Clarification sought on Budget super changes

Amid continuing suggestions that the Government’s superannuation Budget changes will require some post-election tweaks, KPMG has outlined a number of areas requiring clarification.

The company’s head of superannuation tax, Dana Fleming and her colleague, Ross Stephen have pointed to a number of issues, including what changes might be required to the present superannuation fund reporting to the Australian Taxation Office (ATO) (in the self-managed super fund tax return for these funds, or in the separate member contributions statement reporting for larger funds).

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“It would appear that new fields in this reporting will be required to enable the ATO to monitor transfers to pension phase against the $1.6 million limit, to distinguish between transition to retirement (TTR) pensions and ordinary pensions, and potentially the $500,000 balance limit for catch up concessional contributions (though some reporting of opening and closing member balances and lump sum and pension benefits paid already occurs),” the analysis said

The KPMG analysis also queried whether there were implications flowing from the Government’s intended changes to deferred annuity and similar retirement income products.

“Will a retiree putting some of his or her money aside in a product of this type, which would then commence payments at (say) age 85, be deemed to have utilised some of his or her $1.6 million,” the KPMG team asked.

Looking at transition to retirement (TTR) arrangements, they said some funds had paid a “bonus” representing the released accrued tax when moving from accumulation to pension, and that this bonus may have been paid for transfers to TTR pensions.

“As the bonus cannot be clawed back from the members, this will represent a loss to the fund’s reserves if the assets supporting existing TTRs become taxable at 15 per cent as proposed, (i.e. if existing TTRs are not grandfathered).” the KPMG analysis said.

It said the proposed changes to TTRs may also require funds to establish a third category of member investment options, for what is likely in future to be a very small subset of total assets.

“Funds may also have issues determining when a member’s circumstances change such that a TTR has become a normal pension. Present systems would likely do this once per year in setting the member’s minimum pension each July,” it said.

“But given the differential tax rate, it will now be important for the fund and member to know this as soon as the member has satisfied the conditions for the pension to be an ordinary pension, to test the balance against the $1.6 million, and to include the assets thereafter in the zero per cent tax rate pool.”