Australian master superannuation guide 2019/20 [23rd edition.] 9781925894288, 1925894282

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About Wolters Kluwer Wolters Kluwer is a leading provider of accurate, authoritative and timely information services for professionals across the globe. We create value by combining information, deep expertise, and technology to provide our customers with solutions that improve their quality and effectiveness. Professionals turn to us when they need actionable information to better serve their clients. With the integrity and accuracy of over 45 years’ experience in Australia and New Zealand, and over 175 years internationally, Wolters Kluwer is lifting the standard in software, knowledge, tools and education. Wolters Kluwer — When you have to be right. Enquiries are welcome on 1 300 300 224. First published....................................August 1997 13th edition....................................August 2009 2nd edition....................................July 1998

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Preface

The regulation of superannuation in Australia and the income tax system with which it interacts are notoriously complex and changeable. The Australian Master Superannuation Guide explains the rules and answers your superannuation questions in the simplest possible way. Examples, tables, charts and checklists are used extensively. The 2019/20 Australian Master Superannuation Guide is the 23rd edition of this annual publication in Wolters Kluwer’s Master Guide series. The Guide is an invaluable handbook and essential reference on superannuation law and practice in Australia. It is designed to help trustees, accountants, auditors and other practitioners who face the perennial changes to superannuation regulation and taxation and need a clear analysis of the law. It serves as a handy first point of reference for specialist advisers and consultants who require a comprehensive and up-to-date resource. Academics and students will also find the Guide a useful text and companion. In 2018/19, as in each of the previous 22 years since the Guide was first published, numerous new superannuation and taxation measures were announced, legislated and then commenced. The 23rd edition of the Australian Master Superannuation Guide is an indispensable resource to help you understand these reforms. It incorporates all the major tax and superannuation changes up to 1 July 2019 and provides discussion on many foreshadowed but not yet implemented changes. Throughout, the Guide rests on the solid foundation of the legislation, supplemented by references to official rulings and court and tribunal decisions. Cross-references at the end of most numbered paragraphs provide links to additional information in other Wolters Kluwer loose-leaf and online services. For users who need to keep up to date with changes throughout the year, the online updating version of the Guide is the logical choice. That version is fully updated at least four times a year, with changes to the law and new developments incorporated into the relevant chapters. The online version of the Guide, in addition to having a superior searching capability via Wolters Kluwer’s CCH IntelliConnect™ platform, provides useful links to the legislation, cases and approved forms discussed in the commentary. Wolters Kluwer August 2019

Wolters Kluwer Acknowledgments Wolters Kluwer wishes to thank the following who contributed to and supported this publication: Regional Commercial Director Lauren Ma Head of Content APAC — Research and Learning Diana Winfield Books Coordinator Nathan Grice

About the Authors James Leow LLB (Hons) MTax (NSW) also writes for the Australian Master Tax Guide and the Australian Master Financial Planning Guide. He was previously the principal contributor to, and editor of, the full range of Wolters Kluwer superannuation products, including the Australian Superannuation Legislation book, Australian Superannuation Law & Practice, and the Australian Practical Guide to SMSFs. Shirley Murphy BA (Hons) LLB (Hons) has for many years lectured undergraduate and postgraduate tertiary students in the areas of taxation and superannuation. She also works as a superannuation consultant and has contributed to a wide range of Wolters Kluwer publications including the Australian Master Tax Guide, Australian Master Financial Planning Guide and Australian Superannuation Law & Practice. Author Acknowledgments

The authors would like to thank the following for their contribution to this edition of the Guide: Jacqueline Campbell, Partner, Accredited Family Law Specialist, Forte Family Lawyers; Allan Coe; and Kevin Johnson, Director, Kevdi Pty Ltd.

List of Abbreviations The following abbreviations are used extensively in this publication. AAT

