Need to know

Mark Gleeson, Senior Technical Services Manager

Outlined below is all the latest news you 'need to know'.

IssueWhat it means?What do you need to be thinking about?
Reviews potentially impacting financial planning strategies

Retirement income system review

The Government has commissioned an independent review of the retirement income system. The review was recommended by the Productivity Commission in their report: Superannuation: Assessing Efficiency and Competitiveness.

The review will consider the three pillars of the existing retirement income system, including social security, compulsory superannuation and voluntary savings. A consultation paper will be released in November 2019 and the final report will be provided to the Government by June 2020.

There is no immediate change to financial planning strategies at this stage. However, we will watch the outcomes of the review and the Government’s response. We will keep you informed of any developments via the Monthly Technical Bulletin.

Review into granny flat arrangements

The Board of Taxation is reviewing the tax and social security implications of granny flat arrangements in consultation with the Department of Social Services, Centrelink, the Australian Taxation Office (ATO) and Treasury. Although a granny flat right may generate social security benefits, there are capital gains tax implications when a person grants a right of occupancy for life or a life interest in a property.

The Board of Taxation is yet to provide any recommendations to Government. If you are considering a granny flat right of occupancy for a client then any additional social security benefits obtained should be balanced against any increased tax liability of the person who grants the right. For further information, see our Strategy Guide on Granny Flat Rights (SG03) on Fast Fact Finder.

ATO rulings

ATO guidance on applying non-arm’s length income provisions.

The ATO has released, Law Companion Ruling - LCR 2019/D3, which provides guidance on how the ATO will administer the non-arm’s length income (NALI) provisions. This guidance also extends to the recent changes flowing from the passing of Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 – see Enacted legislation below.

In Practical Compliance Guideline – PCG 2019/D6, the ATO confirm they will not allocate compliance resources to determine whether the NALI provisions apply to a fund for the 2018/19 and 2019/20 financial years where the fund incurred NALI expenditure.

Self-managed superannuation fund (SMSF) trustees should ensure that related party transactions, particularly services provided to the fund, should be conducted on an arm’s-length basis.

Bills being debated in Parliament

Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019

The Bill seeks to introduce a one-off amnesty to employers who come forward and rectify historical non-compliance with their SG obligations.

The amnesty period will start retrospectively from 24 May 2018 and will end 6 months after the day the Bill receives Royal Assent.

The ATO has published material relating to their compliance approach to assist employers with rectifying their SG obligations. Until the proposed amnesty law is enacted by Parliament, the ATO will continue to apply the existing law to the SG contribution statements lodged.

Social Services Legislation Amendment (Payment Integrity) Bill 2019

This Bill introduces the following measures:

Stopping the payment of the pension supplement after six weeks overseas - if legislated, the payment of pension supplement basic amount will cease after six weeks overseas and will stop immediately for permanent departures from Australia.

Extend the Liquid assets test waiting period - if legislated, the liquid asset waiting period will increase from 13 weeks to 26 weeks. This means clients applying for affected benefits, such as Newstart Allowance, may have to rely on personal resources for longer.

Enhanced residency requirements for pensioners -  to satisfy the residency requirements, applicants will need to have either:

  • at least 5 years of the 10 years continuous Australian residency period during their working life (between ages 16 and Age Pension age), or
  • 10 years continuous Australian residency with greater than 5 years relating to periods in which a person has not been in receipt of an activity tested income support payment (currently Austudy, Newstart, Youth Allowance), or
  • at least 15 years of continuous Australian residence.

These amendments will begin on 1 January 2020 if the Bill receives Royal Assent before 1 December 2019.

If legislated, only the base pension amount will be available for recipients living overseas after six weeks. The rules are more complex for absences exceeding 26 weeks. The Energy Supplement is only available for the first six seeks of temporary absence from Australia.

The liquid asset waiting period cannot generally be reduced after losing a job. Accordingly, asset reduction strategies will not reduce this waiting period.

Bills passed the Senate, yet to receive Assent

Treasury Laws Amendment (2019 Measures No.2) Bill 2019

The Bill increases the age at which clients can receive genuine redundancy and early retirement scheme payments up to the client’s Age Pension qualifying age. This means older clients may qualify for a genuine redundancy tax-free amount under s83.170. The change applies to genuine redundancy payments where the termination of employment was on, or after, 1 July 2019.

The tax-free genuine redundancy amount is $10,638 plus $5,320 (2019/20) for each completed year of service.

The Age Pension age is increasing to 67 which will apply to clients born on 1 January 1957 and later.

Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019

The Bill removes grandfathering arrangements for conflicted remuneration from 1 January 2021.

The legislation will also enable regulations to provide for a scheme under which amounts that would otherwise have been paid as conflicted remuneration are rebated to affected customers.

Advisers will need to consider the impact of this legislation on their business, including its remuneration structure and valuations, if they have not done so already.

Enacted legislation

Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019

The legislation will prevent salary sacrifice super contributions from reducing an employer’s superannuation guarantee (SG) obligations from 1 January 2020.

Until the new law takes effect, clients may prefer to make personal deductible contributions to their super rather than salary sacrificing to avoid potential issues with employers reducing SG.

Clients who employ staff will need to ensure they comply with the new SG requirements.

Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019

The legislation will prevent trustees from providing insurance on an opt-out basis to members under age 25 and to members who hold super with balances less than $6,000.

The changes are effective 1 April 2020.

Legislation preventing trustees from providing insurance on an opt-out basis to members with inactive accounts has been legislated. Affected clients can make an election to retain their insurance.

Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019

The legislation will:

  • include the outstanding value of limited recourse borrowing arrangements (LRBAs) entered into from 1 July 2018 – in the Total Super Balance (TSB) of certain SMSF members
  • introduce an employer shortfall exemption certificate for certain employees with multiple employers
  • ensure that a superannuation entity’s non-arm’s length income (NALI) includes income where the expenditure in gaining or producing it was itself not at arm’s length.

The changes are effective from 1 July 2018.

The ATO has updated the SMSF annual return instructions to let trustees know how to report NALI and LRBA amounts for 2018/19. If trustees have already lodged their 2018/19 SMSF annual return and are affected by these new measures, they may need to amend their return. Trustees should confirm this with their tax adviser.

If an SMSF member has an LRBA affected by this new law, the TSB on ATO online services may be inaccurate. These clients will need to calculate their own TSB by adding their share of the outstanding LRBA amount to the TSB amount displayed on ATO online.

The ATO has released a draft ruling (LCR 2019/D3) and a draft guideline (PCG 2019/D3) to assist with the NALI changes – see ATO rulings above.

Clients working for multiple employers who expect to exceed the concessional contributions cap can nominate that income from certain employers is not subject to superannuation guarantee. The ATO has released details of the scheme and the application process.

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of IOOF Investment Management Limited (ABN 53 006 695 021, AFSL 230524) based on information that is believed to be accurate and reliable at the time of publication.