Advocate April 2011
Welcome to the special Federal Budget
edition of the Advocate.
As expected, there were no headline 2011-12 Budget measures
concerning superannuation. Key announcements include a new process
to address the much-criticised excess contribution tax regime and
the indexing of contribution caps. The Government has also provided
a funding boost to the regulators ahead of the implementation
of the Stronger Super reforms. In addition, several initiatives
aimed at increasing infrastructure investment in Australia are
positive developments for super funds.
The Budget is set against a backdrop of natural disasters - both
at home and abroad. However, the Government remains positive and
on-track to achieve its targeted surplus in 2012-13. This strong
outlook is supported by the highest levels in terms of trade in 140
years and an unprecedented mining investment boom, which is
generating strong jobs growth and lower unemployment.
In order to strengthen the budget position, meet the costs of
recent natural disasters, the Government has better-targeted family
payments; increased public-sector efficiency; reformed motor
vehicle fringe benefits; phased-out the dependent spouse tax
offset; and removed access to Low Income Tax Offset for unearned
income for minors. This has resulted in savings of $22 billion.
Budget at a glance
- Forecast Budget deficit in 2010-11 of $49.4 billion; Reducing
to $22.6 billion in 2011-12; remaining on track to move into
surplus in 2012-13
- Real GDP expected to grow 4% in 2011-12
- Unemployment forecast to fall to 4.75% in 2011-12, and then
4.5% in 2012-13
- CPI 2.75% in 2011-12
Key superannuation announcements
Contribution caps
The Government has confirmed that the concessional contributions
cap for eligible individuals aged 50 and over, with total
superannuation balances of less than $500,000, will be set at
$50,000 - $25,000 above the existing general concessional cap of
$25,000. This will apply from 1 July 2012. When the general cap
increases due to indexation, the higher cap will also increase by
the same dollar amount.
AIST supports this measure, as it directs the super tax
concessions to those nearing retirement and allows them to build
their retirement savings. However, we are disappointed that there
is a set dollar difference of $25,000 between the caps, resulting
in proportionately lower increases in the higher cap for over-50s
when indexation occurs. Furthermore, there is no indication of
whether indexation will apply to the total superannuation balance
of $500,000. AIST will also seek further clarification on how the
'total superannuation balance' is calculated.
Refund of excess concessional contributions
The Government will provide eligible individuals with the option
to have excess concessional contributions taken out of their
superannuation fund and assessed as income at their marginal tax
rate, rather than incurring excess contributions tax.
The measure will apply where an individual has made an excess
concessional contribution of up to $10,000 (not indexed) in a
particular year. It is available from 2011-12, and only for the
first year a breach occurs.
AIST welcomes this measure, as it creates a fairer system for
individuals who may have accidentally breached their caps, and
gives those individuals the option of having the contributions
refunded and taxed at their marginal tax rate.
However, we still support implementation of the 'bring forward'
rule to concessional caps, as it allows for greater flexibility and
control. Alternatively, we would support implementation of the
Government's measure on an ongoing basis.
Stronger Super
My Super
The Government will provide $26.2 million (including $2.1
million in capital) over four years to APRA, and $3.7 million over
four years to ASIC to introduce MySuper. This measure will be
funded by an increase in the levy on APRA-regulated super
funds.
SMSFs
The Government will provide $40.2 million (including $4.2
million in capital) over five years to the ATO, and a further $8.4
million over four years to ASIC to implement a range of measures
relating to the SMSF sector. These measures include:
- Introduction of administrative penalties that the ATO can apply
in cases of non-compliance of SMSF trustees;
- Introduction of knowledge and competency requirements on SMSF
service providers;
- Tightening legislative restrictions on SMSF investments in
collectibles and personal use assets;
- Requiring SMSFs to value their assets at net market value and
the ATO to publish valuation guidelines;
- Appointment of the ATO to collect and publish data on the
sector; and
- Changes both registration and rollover processes, and illegal
early-release penalties to deter the use of SMSFs for illegal
activity.
The cost of this measure will be offset by a $30 increase to the
SMSF levy with effect from the 2010-11 income year, raising $47
million over four years, and the introduction of SMSF auditor
registration fees from 1 July 2012, raising $1.8 million over four
years.
Auditor Registration
The Government will provide $2.8 million over two years to ASIC
to develop an online registration facility of approved auditors of
SMSFs from 1 July 2012.
AIST welcomes these measures, as they will provide greater
integrity and transparency to the SMSF sector. We are particularly
pleased to note the ATO will be required to collect and publish
data on the sector, as this will provide comparability to
APRA-regulated funds. We also welcome measures to register SMSF
auditors.
