There are several reform projects currently underway which relate to simplifying superannuation. Set out below is a brief summary of these projects and their status:
The Corporate and Financial Services Regulation Review consultation paper was released by the Attorney General’s Department in April 2006. It contained a range of suggestions on topics of reform regarding aspects of corporate and financial services regulation. A press release followed, in which it was announced that there would be three key mechanisms for implementing the reforms: legislative amendments, focused projects and regulation amendments.
The consultation paper was then followed by a proposals paper released in November 2006 by the Hon Chris Pearce MP, Parliamentary Secretary to the Treasurer.
The proposals paper contains 35 proposals to simplify and improve aspects of financial services regulation. (which were discussed in our December update).
On 5 March 2007, Mr Pearce gave an address in which he said that certain aspects of the proposals relating to the provision of financial advice warrant further consultation.
The legislative amendments are intended to be introduced in a Bill to be called the Simpler Regulatory System Bill. The regulation amendments were outlined in detail in a paper released on 26 March 2007 for public consultation. These draft regulations contain a number of measures to streamline disclosure requirements.
On 31 January 2006, a report entitled Rethinking Regulation was released by the Taskforce on Reducing Regulatory Burdens on Business. Superannuation was not mentioned specifically, but the report made 178 recommendations on actions to reduce regulatory red tape in a range of areas.
On 7 April 2006, the government released its interim response: Rethinking Regulation: Australian Government’s Interim Response. Subsequently, on 15 August 2006, the government issued its final response: Rethinking Regulation: Report of the Taskforce on Reducing Regulatory Burdens on Business, Australian Government’s Response.
The government’s responses then led to a proposals paper: Streamlining Prudential Regulation: Response to Rethinking Regulation released in December 2006. (which was discussed in our December update).
This proposals paper is intended to result in the Financial Sector (Simplified Regulation and Review) Bill.
The May 2006 Budget reforms were introduced in a range of Bills and draft regulations, the major piece of which has now been passed as the Taxation Laws Amendment (Simplified Superannuation) Act 2007.
As part of the Budget measures aimed at simplifying the superannuation system, on 5 September 2006 the government announced a transitional cap of $1 million for contributions made from a person’s after-tax income before the new contribution limits commence on 1 July 2007. However, there is some detail concerning eligibility to contribute which is important to bear in mind.
In summary, the announcement means that from 10 May 2006 until 30 June 2007 an individual who is:
- aged 64 or below, or
- aged between 65 and 74 and satisfies the work test,
will be able to make after-tax contributions totalling up to $1 million.
On 7 February 2007 the government announced further transitional measures to ensure that individuals who become subject to the work test (ie because they turned 65) or become ineligible to contribute to superannuation (ie because they turned 75) between 9 May 2006 and 5 September 2006, can still take advantage of the $1 million contribution opportunity. Consequently:
- a person aged 64 between 9 May 2006 and 5 September 2006 is entitled to make after-tax contributions up to $1 million without having to satisfy the work test, and
- a person aged 74 between those dates is entitled to make after-tax contributions up to $1 million if they satisfied the work test for the relevant financial year.
The $1 million limit will include any after-tax contributions already made during the period from 10 May 2006 to 30 June 2007 and is in contrast to the $150,000 per year cap on after-tax contributions that will commence on 1 July 2007 (or $450,000 in one year if an individual is aged less than 65 and does not make further contributions in the following two years).
If an individual has made contributions in excess of $1 million before 7 December 2006, the individual may apply to the Commissioner of Taxation to withdraw the amount in excess of the cap without penalty before 30 June 2007. Alternatively, an individual will also be able to apply to the commissioner to have the excess after-tax contribution disregarded or reallocated to a different income year. However, the commissioner’s discretion will only be exercised in special circumstances.
Employers should be aware that salary sacrifice contributions made before 1 July 2007 which exceed the soon-to-be-abolished age based limits count towards an employee’s $1 million limit.
The $1 million limit this year represents a once-off opportunity for individuals to contribute a large sum into superannuation.
Other
On 30 June 2006, the Parliamentary Joint Committee on Corporations and Financial Services announced that it was conducting an investigation entitled Inquiry into the Structure and Operation of the Superannuation Industry. There were 15 rather broad items of reference concerning the structure and operation of the Superannuation Industry (Supervision) Act and the superannuation industry. Various submissions have been made to the committee and we are awaiting further developments.
The Bankruptcy Legislation Amendment (Superannuation Contributions) Bill 2006 was passed by Parliament on 22 March 2007. The changes made to the Bankruptcy Act 1966 concern the ‘clawback’ of superannuation contributions which were made with the intention of defeating creditors. Once the Bill receives Royal Assent, under new section 128B, certain superannuation contributions made on or after 28 July 2006 will be void against a trustee in bankruptcy and will form part of the property available for distribution among the bankrupt's creditors.
More information
For information regarding possible implications for your business, contact a member of the Financial Services team.