Super work test and bring-forward provisions
The 2019 Federal Budget included three important super measures:
- The work test to apply from age 67 (up from age 65)
- Spouse contributions allowed to be made for persons aged 70-74 (up from 69 or less)
- Those aged 65 and 66 on 1 July of the financial year could use bring-forward rule (up from 64 or less) – not yet legislated
Regulations have been registered for the work test and spouse contribution measures, so they are now law. From 1 July 2020, those aged 65 and 66 will be able to contribute to superannuation without needing to meet the work test. However, the bring forward changes still need to be passed through parliament and are not yet law. This means those aged 65 and 66 on 1 July 2020 do not yet know if they will be able to contribute up to $300,000 using the bring forward provisions in 2020-21. The Federal Government is next scheduled to sit from Tuesday 4 August. If this measure does become law, those who have turned 67 after 1 July 2020 may be able utilise the bring forward provisions in 2020-21 but will required to meet the work test or work test exemption from age 67 to be able to contribute to superannuation.
The issue regarding ‘double counting’ upon commutation of market-linked or life expectancy income streams that are capped defined benefit income streams under the Transfer Balance Cap (TBC) was previously discussed on the Accurium TechHub here .
Changes to fix this issue are now law and the ATO are reviewing their compliance approach in respect to TBAR for commutations of impacted income streams. They intend to provide further guidance in August 2020 and will not take any compliance action against funds who do not review their reporting before this time.
The new legislation provides for, retrospectively from 1 July 2017, the debit value of market-linked and life expectancy income streams just before a full commutation to be the amount of the original TBC credit in respect of the superannuation income stream less the sum of the following amounts:
- the amount of any TBC debits (other than a family law income split) in respect of the income stream before the commutation (generally nil);
- the total amount of superannuation income stream benefits the person was entitled to receive before the start of the financial year in which the commutation takes place; and
- the greater of:
1. the superannuation income stream benefits paid during the financial year in which the commutation takes place; or
2. the minimum amount required to be paid under payment standards.
For a partial commutation, the TBC debit value is the lesser of:
- the value as if it were a full commutation (as above); and
- the amount of the superannuation lump sum that results from the partial commutation.
Death benefit rollovers
Since 1 July 2017, previous law required that a death benefit that is rolled over by a dependant receive taxation treatment that was consistent with that of member benefits that are rolled over. That is, the rolled over benefit was not treated as a superannuation contribution and was not non-assessable non-exempt income. This amendment was intended to provide flexibility for dependants and allow them to rollover lump sums to a fund of their choice. However, an unintended tax consequence arose where the superannuation lump sum death benefit that is rolled over comprised of an untaxed element, generally where a member died before age 65 and had insurance benefits.
This amendment applies retrospectively from 1 July 2017 to ensure that rolling over death benefits does not have these unintended tax consequences.
Instant asset write-off extension
The tax law has been amended to allow a business with an aggregated turnover for the income year of less than $500 million to immediately deduct the cost of a depreciating asset (instant asset write-off). The asset must cost less than a threshold of $150,000 and be first used or installed ready for use for a taxable purpose by 31 December 2020. Without the amendments the $150,000 instant asset write-off would end on 30 June 2020.
Minor tax concessions from a testamentary trust
Previously assets unrelated to a deceased estate that were injected into a testamentary trust may have generated excepted trust income (subject to anti-avoidance rules) that was not subject to the higher tax rates on minors.
Now, amendments have clarified that income from assets transferred to a testamentary trust on or after 1 July 2019 will not be excepted trust income for the purposes of Division 6AA unless the assets were transferred to the trustee from the deceased estate or from the accumulation of such income.
Three amendments to the downsizer contribution rules have been made to ensure that the provisions relating to downsizer contributions operate as intended:
- Allows an individual to make a downsizer contribution in respect of the proceeds from a property that was held by their spouse where the property is a pre-CGT asset that would have been subject to the main residence exemption if it had been acquired on or after 20 September 1985.
- Amends a technical issue with the way the maximum contributions are calculated where an individual’s spouse has already made a downsizer contribution in relation to the disposal of an interest in another property. The maximum amount of downsizer contributions that an individual can make are now only reduced by their spouse’s downsizer contributions if their spouse’s contributions were made in respect of the disposal of interests in the same property.
- Ensures that the market value substitution rule in section 116-30 of the Income Tax Assessment Act 1997 (which applies generally in working out an amount of capital proceeds) cannot increase the amount of the capital proceeds from the disposal of their ownership interests in a dwelling.
1 and 2 above apply retrospectively from 1 July 2018, however 3 applies prospectively from 22 June 2020.
Rollover Restructure Threshold Change
An entity that is connected with or an affiliate of a small business entity is now allowed to access the small business restructure rollover in relation to an interest of the small business entity even if the small businesses entity has aggregated turnover of between $2 million to $10 million. Previously, due to a drafting error, while the rollover was available to the entity carrying on the business in this situation, entities affiliated or connected with a small business entity were only able to access the rollover if the small business entity was a CGT small business entity – that is, had aggregated turnover of less than $2 million.
The amendment applies retrospectively from 1 April 2016.