Administrative Appeals Tribunal

ABN

Australian Business Number

ADF

Approved deposit fund

AFCA

Australian Financial Complaints Authority

APRA

Australian Prudential Regulation Authority

ASIC

Australian Securities and Investments Commission

ATC

Australian Tax Cases (CCH), from 1969

ATO

Australian Taxation Office

AWOTE

Average weekly ordinary time earnings

CA

Corporations Act 2001

CGT

Capital gains tax

CR

Corporations Regulations 2001

EST

(Australian) Eastern Standard Time

FBT

Fringe benefits tax

FC of T

Federal Commissioner of Taxation

FHSA

First Home Saver Account

FITR

Wolters Kluwer Australian Federal Income Tax Reporter service

FLA

Family Law Act 1975

FSCDA

Financial Sector (Collection of Data) Act 2001

FTR

Wolters Kluwer Australian Federal Tax Reporter service

FW Act

Fair Work Act 2009

FWC

Fair Work Commission

GIC

General interest charge

GST

Goods and services tax

ITAA36

Income Tax Assessment Act 1936

ITAA97

Income Tax Assessment Act 1997

ITAR

Income Tax Assessment Regulations 1997

ITTPA

Income Tax (Transitional Provisions) Act 1997

PAYG

Pay As You Go

PST

Pooled superannuation trust

RSA

Retirement savings account

RSA Act

Retirement Savings Accounts Act 1997

RSAR

Retirement Savings Accounts Regulations 1997

RSE

Registrable superannuation entity

Sch

Schedule

SCT

Superannuation Complaints Tribunal

SG

Superannuation guarantee

SGAA

Superannuation Guarantee (Administration) Act 1992

SGAR

Superannuation Guarantee (Administration) Regulations 2018

SIS

Superannuation Industry (“Supervision”)

SISA

Superannuation Industry (Supervision) Act 1993

SISR

Superannuation Industry (Supervision) Regulations 1994

SLP

Wolters Kluwer Australian Superannuation Law & Practice service

SMSF

Self managed superannuation fund

SRC Act

Superannuation (Resolution Of Complaints) Act 1993

TAA

Taxation Administration Act 1953

TAR

Taxation Administration Regulations 1976

TFN

Tax file number

TR

Taxation Ruling

HIGHLIGHTS OF 2018/19 CHANGES ¶1 Highlights of 2018/19 changes This edition has been updated to reflect developments that occurred (or remain proposed) up to 30 June 2019. The notable developments include the following. CHAPTER 1 — SUPERANNUATION IN AUSTRALIA ▪ Superannuation fund assets and other statistics updated ¶1-100 Proposed measures ▪ Proposed legislation for objective of superannuation ¶1-000 CHAPTER 2 — QUALIFYING FOR TAX CONCESSIONS ▪ Table of income tax laws dealing with superannuation taxation and concessions updated ¶2-020 CHAPTER 3 — SIS PRUDENTIAL SUPERVISION OF SUPERANNUATION FUNDS ▪ Superannuation trustees must comply with covenants relating to annual outcomes assessments, promoting financial interests of beneficiaries and MySuper products, if applicable ¶3-100 ▪ SIS covenants are civil penalty provisions in the SISA ¶3-100 ▪ Superannuation funds can accept downsizer contributions from 1 July 2018 ¶3-220 ▪ Superannuation trustees are prohibited from providing death and disability insurance cover to choice and MySuper members whose accounts are inactive for a continuous period of 16 months, unless directed otherwise by the member ¶3-240 ▪ From 1 July 2019, a cap is imposed on administration fees, investment fees and prescribed costs charged to members by superannuation entities, and exit fees are prohibited ¶3-250 ▪ Superannuation providers are required to transfer choice or MySuper member accounts with balances below $6,000 which are inactive for a continuous period of 16 months to the Commissioner; the ATO is empowered to proactively consolidate ATO-held superannuation money into an active account for a member ¶3-390 ▪ SISA s 68, which prohibits superannuation trustees from offering inducements, is a civil penalty provision from 6 April 2019; an objective test applies to determine the intended effect of the trustee’s actions ¶3-475 ▪ APRA approval is required for a person to hold a controlling stake in a body corporate RSE licensee ¶3488 ▪ RSE licensees must hold an annual members meeting to discuss a superannuation fund’s performance and operations; the chair of the board of directors of the RSE licensee, individual trustees, executive officers and the fund’s actuary and auditor are required to attend the meeting ¶3-495 ▪ APRA may give certain directions to an RSE licensee in prescribed circumstances, including where APRA reasonably believes the RSE licensee either has or is likely to contravene its prudential obligations, or there are financial risks to members’ interests or the financial system more generally ¶3-855 ▪ From 1 July 2019, the provisions for protection of whistleblowers in the corporate and financial sector are located in Pt 9.4AAA of the Corporations Act 2001; the SISA whistleblower provisions have been repealed ¶3-880 ▪ Supervisory levies for 2019/20 updated ¶3-900 Proposed measures ▪ Trustees can only provide insurance to a choice or MySuper product member if directed by the member, where the member is under 25 years old and begins to hold a product on or after 1 October 2019, or