SuperStream
The Government will provide $14.6 million over two years to the
ATO for the initial development of a mechanism for members to view
their superannuation accounts that have been reported to the ATO.
It also allows for consultation on detailed design of ATO IT
systems to support the SuperStream measures.
AIST is pleased the Government has provided funding for the
development of SuperStream infrastructure, as it is a key
initiative from the Stronger Super package. AIST strongly supports
the implementation of SuperStream, which will improve efficiency
across the super system.
Co-Contribution
The Government will continue the freeze, for an additional year,
of the indexation applied on the income threshold above which the
maximum super co-contribution begins to phase down. This measure
will continue to freeze the thresholds at $31,920 for the full
co-contribution, and $61,920 being the limit where nil
co-contribution is payable.
AIST is disappointed with the continued freeze, as it will mean
lower and middle-income earners will become ineligible through
bracket creep.
Greater use of Tax File Numbers
The Government will allow superannuation fund trustees to make
greater use of TFNs to locate member accounts (from 1 July 2011)
and to facilitate consolidation of multiple member accounts (from 1
January 2012).
Extension of temporary loss relief for superannuation fund
mergers by three months
The Government has extended the end date of the temporary loss
relief for complying super fund mergers by three months until 30
September 2011, to provide additional time for mergers in progress
to be completed.
Securing Super
The Government will ensure that employees will receive
information on their payslips of the amount of superannuation
actually paid into their account; and employers and employees will
receive quarterly notification from their super fund if regular
payments cease, with effect from 1 July 2012.
AIST is a participant in the Securing Super sub-committee, part
of the greater SuperStream working group, and while we are
generally supportive of the public policy behind securing super,
there are significant costs and impediments associated with the
Government's proposal. We generally support measures that will
ensure individuals receive their SG payments.
Compensation for APRA-regulated funds
The Government will provide grants of financial assistance of
$55 million in 2010-11 under Part 23 of the SIS Act to compensate
fund members for the failure of Trio Capital Ltd. The costs will be
recovered through levies collected in 2011-12 by APRA.
Other key announcements
Infrastructure
The 2011-12 Budget includes innovative measures to improve
opportunities for private sector and superannuation-sourced
investment in infrastructure and to increase the quality of
infrastructure development, in order to expand capacity and boost
productivity.
These include:
- Helping remove impediments to private-sector investment in
infrastructure through improved tax provisions;
- Establishment of a National Infrastructure Construction
Schedule;
- Enhancing the transparency of planning, implementation and
evaluation of infrastructure projects; and
- Increasing the role and independence of Infrastructure
Australia.
AIST welcomes the certainty around losses in infrastructure
investment. We are particularly pleased with the establishment of a
listing of large infrastructure projects across all governments,
which will give superannuation greater transparency and visibility
of the infrastructure opportunities available to them.
Retirees
The Budget contained a number of initiatives of relevance to
retirees which including the extension of the minimum drawdown
relief and new Work Bonus.
Minimum drawdown relief
The Government has extended the minimum drawdown relief for
retirees with super pensions in recognition that the private
savings of many retirees are yet to fully recover from the impact
of the global financial crisis. However the relief is less than
previous years at only 25 per cent, rather than the current
50 per cent which has been in place since 2009. The relief
will not be extended beyond 2011-12. While the extension is good
news as it will allow retirees to preserve capital where possible,
AIST had called for the relief to be maintained at the current
level of 2 percent for retirees under age 65 moving to 7 per cent
at age 95.
New Work Bonus
To better support age pensioners who want to work, the
Government has delivered a new and improved Work Bonus from 1 July
this year. This means older Australians who work will be able to
keep more of the money they earn from part-time work.
The new Work Bonus will allow age pensioners, particularly those
who have seasonal jobs, to keep more of their pension if they
choose to work. Eligible pensioners can earn up to $250 a fortnight
without being assessed as income under the pension income test. In
addition, any unused amount of the fortnightly $250 Work Bonus will
accumulate in an employment 'income bank', up to a maximum of
$6500. Credit in the 'income bank' can then be carried forward to
future years and be used to offset employment income that would
otherwise be assessable under the pension income test.
Summary
The first Gillard Government budget has delivered necessary
reforms to several different areas relating to superannuation and
announced some key initiatives in the infrastructure space.
However more needs to be done to lift long-term super savings, and
AIST will be continuing to build broad support for the move to 12%
SG and other measures to improve super and national savings.