The range of total superannuation balance (TSB) thresholds currently in use is too complex and should be streamlined to make it easier to determine what thresholds are applicable for trustees, according to the SMSF Association (SMSFA).
In its 2020/21 budget submission released last week, the SMSFA noted the introduction of individual TSBs in 2017 had been useful in determining who was able to access superannuation concessions.
The association also stated it remained supportive of the use of TSBs, but the introduction of a range of thresholds had added unnecessary complexity to the superannuation system.
The submission noted there were six different TSB thresholds currently in use, which could be reduced to two with little impact on revenue to government.
The current total superannuation balance thresholds are the:
- $300,000 TSB for work-test exemption contributions,
- $500,000 TSB for catch-up contributions,
- $1 million TSB threshold for quarterly transfer balance cap reporting,
- $1.4 million, $1.5 million and $1.6 million bring-forward non-concessional contribution (NCC) caps,
- $1.6 million TSB threshold for non-concessional, spousal and co-contributions, and
- $1.6 million TSB threshold for segregated pension assets.
“Some of these thresholds are indexed and some are not. The indexing methods also vary,” the association stated in the submission.
“These thresholds have not only added complexity to trustees trying to understand and use the superannuation system, but also for their advisers and administrators to administer.
“It also increases the professional services fees paid by superannuation members as they need specialised advice to understand the multiple different thresholds that may apply to them and when they apply.
“Furthermore, when errors are made by trustees it can result in breaches of contribution caps which can be administratively hard to resolve and involve penalties.”
The SMSFA proposed the work-test exemption TSB threshold should be aligned with the catch-up contributions threshold at $500,000, the $1 million quarterly TSB threshold be phased out within two to three years, and the $1.4 million and $1.5 million bring-forward non-concessional contribution caps should also be removed.
In making the proposal, the submission stated the changes would create a single TSB for alternative contribution measures and reduce the complexity around bring-forward NCCs when nearing the $1.6 million TSB threshold, and also create a single threshold set at that figure.
“We believe a simpler superannuation system will allow all individuals who are under 65 and under $1.6 million the ability to make the full $300,000 bring-forward NCC. This reduces the ability for confusion and complexity in the system and also allows individuals to increase their superannuation and provide for their retirement,” it said.
“This will also result in the use of one single $1.6 million threshold for NCCs, spousal and co-contributions which aligns with the segregated pension threshold and the general transfer balance cap.”