More administrative hurdles flagged with work test exemption
The Financial Services Council has raised concerns about costly and inefficient outcomes that could arise with the proposed work test exemption where a member believes they are under the TSB threshold based on incorrect information.
In a submission to Treasury on the work test exemption for recent retirees, the Financial Services Council (FSC) said further consideration is required in relation to how funds and the ATO can deal with a contribution where a member genuinely believes that they were under the total superannuation balance (TSB) threshold but this information subsequently turns out to be incorrect.
The submission said this could occur where there are delays in updating TSB information.
The work test exemption, which was announced in the budget this year, allows Australians aged 65 to 74 with a total superannuation balance below $300,000 to be able to make voluntary contributions for 12 months from the end of the financial year in which they last met the work test.
The FSC said the TSB issue with contributions has already arisen in relation to the recent downsizer contribution measure.
“After a downsizer contribution is received, the ATO may determine that the member was not eligible to this type of contribution,” said the FSC.
Super funds then need to consider whether that contribution could have been accepted as a non-concessional contribution (NCC) in retrospect, it said.
“If the fund could not have accepted the contribution as an NCC, then the fund must return the monies back to the member as if the contribution never was accepted in the first place,” the submission stated.
“However, the amounts have by then been subjected to concessional earnings tax and it is difficult to unwind the transaction. It will be even more complex if the contributions are no longer held by the fund or the member has started a pension. This adds to the complexity and cost of the super system for both funds and the ATO.”
The FSC said it appears that all contributions that fail the requirements for the work test exemption measure will have to be returned.
The submission suggested extending the existing ATO framework for dealing with excessive NCC contributions to contributions made under the work test exemption which were ineligible.
Similar to the SMSF Association, the FSC is also concerned about the introduction of yet another total superannuation balance threshold.
The FSC likewise recommended that the TSB limit for access to the measure be increased to $500,000 to align with the balance limit for the carry-forward of the concessional contributions cap and allow more Australians to accrue adequate retirement savings.