The Treasurer, the Hon Scott Morrison, has handed down his second Federal Budget in Canberra overnight. He spoke of this Budget being about fairness, security and opportunity with the Government focussing on guaranteeing essential services, tackling the cost of living and ensuring the Government lives within its means.
Following extensive changes to superannuation in the 2016 Federal Budget, there were only a handful of new measures for superannuation this time around. As anticipated, two of the super measures linked in to the Government’s housing affordability policy with the only sting being for SMSF members whose fund has limited recourse borrowing arrangements.
The following Budget update looks broadly at the measures announced that impact on SMSFs. It is important to understand that most of these measures will need to be passed by Parliament before they become law.
If you think that these changes may impact on your retirement or investment plan, it is important to speak with an adviser before acting.
Key points on Superannuation
Integrity of limited recourse borrowing arrangements
Effective Date: 1 July 2017
The Government intends to amend the existing transfer balance cap and total superannuation balance provisions to take into account limited recourse borrowing
arrangements (LRBAs).
From 1 July 2017, for members of a SMSF or Small APRA Fund (SAF) with a limited recourse borrowing arrangement:
- the member’s total superannuation balance will include the outstanding balance of
the LRBA, and - the repayment of the principal and interest of the LRBA from the member’s
accumulation account will be counted towards their transfer balance cap.
These changes are being made to prevent LRBAs being used to circumvent
contribution caps by effectively transferring growth in assets from the
accumulation phase to the retirement phase without having this growth assessed
against an individual’s transfer balance cap.
On 27 April 2017, the Government issued for consultation draft legislation to introduce
these proposed changes. For further details read the Treasury announcement, draft
legislation and explanatory memorandum.
What does this mean for SMSF trustees?
- Assets effectively transferred from the accumulation phase to the retirement phase of an SMSF or SAF to repay some or all of a LRBA will count towards the relevant SMSF or SAF members’ transfer balance caps.
— Where members have maintained an LRBA into retirement, it will be necessary
to monitor the source of repayments and, where these come from the
accumulation phase, it will be necessary to monitor the member’s transfer
balance cap and, if necessary, commute some of the member’s income stream. - The gross, not the net, value of an asset subject to a LRBA will be included in the
relevant SMSF or SAF members’ total superannuation balance. Including the
outstanding balance of LRBAs in a member’s total super balance, may result in the
member’s total super balance exceeding $1.6m on 30 June, meaning in the
following financial year they may be unable to:
— make personal after-tax (non-concessional) contributions to superannuation
— take advantage of the carry forward of unused concessional contributions
provisions
— claim a tax offset for contributions made to their spouse’s superannuation. - The proposed changes generally make LRBAs less attractive.
Integrity of non-arm’s length arrangements
Effective Date: 1 July 2018
From 1 July 2018, the Government intends to amend the existing non-arm’s length income provisions to ensure that expenses that would normally apply in a commercial transaction are included when considering whether the transaction is being made on a commercial basis.
These changes are being made to reduce opportunities for individuals to use related party transactions on non-commercial terms to increase their superannuation savings.
What does this mean for SMSF trustees?
- When SMSF trustees are dealing with related parties, a more complex test will be
involved to determine whether the transaction has been made at arm’s length. - The measure appears to tighten the current arm’s length income rules.
— When SMSFs are dealing with related parties, greater care will need to be taken
to ensure that the fund complies with the arm’s length rules, to ensure income is
not taxed at a penalty tax rate.
Improving external dispute resolution – new single complaints body
Effective Date: 1 July 2018
The Government intends to introduce a new framework for dispute resolution from 1
July 2018 with the establishment of the Australian Financial Complaints Authority
(AFCA).
AFCA will be an industry funded one-stop shop for complaints resolution for all financial and superannuation disputes. AFCA will replace the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal (SCT). The SCT will no longer operate from 1 July 2020.
The AFCA is intended to provide financial services consumers, small businesses and retail investors with access to a free, fast and binding dispute resolution service. This new dispute resolution body will hear individual consumer/investor and small business disputes of higher values than are currently permitted under the three existing schemes. Individuals found to have wrongfully suffered losses will also have access to more appropriate levels of compensation.
All Australian Financial Services Licensees will be required to be members of AFCA, and its decisions will be binding on all financial services firms.
What does this mean for SMSF trustees?
- SMSF members will not have access to the new dispute resolution body, just as
they do not currently have access to the SCT, however, SMSF trustees would have
access to the new body in relation to services provided by an AFSL holder.
Productivity Commission review of competition in the financial system
Effective Date: 1 July 2017
Following on from the Productivity Commission (PC) review into the efficiency and
competitiveness of Australia’s super system, the Government has tasked the PC to
complete a review on of the state of competition in the financial system.
The review will evaluate competition in the financial system with a view to improving
consumer outcomes, the productivity and international competitiveness of the financial
system and economy more broadly, and supporting ongoing financial system innovation, while balancing financial stability objectives.
The review is set to commence on 1 July 2017 and the PC will have 12 months to report outcomes to Government.
For the full source of this article, please visit BT Financial or download the file here. You will be able to find:
- Key points on taxation
- Housing affordability
- Key social security changes