holds a product with a balance less than $6,000 ¶3-240 ▪ Bills in parliament (now lapsed) have proposed a wide range of regulatory and prudential measures ¶17520 ▪ Treasury has released various consultation papers on superannuation reforms, including binding death benefit nominations and kinship structures, universal terms for insurance within MySuper ¶17-600 CHAPTER 4 — FINANCIAL SERVICES REGULATION ▪ Exemption for superannuation platforms from the shorter PDS regime has been extended ¶4-130 ▪ Notification requirements to members with inactive accounts about the SISA insurance opt-out rules have been prescribed; ASIC has released guidelines on member communications in relation to insurance cancellation for inactive members or before inactive low balance accounts are transferred to the ATO ¶4175 ▪ The commencement date of the product dashboard publication and portfolio holdings disclosure rules has been deferred ¶4-250 ▪ The requirement for generic superannuation and retirement calculator to include the present value of future receipts and payments using an assumed rate of inflation has been deferred ¶4-658 ▪ Design and distribution obligations have been imposed in relation to financial products, applicable from 6 April 2021 ¶4-700, ¶4-710 ▪ ASIC has been given product intervention powers that it can use proactively to reduce the risk of significant detriment to retail clients resulting from financial products ¶4-700, ¶4-720 ▪ ASIC legislative instruments and regulatory guides affecting superannuation products and issuers updated ¶4-800, ¶4-850 ▪ ASIC Reports and Information Sheets updated ¶4-860 CHAPTER 5 — SELF MANAGED SUPERANNUATION FUNDS Proposed measures ▪ Legislation to increase the maximum membership in SMSFs from four to six members was omitted from the Bill before the legislation was passed by parliament ¶5-200 CHAPTER 6 — CONTRIBUTIONS TO SUPERANNUATION FUNDS AND RSAs ▪ From 1 July 2019, certain individuals aged 65 to 74 who wish to make superannuation contributions may benefit from a one-year exemption from the work test ¶6-320 ▪ The First Home Super Saver Scheme allows money saved in superannuation to be used for a first home purchase from 1 July 2018 ¶6-385 ▪ From 1 July 2018, individuals aged at least 65 may make up to $300,000 of non-concessional contributions from the proceeds of selling their home ¶6-390 ▪ From 1 July 2017, a reversionary income stream can be paid to a reversionary beneficiary whether or not a condition of release has been satisfied ¶6-425 ▪ The concessional contributions cap is $25,000 for all individuals from 1 July 2019 ¶6-505 ▪ Individuals with a total superannuation balance below $500,000 may make additional concessional contributions where, from 1 July 2018, they have unused cap amounts from the previous five years ¶6505 ▪ The non-concessional contributions cap is $100,000 from 1 July 2019 ¶6-540 ▪ The processes for a taxpayer to request and for the Commissioner to issue a release authority have been consolidated ¶6-640 ▪ Tax is imposed on no-TFN contributions income at the rate of 32% for 2019/20 ¶6-685 ▪ The low income threshold and higher income thresholds have been increased for 2019/20 for cocontribution purposes ¶6-700

Proposed measures ▪ The government proposes that individuals aged 65 and 66 could make voluntary superannuation contributions from 1 July 2020 without needing to meet the work test ¶6-320 ▪ A Bill proposes the inclusion of the outstanding balance of a limited recourse borrowing arrangement in a member’s total superannuation balance from 1 July 2018 ¶6-490 ▪ The government proposes that individuals aged 65 to 74 with unused concessional cap space could contribute under the concessional cap carry forward rules during a year they are exempt from the work test ¶6-507 ▪ The government proposes that that individuals aged 65 to 74 whose non-concessional contributions, excluding contributions made under the work test exemption, exceed $100,000 could access the bring forward arrangements ¶6-545 ▪ The government proposes that the age limit for benefiting from spouse contributions will increase from 69 to 74 from 1 July 2020 ¶6-820 CHAPTER 7 — TAXATION OF SUPERANNUATION FUNDS, ADFs AND PSTs ▪ CGT roll-over relief in Div 311 applies to transfers of members' accrued default balances to a MySuper product within the same fund structure or in another superannuation fund ¶7-140 ▪ The tax relief for merging superannuation funds in Div 310 has been extended until 1 July 2020 ¶7-140 ▪ The withholding tax exemption for superannuation funds for foreign residents has been restricted, subject to transitional rules ¶7-400 Proposed measures ▪ Superannuation funds with interests in both the accumulation and retirement phases will be allowed to choose their preferred method of calculating ECPI; the actuarial certificate requirement when calculating ECPI using the proportionate method will be removed for funds where their members are in the retirement phase for the whole income year ¶7-153 ▪ The non-arm's length rules will be amended to ensure that complying superannuation entities cannot circumvent the rules by entering into schemes involving non-arm's length expenditure ¶7-170 CHAPTER 8 — SUPERANNUATION BENEFITS • TERMINATION PAYMENTS ▪ The low rate cap amount for the taxation of a superannuation member benefit is $210,000 for 2019/20 ¶8-210 ▪ The untaxed plan cap amount for the taxation of the element untaxed in the fund is $1.515m for 2019/20 ¶8-240 ▪ The ETP cap amount for the taxation of employment termination payments is $210,000 for 2019/20 ¶8820 CHAPTER 9 — MYSUPER • SUPERSTREAM ▪ Authority to offer a MySuper product may be refused or cancelled if APRA considers there are one or more reasons why an RSE licensee may fail to comply with its obligations ¶9-100 ▪ The enhanced trustee obligations for RSEs covering annual outcomes assessments and promoting the financial interests of beneficiaries have been prescribed as SIS covenants which apply to all regulated superannuation funds that offer choice products or MySuper products ¶9-300 ▪ The trustee remuneration reporting requirements have been deferred ¶9-650 ▪ APRA prudential standards and prudential practice guides updated; draft SPS 515 ¶9-720 ▪ Events-based reporting using MAAS and MATs ¶9-795 ▪ APRA letters to RSE licensees in 2019 ¶9-810 CHAPTER 10 — RETIREMENT SAVINGS ACCOUNTS ▪ RSA providers can accept downsizer contributions from 1 July 2018 ¶10-110

