Changes slated to the super reforms
Having put in place the legislation to implement its superannuation reform package, the government announced plans, less than 48 hours later, to make technical changes to some aspects of the legislation.
While we are still waiting for further details to be released, the following is a brief summary of what we know so far about the changes that are being considered.
Limited recourse borrowing arrangements (LRBA)
Included in the changes slated by the government is a proposed change to the calculation of an individual’s ‘total super balance’ where there is a LRBA is in place. The proposed amendment will count the outstanding balance of a LRBA each year towards the member’s annual total super balance.
It appears this change is being made to overcome situations where an SMSF member withdraws a lump sum amount from their fund and then lends back the money to the SMSF to purchase an asset through an LRBA – and in the process circumventing the contribution caps by allowing these individuals to keep their net balance below the total super balance threshold.
What’s not clear at this stage is how the outstanding LRBA balance would be allocated to a member’s total super balance in situations where there is more than one member in the fund.
It is also proposed that a change will be made to the transfer balance credit provisions so that where a member has a transfer balance account, the amount of the repayment of the principal and interest of an LRBA will appear as a credit in the member’s transfer balance account. Again it’s unclear at this stage how this would work in situations where there are multiple members in the SMSF.
CGT relief and transition to retirement income streams (TRIS)
As foreshadowed in ATO Law Companion Guideline LCG 2016/8, it appears an amendment will be made to the CGT relief rules for TRISs, so that a segregated TRIS will not be required to transfer amounts to the accumulation phase in order to be eligible for CGT relief.
Auto-conversion of a TRIS
It is common industry practice for a TRIS to be automatically converted to an account based pension (that is an account based pension that is not classified as a TRIS) once the individual satisfies a full condition of release. Arguably, a TRIS does not, at least in a technical sense, cease to be a TRIS, simply because the member has satisfied a full condition of release. The pension continues to be a TRIS unless the pension is fully commuted or the capital supporting the pension has been exhausted.
A legislative amendment will be made to ensure a TRIS, which has automatically been converted to an account based pension because the member has satisfied a full condition of release, will no longer be classified as a TRIS. This is a common sense move and will ensure these pensions continue to be entitled to an earnings tax exemption post 30 June 2017.
Death benefits and the transfer balance cap
The legislation will be amended to remove the ‘six month rule’ for death benefit pensions from 9 November 2016 (the date the super reforms bill was introduced into parliament) rather than 1 July 2017. This means spouses who commute their death benefits to comply with the transfer balance cap prior to 1 July 2017 will not face adverse tax/preservation consequences.
The government intends to legislate these changes in the winter sittings to ensure they are enacted by 1 July 2017. If time allows, exposure draft legislation will be released for consultation.
SuperConcepts will provide further guidance on these proposed changes when further information becomes available.