to five years.
“A legislative solution to these outstanding measures would be a quick win for government and provide vital solutions and certainty for those individuals. We would be pleased to further discuss these issues and how the required reform can be achieved with the appropriate policy settings,” it said.