▪ An RSA provider must be a member of the AFCA scheme (within the meaning of the Corporations Act 2001) and must have an internal dispute resolution procedure that complies with the standards and requirements prescribed by that Act ¶10-220 ▪ AFCA has replaced the Superannuation Complaints Tribunal as the external dispute resolution body dealing with RSA complaints ¶10-220 Proposed measures ▪ From 1 July 2020, individuals aged 65 and 66 will be able to make voluntary superannuation contributions (both concessional and non-concessional) without being required to meet the work test ¶10110 CHAPTER 11 — TAX ADMINISTRATION • PAYG • TFNs ▪ From 1 July 2019, an income tax deduction is denied for certain payments where the notification and/or withholding requirements have not been met. ¶11-350, ¶11-360 ▪ Single touch payroll (STP) applies to all employers from 1 July 2019 ¶11-368 CHAPTER 12 — SUPERANNUATION GUARANTEE SCHEME ▪ The Productivity Commission recommends one default fund for new members to be chosen from a shortlist of up to 10 funds selected by an independent panel ¶12-050 ▪ Defences to director penalty provisions have been tightened ¶12-395 ▪ Single Touch Payroll reporting of payroll and superannuation information is extended to all employers from 1 July 2019 ¶12-525 ▪ From 1 July 2018, the Commissioner can issue directions to employers to pay unpaid SG liabilities with penalties for employers who fail to comply ¶12-550 ▪ From 1 July 2018, the Commissioner can issue an education direction to an employer to undertake an approved course relating to their SG obligations with an employer being penalised if they fail to comply ¶12-550 Proposed measures ▪ A Bill proposes that from 1 July 2018 certain high income individuals with multiple employers would be able to nominate that income from certain employers would not be subject to SG ¶12-070, ¶12-220 ▪ A Bill proposes that from 1 July 2020 an employer could not use salary sacrifice contributions to count as being in compliance with their SG obligations ¶12-180 ▪ A Bill proposes to tighten the law to combat illegal phoenix activities ¶12-395 ▪ The government proposed a 12-month SG amnesty for employers from 24 May 2018 ¶12-415 CHAPTER 13 — RESOLUTION OF COMPLAINTS ▪ AFCA commenced operations from 1 November 2018 and started receiving and resolving complaints from that date ¶13-005 ▪ ASIC cancelled the licences of two financial service providers that failed to become members of AFCA ¶13-005 ▪ AFCA is not able to provide compensation for non-financial loss in a superannuation complaint (AFCA superannuation determination — AFCASD 610019) ¶13-010 ▪ AFCA has published superannuation determinations and statistics on the number and types of complaints it receives ¶13-100, ¶13-610 CHAPTER 14 — SUPERANNUATION AND FAMILY LAW ▪ The Family Law Act 1975 (Cth) Pt VIIIB which deals with superannuation interests was renumbered from 23 November 2018. The chapter has been updated to include the renumbered section references ¶14-005 ▪ The Full Court of the Family Court set aside a superannuation splitting order as there had not been

