The 2017 federal budget saw few new changes announced, many having already been introduced earlier in the year. Here is a snapshot of the changes.
- the current tax relief for merging superannuation funds will be extended until 1 July 2020;
- the non-arm's length income provisions will be amended from 1 July 2018 to reduce opportunities for members to use related-party transactions on non-commercial terms;
- limited recourse borrowing arrangements will be included in a member's total super balance
- $1.6m pension transfer balance cap from 1 July 2017
- a person aged 65 or over to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home from 1 July 2018; and
- a first home super saver scheme will allow future voluntary contributions to superannuation to be made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings.
Limited Recourse Borrowing Changes
LRBA included in super balance and transfer cap.
The use of limited recourse borrowing arrangements (LRBAs) will be included in a member’s total superannuation balance and transfer balance cap from 1 July 2017.
LRBAs can be used to circumvent contribution caps, effectively transferring growth in assets from the accumulation phase to the retirement phase, which is not captured by the transfer balance cap. The outstanding balance of an LRBA will now be included in a member’s annual total superannuation balance and the repayment of the principal and interest of an LRBA from a member’s accumulation account will be a credit in the member’s transfer balance account.
Related Party Transactions to increase super will be reduced
Opportunities for members to use related party transactions on non-commercial terms to increase superannuation savings will be reduced from 1 July 2018.
The non-arm’s length income provisions will be amended to ensure expenses that would normally apply in a commercial transaction are included when considering whether the transaction is on a commercial basis.
Tax relief for merging super funds extended
The current tax relief for merging superannuation funds will be extended until 1 July 2020.
Since December 2008, tax relief has been available for superannuation funds to transfer capital and revenue losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets. This tax relief was due to lapse on 1 July 2017. The tax relief will be temporarily extended as the Productivity Commission completes a review into the efficiency and competitiveness of Australia’s superannuation industry.
Extending this relief should:
- ensure that member balances are not reduced by tax when superannuation funds merge
- remove tax as an impediment to mergers, and
- facilitate industry consolidation, which should lead to better retirement outcomes through reduced costs.
This measure has an unquantifiable estimated cost to revenue over the forward estimates period.
Super Account Savings for First Home Buyers
First home buyers are set to save through pre-tax contributions to a special superannuation account being taxed at the lower rate of 15%, with a maximum contribution allowed of $15k per year over 2 years ($30k in total). Both members of a couple can take advantage of the scheme.