Important changes to pension and death benefits rules will also become law following yesterday’s passing of an omnibus bill that has mainly been noted for extending the time frame for advisers to complete the mandatory adviser education exam.
Smarter SMSF chief executive Aaron Dunn said the Financial Adviser Standards and Ethics Authority exam timetable extension, which was contained in the Treasury Laws Amendment (2019 Measures No 3) Bill that passed through parliament yesterday, had overshadowed the other changes, which relate to market-linked income streams and death benefit rollovers.
“What has been lost in discussions of the bill is that it was looking to correct two very important measures that go back to the superannuation reforms that were implemented from 1 July 2017,” Dunn said as part of a webinar today.
“The first is the correcting of a debit value on a commutation of a market-linked pension (MLP). Prior to 1 July 2017, existing MLPs were deemed to be a capped defined benefit income stream and subject to a calculation as a multiple of the remaining term rather than looking at its purchase value or account value at that point in time.
“Some people were looking to commute that back and repurchase the MLP, which would allow for a lower value to be stated on the individual’s transfer balance account.
“The problem was that the way the legislation was drafted meant the commutation value came out as zero and effectively double counted the value of the income stream, and that measure corrects that issue and it goes back to 1 July 2017.”
He pointed out the second issue corrected by the bill related to the rollover of superannuation death benefits where insurance proceeds were paid out as part of a death benefit and the beneficiary did not want to retain the funds in their SMSF, but move them to a public offer fund.
“The problem here, being a rollover of an untaxed element, is that it would impose a 15 per cent tax at time of rollover. It is a death benefit and so if it is paid tax-free they should receive it without tax obligations,” he said.
“The government has fixed the anomaly that distinguished between a rollover that is untaxed ordinarily and a death benefit rollover that has an untaxed element but now has no taxing point in it, and will also go back to 1 July 2017.”
He pointed out other changes that allowed people aged 65 and 66 to make voluntary contributions without meeting the work test and an extension to spouse contributions up to the age of 74, both from 1 July 2020, were already in place as they were changes made under superannuation regulations and did not require parliamentary approval.
Changes to the bring-forward rule for non-concessional contributions where a member meets relevant total super balance requirements, however, were still locked in parliament, with the enabling bill, the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020, currently before the lower house.
“This is a change that has to go through both houses because it is a change to the Income Tax Assessment Act,” Dunn said.
“This was introduced on 13 May and as of yesterday was still before the House of Representatives. Today is the final sitting before the end of the financial year and this may or may not get through and impact if we can look at using the bring-forward rule immediately from 1 July or whether we need to wait until the next period of sitting days.”