procedural fairness given to the trustee of the superannuation fund. The wording of the superannuation splitting order did not comply with the Family Law Act 1975 s 90XT Pandelis & Pandelis [2018] FamCAFC 66 ¶14-045, ¶14-120 ▪ The Full Court of the Family Court upheld the finding of a de facto relationship. The appellant was married and maintained that he has having an affair and was not in a de facto relationship Nord & Van [2018] FamCAFC 75 ¶14-080 ▪ The Federal Circuit Court found that the failure of the wife’s solicitor to serve the trustee with a sealed copy of the court order which included a superannuation split amounted to the splitting order being impracticable. The order was varied Dalmans & Farber [2018] FCCA 2636 ¶14-095 ▪ A superannuation splitting order was made to enforce the payment of a cash sum due to the wife under a financial agreement Cummings & Warner (No 2) [2018] FCCA 2838 ¶14-130 ▪ The Full Court of the Family Court held that the trial judge could not make a superannuation splitting order without expert evidence on the nature, form and characteristics of a defined benefit fund interest Bulow & Bulow [2019] FamCAFC 3 ¶14-240 ▪ The Full Court of the Family Court held that the wife's contributions as a parent and homemaker were possibly indirect contributions to the husband's salary and therefore to the increase in his superannuation as a result of his eligibility for a hurt-on-duty pension Perrin & Perrin (No 2) [2018] FamCAFC 122 ¶14260 ▪ Updated rates of interest applied to the base amount of a superannuation split for the 2018/19 financial year ¶14-500 ▪ The uncertainty as to the meaning of the phrase “whenever a splittable payment becomes payable” was discussed but not determined by the Federal Circuit Court Dalmans & Farber [2018] FCCA 2636 ¶14-520 CHAPTER 16 — SUPERANNUATION AND TAX PLANNING ▪ Superannuation and financial planning — practitioner articles in 2018 and 2019 ¶16-700 CHAPTER 17 — LEGISLATION REVIEW • PROPOSED REFORMS ▪ Summary of Acts and legislative instruments in 2018/19 ¶17-330, ¶17-430 ▪ Lapsed Bills in parliament and draft legislation as at 30 June 2019 ¶17-520, ¶17-540 ▪ Proposed superannuation tax and regulation reforms ¶17-600 CHAPTER 18 — INSTANT REFERENCE — RATES, THRESHOLDS AND CHECKLISTS ▪ Superannuation rates and thresholds for 2019/20 ¶18-000 – ¶18-150 ▪ Approved forms — superannuation and taxation ¶18-730 – ¶18-745 ▪ 2019 SMSF annual return — what’s new ¶18-860 ▪ AFCA information page ¶18-933 ▪ ATO and ASIC calculators and online tools ¶18-960 – ¶18-970

1 SUPERANNUATION IN AUSTRALIA Objective of the superannuation system ¶1-000 Historical background

¶1-050

Superannuation industry profile

¶1-100

Regulation of superannuation industry

¶1-200

¶1-000 Objective of the superannuation system Superannuation generally comprises compulsory employer contributions under the superannuation guarantee (SG) scheme and voluntary member or salary sacrifice contributions. It is one pillar of the Australian retirement income system, together with the age pension and other voluntary savings. Over 80% of working age Australians have superannuation savings and superannuation makes up a significant proportion of all assets held by Australian households. Superannuation is a key component of the financial services industry and of the economy more broadly, with superannuation assets having increased from $245b in 1996 to $2.8 trillion in March 2019. Context for enshrining a superannuation objective in legislation The government considers that, as the superannuation system matures and superannuation assets increase, superannuation changes should be carried out in the framework of an objective that is enshrined in legislation. This is intended to promote consistency and confidence in the superannuation system. The Superannuation (Objective) Bill 2016, which was introduced into parliament on 9 November 2016, proposes the enactment of this government policy in a stand-alone Act. The introduction of the Bill followed a recommendation in the Financial System Inquiry (FSI) Final Report issued on 7 December 2014 for a clear statement of the objectives of the superannuation system to align policy settings, industry initiatives and community expectations. The Senate Economics Legislation Committee recommended in a report tabled on 14 February 2017 that the Bill be passed and that compliance of future superannuation reforms with the legislated objective be periodically assessed and reported on. The Committee considered that the objective as stated in the Bill would “enhance the stability of the superannuation system by creating a clear framework for assessing superannuation policy”. The Superannuation (Objective) Bill 2016 lapsed when parliament was prorogued for the May 2019 Federal election and will need to be reintroduced before it can become law. Objective “to provide income in retirement to substitute or supplement the age pension” The Superannuation (Objective) Bill 2016 proposes that the primary objective of the superannuation system is “to provide income in retirement to substitute or supplement the age pension”. This objective clarifies that the role of superannuation is to assist individuals to support themselves by providing income to meet their expenditure needs in retirement. Subsidiary objectives would provide a framework for assessing whether superannuation legislation is compatible with the primary objective. The following subsidiary objectives, as set out in the Exposure Draft — Superannuation (Objective) Regulation 2016, are proposed: • to facilitate consumption smoothing over the course of an individual’s life • to manage risks in retirement

• to be invested in the best interests of superannuation fund members • to alleviate fiscal pressures on the Australian government from the retirement income system, and • to be simple and efficient, and provide safeguards. The Objective Bill requires every Bill or regulation relating to superannuation to be accompanied by a statement of compatibility with the objective of the superannuation system. The statement must include an assessment of whether the Bill or regulation is compatible with the primary and the subsidiary objectives of the superannuation system.

