The federal government should act on superannuation matters that have been announced, but on which no further action has been taken and simplify thresholds to reduce compliance costs for taxpayers and the ATO, according to The Tax Institute.
In its pre-budget submission, the institute noted the government had announced a consultation on the non-arm’s-length expenditure (NALE) rules for superannuation funds, adding “we consider the actions needed to rectify the inequities within the NALI (non-arm’s-length income) provisions are more broad than the issues raised in the consultation paper”, and pointed the government to past submissions by a range of industry bodies.
“At a minimum, any amendments to the provisions should permit taxpayers to rectify errors arising from honest or inadvertent mistakes,” the submission stated in support of a position also taken by the SMSF Association.
The institute also called on the government to pass enabling legislation to put into effect new rules, which were announced in the October budget, that would relax the residency requirements for SMSFs, extend the time SMSF trustees could be overseas and remove the active member test.
“We consider that the government should promptly introduce enabling legislation,” it said.
“This will enable individuals to contribute to their superannuation in a wider range of circumstances, mitigate against adverse outcomes in the event that trustees may be required to be outside of Australia beyond the two years, such as during the COVID-19 pandemic, and support the policy objective of self-sufficient retirement.”
The submission also noted a number of superannuation thresholds had no alignment to other rates, thresholds or indexation methods and were being made more complicated by indexation calculations that vary according to the specific cap or threshold.
The institute highlighted the widening range of personal transfer balance caps (TBC) compared to the general TBC and the difficulty calculating personal TBCs each year due to limited real-time information available meant the proportionate TBC should be removed.
“An example of inconsistency is evident in the indexation that is used to determine if the maximum superannuation contribution base and maximum concessional contribution (CC) cap should be increased,” it said.
“The maximum superannuation contribution base restricts the amount of SG contributions that employers are obliged to provide for an employee under the SG scheme. In contrast, the maximum CC cap is the threshold to which the concessional tax rate of superannuation can be applied.
“Although the maximum superannuation contribution base acts as a proxy of the maximum CC cap from an employer’s perspective, these caps and the indexation applied to them are different.”
The submission said this complexity was hard for consumers to understand and a simplification of superannuation rates, thresholds and indexation would reduce compliance costs, encourage taxpayers to use additional super contribution strategies and reduce ATO compliance resources.
