The Government has introduced two bills to the House of Representatives; one that had previously lapsed when the Federal Election was called, and one containing a long overdue improvement to salary sacrificing.
During this week’s sitting of Parliament, two superannuation related bills were introduced:
- Treasury Laws Amendment (2018 Superannuation Measures No.1) Bill 2019
- Treasury Laws Amendment (2019 Tax Integrity and Other Measures No.1) Bill 2019
Treasury Laws Amendment (2018 Superannuation Measures No.1) Bill 2019
This bill reintroduces measures that lapsed due to the calling of the Federal Election. It contains three superannuation measures:
1. Super Guarantee Opt Out
This was proposed in the 2018/19 Budget and allows employees to opt out of Superannuation Guarantee (SG) obligations when they receive super contributions from multiple employers that will result in them breaching their concessional contribution limit. Once the proposal commences, employees will be able to apply to opt out of the SG regime with an employer and negotiate to receive alternative remuneration. The employee will need to apply for an ‘employer shortfall exemption certificate’ which will mean the employer will not have an SG shortfall if they do not make SG contributions for the period.
Whilst the measure was due to commence from 1 July 2018, the due date for lodging an application will be 60 days before the first day of the quarter to which the application relates.
Practically speaking this means the measure may not be available until the December 2019 quarter at the earliest unless the Commissioner defers this due date.
2. Non-Arm’s Length Income
Originally proposed in the 2017/18 Budget, this measure ensures that the non-arm’s length rules apply in situations where a superannuation entity incurs non-arm’s length expenses in gaining or producing income. In other words, undercharging expenses (eg interest on an LRBA) can also result in the income from the arrangement being treated as non-arm’s length income (NALI) and subject to tax at 45%. Furthermore, where a fund acquires an asset for less than market value through non-arm’s length dealings, the revenue generated by that asset may be NALI as well as net capital gains on disposal.
Whilst it has always been thought this would be the case, it has been a little unclear, so this Bill provides more certainty.
3. Limited Recourse Borrowing Arrangements
Also announced in the 2017/18 Budget, this measure amends the total superannuation balance (TSB) rules to ensure that, in certain circumstances involving limited recourse borrowing arrangements (LRBA) and funds with less than 5 members, the outstanding loan balance will be taken into account in working out an individual member’s TSB. The measure only applies to members who:
- have satisfied certain conditions of release (eg reaching age 65, retirement), or
- whose balance is backed by assets subject to an LRBA with a related party.
Under the proposal, the member’s TSB will be increased in equal proportion to the outstanding balance of the LRBA. This proportion is based on the individual’s share of the asset subject to the LRBA and the increases only apply in respect of LRBAs that commenced on/after 1 July 2018.
SMSFs are currently required to report each member’s share of the outstanding balance of an LRBA in the fund’s 2018/19 SMSF Annual Return regardless of whether or not the LRBA will be caught by this Bill.
The ATO are expected to update their instructions if the Bill is passed as they will otherwise have no way of correctly calculating the member’s TSB.
Treasury Laws Amendment (2019 Tax Integrity and Other Measures No.1) Bill 2019
Salary Sacrifice Integrity
This bill is largely focused on non-superannuation matters, however tucked away inside it is a measure that was first announced by the Minister for Revenue and Financial Services in July 2017 to ensure that an individual’s salary sacrifice contributions cannot be used to reduce an employer’s minimum SG contributions. This measure had previously been included in a Bill before the last Parliament but it also lapsed when the Federal Election was called.
From 1 July 2020, salary and wages that have been salary sacrificed will be included in the base for calculating an employer’s SG obligations.
In addition, contributions made under a salary sacrifice arrangement won’t be counted as contributions that reduce an employer’s SG charge.
Currently, salary sacrificed amounts count towards employer contributions that reduce an employer’s mandated SG contributions. In addition, employers can calculate SG obligations on a (lower) post salary sacrifice earnings base. Currently, employees who salary sacrifice to boost their superannuation savings can end up with lower superannuation contributions than they expect.
These bills were introduced into the House of Representatives on 24 July 2019. They are not controversial issues, so there’s no reason to think they won’t get passed, but as always, it is best not to act on proposals that have not been legislated.