¶1-050 Historical background In Australia, retirement incomes are funded privately through superannuation savings (both voluntary and compulsory) or publicly through the age pension. The SG scheme underpins the national retirement incomes framework by extending superannuation coverage generally across the workforce. The policy of superannuation for all Australians is a significant part of our tax and superannuation systems. Among the concessions and benefits provided by the Commonwealth through the tax system, superannuation is the second largest expense. Tax concessions have, for many years, encouraged employers to make superannuation contributions on behalf of their employees. Individuals have also been encouraged to provide for their own retirement, although tax concessions have particularly favoured high-income earners. Historical survey Before 1983, superannuation tax concessions were extremely generous — generally, contributions were deductible and earnings on the contributions were exempt from tax as long as the fund satisfied certain conditions. Lump sum benefits paid on retirement were virtually tax-free because only 5% was included in assessable income. The 1983 amendments resulted in benefits still being taxed at a concessional rate but less generously than before. The nature of the concession changed from virtually a tax exemption to a tax deferral, in that tax on the savings was postponed until they were withdrawn from the fund. From 1 July 1986, responsibility for regulating superannuation funds was transferred from the Commissioner of Taxation to the then Insurance and Superannuation Commissioner (ISC) through the introduction of the Occupational Superannuation Standards Act 1987 (see ¶1-200). In 1988, changes designed to tax retirement savings on an accruals basis and to reduce deferral advantages were introduced. Tax was imposed on fund income and on deductible contributions, generally at a flat rate of 15%. Until the 1990s, occupational superannuation generally only existed for white collar employees. The SG scheme which was introduced in 1992 made superannuation available to employees regardless of the type of their employment. Choice of fund rules, which commenced on 1 July 2005, gave most employees the right to choose the fund to receive the SG contributions made by their employer on their behalf. The matching of voluntary contributions made by low-income earners with a government co-contribution was introduced in 2003 (¶6-700). Surcharges on deductible contributions made by or on behalf of high-income earners and on “golden handshakes” by employers were imposed from 1997. These imposts were tempered by initiatives to allow tax rebates for contributions on behalf of non-working spouses, a savings rebate (abolished, however, after 12 months), and a tax exemption for the proceeds from the sale of a small business where the proceeds are used for retirement. The surcharges were abolished from 1 July 2005. From 1 January 2006, members may split with their spouse contributions made on their behalf in the previous year. Contributions splitting allows the couple to build two superannuation accounts, and this may have favourable tax consequences. Simplified superannuation from 1 July 2007

The taxation of superannuation was significantly reformed in a package of 11 Bills that were introduced into parliament in December 2006 and February 2007 and that generally commenced operation on 1 July 2007. These Bills changed and rewrote the law on contributions to superannuation entities, taxation of superannuation entities and benefits paid from superannuation entities. All the superannuation provisions in the Income Tax Assessment Act 1936 (ITAA36) were repealed and the rewritten law incorporated into the Income Tax Assessment Act 1997 (ITAA97). The simplified superannuation laws aim to overcome the complexity of the pre-1 July 2007 taxation of eligible termination payments, which included both lump sum superannuation benefits and employer termination payments. From 1 July 2007, there are two distinct taxing regimes: • one for the taxation of superannuation benefits, whether paid as a lump sum or an income stream, and whether paid to a member or to someone else because of the member’s death, and • one for the taxation of employment termination payments. Superannuation benefits received by a member aged at least 60 are generally tax-free, whether paid as a lump sum or as an income stream. Superannuation benefits paid to a member aged under 60 also receive concessional tax treatment. The reasonable benefit limits (RBL) system, which previously limited the amount of superannuation and similar benefits that a person could receive on a concessionally taxed basis, was abolished from 1 July 2007. The RBL system was replaced by ceilings on the amount of concessional (generally deducted) contributions and non-concessional (undeducted) contributions that can be made for a member in a year. A member may be liable to penalties if contributions made for them exceed the contributions cap for the year. The current taxation of superannuation entities is similar to their pre-1 July 2007 tax treatment, although there is a new category of taxable income — no-TFN contributions income — which may be taxed at the top tax rate. The introduction of no-TFN contributions income is tied to other measures that encourage members to quote their TFN to their fund and penalises those who fail to do so.

¶1-100 Superannuation industry profile Quarterly and annual statistics published by the Australian Prudential Regulation Authority (APRA) give information that can be used to assess the overall performance of the superannuation system. Among other things, APRA publications provide data on assets held by various superannuation entities, earnings performance, fees and taxes, membership profile, the offering of investment options and the development of MySuper products. Current APRA publications relating to the performance of the superannuation system are: 1. Quarterly MySuper Statistics which contains data on MySuper products — information on the product profile, product dashboard measures, asset allocation targets and ranges, investment performance, fees disclosed for MySuper products, or where relevant, for the lifecycle stages underlying MySuper products with a lifecycle investment strategy, and MySuper URLs 2. Annual MySuper Statistics which provides detailed data for all MySuper products, and allows users to analyse APRA-regulated MySuper products across a range of measures 3. Annual Fund-level Superannuation Statistics which contains detailed profile and structure, financial performance and financial position, conditions of release, fees and membership information for APRA-regulated superannuation funds with more than four members and eligible roll-over funds, as well as profile and structure information for the trustees of these superannuation funds 4. Quarterly Superannuation Performance Statistics which provides industry aggregate summaries of financial performance, financial position, key ratios and asset allocation, and 5. Annual Superannuation Bulletin which contains statistics that provide policymakers, regulators, trustees and the community with information to assess the overall performance of the superannuation

