Explanatory Memorandum(Circulated by the authority of the Treasurer, the Hon Scott Morrison MP and Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)
Short Form Regulation Impact Statement
The Treasury, Australian Tax Office (ATO)
OBPR Reference number: ID 20591
Name of proposal: Introduce a lifetime cap on non-concessional superannuation contributions.
Summary of the proposed policy and any options considered
This proposal will replace, from announcement, the current annual non-concessional contributions caps with a lifetime cap. The lifetime cap of $500,000 will take into account all non-concessional contributions made after 1 July 2007. The cap will limit the access to superannuation tax concessions for wealthy individuals, improving integrity of the superannuation system and increasing revenue by around $550 million across the forward estimates.
Where an individual exceeds the lifetime non-concessional cap prior to the announcement, they will not be required to remove the excess provided they were acting within the relevant caps at the time their contributions were made. Non-concessional contributions to defined benefit schemes will count towards the cap but will not be removed if they exceed the cap.
The Government also considered implementing this policy from 1 July 2016 to simplify reporting requirements on funds however this option was not progressed as it created an opportunity for individuals to take advantage of current tax arrangements by bringing forward their contributions undermining the policy and the fiscal savings.
What are the regulatory impacts associated with this proposal?
Funds will need to continue to report non-concessional contributions to the ATO on an annual basis and will need to provide an additional report in the first year of the measure so the ATO can identify contributions made after announcement. Certain defined benefit schemes will need to further separately identify and report to the ATO on an ongoing basis some non-concessional contributions between defined benefit and accumulation accounts.
The Government will consult with industry on the timing of these additional reporting requirements post announcement.
The ATO will also need to improve its record keeping to track (and communicate) individuals' remaining cap balance over each persons' lifetime. We expect the ATO to display individuals' remaining balance on their my.Gov web account. The ATO will also need to alter their systems to take into account the contributions of defined benefit members protected from removal.
What are the regulatory costs/savings associated with this proposal?
Individuals and Superannuation providers will need to be aware of the lifetime cap, which is a shift from the existing annual caps and will require education and awareness-raising by the ATO.
Individuals who breach the lifetime cap may complete a release authority to access these funds. Superannuation providers already have systems in place to store and process these forms.
Tax practitioners and tax advisers will need to become familiar with the change but it is expected to form part of routine updates. Tax advisers would now need to understand all of the contributions that their clients had made in their lifetime, not just the last three years.
The change in regulatory burden has been estimated by the Treasury to result in a medium overall compliance cost impact (comprising a medium implementation impact and a medium increase in ongoing compliance costs) in the range of $2.8 million per year. Specific offsets have not been identified and offsetting regulatory savings within the Treasury portfolio will be settled at a later time.
Regulatory burden estimate (RBE) table
|Average annual regulatory costs (from business as usual)|
|Change in costs ($ million)||Community organisations||Business||Individuals||Total change in cost|
|Total, by sector||$2.8||$2.8|