system. Superannuation industry overview for the year to 31 March 2019 The statistics below are taken from APRA’s Quarterly Superannuation Performance Statistics, March 2019, released on 28 May 2019. Since September 2013, the statistics in this publication have generally been for superannuation entities with more than four members. In the March 2019 quarter, this captures 209 superannuation entities, comprising 190 APRA-regulated superannuation entities and 19 exempt public sector schemes. Superannuation assets totalled $2.8 trillion at the end of the March 2019 quarter. Over the 12 months from March 2018, there was a 6.7% increase in total superannuation assets. Assets in MySuper products totalled $713.3b at the end of the March 2019 quarter. Over the 12 months from March 2018, there was a 10.8% increase in total assets in MySuper products. Entities with more than four members The statistics below are based on superannuation entities with more than four members. Contributions, benefit transfers and benefit payments There were $26.7b of contributions in the March 2019 quarter, up 3.5% from the March 2018 quarter ($25.8b). Total contributions for the year to 31 March 2019 were $113.2b. Outward benefit transfers exceeded inward benefit transfers by $0.4b in the March 2019 quarter. There were $19.0b in total benefit payments in the March 2019 quarter, an increase of 8.6% from the March 2018 quarter ($17.5b). Total benefit payments for the year ending March 2019 were $75.1b. Lump sum benefit payments ($9.5b) were 49.9% and pension benefit payments ($9.5b) were 50.1% of total benefit payments in the March 2019 quarter. For the year ending 31 March 2019, lump sum benefit payments ($36.6b) were 48.7% and pension benefit payments ($38.5b) were 51.3% of total benefit payments. Net contribution flows (contributions plus net benefit transfers less benefit payments) totalled $7.3b in the March 2019 quarter, a decrease of 6.5% from the March 2018 quarter ($7.8b). Net contribution flows for the year ending March 2019 were $35.4b. Financial performance and asset allocation In terms of financial performance, the annual industry-wide rate of return (ROR) for entities with more than four members for the year ending 31 March 2019 was 6.9%. The five-year average annualised ROR to March 2019 was 6.9%. Over the March 2019 quarter, total assets increased by 5.7% (or $106.6b) to $2.0 trillion. At the end of the March 2019 quarter, 50.5% of the $1.8 trillion investments were in equities, with 22.1% in Australian listed equities, 24.4% in international listed equities and 4.0% in unlisted equities. Fixed income and cash investments accounted for 31.4% of investments, with 21.2% in fixed income and 10.1% in cash. Property and infrastructure accounted for 14.2% of investments and 3.9% were invested in other assets, including hedge funds and commodities. Superannuation industry quarterly estimates The table below shows the estimated number of superannuation entities and their assets as at 31 March 2019. Fund type

Assets ($ billion)

Number of entities

APRA-regulated Entities with more than four members 1,834.0

190

Single member ADFs

0.0

10

Small APRA funds

2.2

1,777

Pooled superannuation trusts

141.3

28

746.6

598,429

Exempt schemes

144.0

19

Balance of life office statutory funds

55.7

‐

2,782.6

600,453

ATO-regulated Self-managed superannuation funds Other

Total Retirement savings accounts

There were 117 RSE licensees and 11 retirement savings accounts with $1.7b in assets at the end of March 2019. MySuper products At 31 March 2019, assets in MySuper products totalled $713.3b, and the proportion of assets in a MySuper product was 39%. At 31 March 2019, 84 entities offered a MySuper product, and the proportion of entities offering a MySuper product was 47%. The total number of MySuper products was 98, of which 84 were generic MySuper products, 13 were large employer products and one a material goodwill product.

¶1-200 Regulation of superannuation industry Over recent years there has been considerable upheaval in the regulation of the superannuation industry. The Superannuation Industry (Supervision) Act 1993 replaced the Occupational Superannuation Standards Act 1987 from 1 July 1994, providing a comprehensive regime, administered by the ISC, for the regulation of superannuation funds and related entities. Since 1 July 1997, the Retirement Savings Accounts Act 1997 has provided a parallel regulatory regime for RSA providers. The regulatory regime was completely overhauled again in 1998, with the ISC being replaced by new regulatory authorities — the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) (from 1 July 1998) and the Commissioner of Taxation (from 8 October 1999). APRA is responsible for the prudential regulation of banks and other deposit-taking institutions, life and general insurance companies, superannuation funds and RSA providers. ASIC is responsible for consumer protection and market integrity across the financial system, including the areas of insurance and superannuation. From 1 October 2001, ASIC is also responsible for the financial services regulatory regime in Ch 7 of the Corporations Act 2001 (¶4-000). This regime has a direct impact on superannuation products and entities, imposing standards for product disclosure and for the licensing and conduct of financial services providers and financial markets. Superannuation entities must comply with the regulatory requirements imposed by the Financial Sector (Collection of Data) Act 2001 and Corporations Act. ASIC is responsible for the administration of the resolution of complaints scheme. Before 1 November 2018, the Superannuation Complaints Tribunal was the body to which most superannuation complaints could be made about the decisions and conduct of trustees of superannuation entities (other than SMSFs) (¶13-000). From 1 November 2018 the Tribunal’s role in settling complaints about superannuation has been taken over by the new Australian Financial Complaints Authority (AFCA), which is an ombudsman scheme rather than a statutory tribunal. AFCA is the external dispute resolution body for the financial services industry generally, replacing the Financial Ombudsman Service, Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. Since 8 October 1999, the ATO has been primarily responsible for the regulation of SMSFs (¶5-000). These are funds with fewer than five members and where all the members actively participate in the fund’s management. Funds with fewer than five members but which do not come within the definition of

an SMSF remain the responsibility of APRA and ASIC. From 1 November 2011, the Chief Executive Medicare replaced APRA and the Commissioner in the administration of the scheme for the early release of superannuation benefits on compassionate grounds, but the regulator role has since been transferred back to the Commissioner (¶3-280). From 1 July 2004, trustees of APRA-regulated superannuation entities (registrable superannuation entities) must be registered by APRA. Trustees must apply to APRA for a licence that imposes minimum standards of fitness and propriety and requires the maintenance of risk management strategies and plans for funds under the trustee’s control (¶3-480). The ATO replaced Medicare in the administration of the Small Business Superannuation Clearing House from 20 February 2014 (¶12-010). The Fair Work Commission is responsible for the default superannuation fund process (¶12-051).

2 QUALIFYING FOR TAX CONCESSIONS SUPERANNUATION TAXATION Taxation of superannuation entities

¶2-000

Income Tax Assessment Act 1997

¶2-020

Tax Act provisions dealing with superannuation

¶2-050

SUPERANNUATION FUNDS Qualifying conditions for complying superannuation funds ¶2-100 What is a “superannuation fund”?

¶2-120

Resident regulated superannuation fund

¶2-130

Complying superannuation fund under the SIS Act

¶2-140

Notification of complying or non-complying status

¶2-150

Public sector superannuation schemes and EPSSSs

¶2-170

APPROVED DEPOSIT FUNDS Qualifying conditions for complying ADFs

¶2-300

What is an “approved deposit fund”?

¶2-320

Resident ADFs

¶2-330

Complying ADFs under the SIS Act

¶2-340

Notification of ADF status

¶2-350

POOLED SUPERANNUATION TRUSTS Qualifying conditions for PSTs

¶2-400

What is a “pooled superannuation trust”?

¶2-420

PSTs under the SIS Act

¶2-430

Notification of PST status

¶2-440

Superannuation Taxation ¶2-000 Taxation of superannuation entities Income tax legislation is administered by the Commissioner of Taxation. A table showing the principal ITAA97 and other tax provisions dealing with superannuation taxation, concessions and operations is set out in ¶2-020. Scheme for the taxation of superannuation entities Division 295 in Pt 3-3 of Ch 3 in ITAA97 provides for the taxation of superannuation funds, approved deposit funds (ADFs) and pooled superannuation trusts (PSTs) (superannuation entities) from 1 July 2007. In addition, many provisions in other tax laws (eg ITAA36, ITAA97, ITTPA and TAA) which generally apply for taxation purposes to taxpayers may also applicable in the assessments of superannuation entities.

Division 295 provides concessional tax treatment to entities which comply with the conditions specified in the SIS Act and SIS Regulations for complying superannuation funds, complying ADFs and PSTs (¶2100, ¶2-300, ¶2-400), regardless of whether they are established by an Australian law, by a public authority constituted by or under such a law, or in some other way. Superannuation funds and ADFs which do not comply with the SIS conditions are also subject to Div 295, but are taxed on a nonconcessional basis as non-complying funds, while PSTs which do not comply are taxed as trusts under the general trust provisions in ITAA36 Pt III. The concessional taxation of superannuation can be grouped under the three main areas — the concessional taxation of superannuation entities, tax treatment of superannuation contributions and concessional taxation of superannuation benefits. The Occupational Superannuation Standards Act 1987 (OSSA) and Regulations (OSSR) were previously the governing legislation for superannuation funds, ADFs and PS