Date posted: 25/03/2020 6 min read

Superannuation and COVID-19

Our list of the issues you need to know about in Australia.

In brief

  • Recent government policy announcements
  • Revised Parliamentary timetable; some govt policies likely delayed
  • Areas of immediate interest from a super perspective
  • Change of focus for APRA and ASIC

There will be rapid changes over the next several months because of the rapidly moving COVID-19 pandemic.

Here is a brief list of items we are keeping a close eye on:

1. Coronavirus Omnibus Bill

There are three policy measures here:

  • Allowing people who have lost their income to seek early release of superannuation under financial hardship rules.
    • Withdrawals are restricted to $10,000 in 2019-20 and $10,000 in 2020-21.
    • Applications will be made to the Australian Taxation Office (ATO) which will contact super funds. The money will then be forwarded to the ATO which will then send it to the applicant.
    • These specific withdrawals will be tax-free – that is the taxable component will not face tax.
    • It is not available for defined benefit funds.
    • The ATO is working on building administration systems to make this new payment work.
  • Reduction in minimum income amounts for market-linked pensions.
    • A 50% reduction in the minimum income required from market-linked pensions will apply for the 2019-20 and 2020-21 financial years.
  • Intergenerational Report publication delayed at least 12 months to June 2021 from June 2020.

2. Adjustment to the Centrelink and DVA deeming rates

The government announced an additional reduction to Centrelink's and DVA’s deeming rates for super fund investments, bank accounts, term deposits, listed shares etc.

The new rates will be 25 basis points lower from 1 May 2020.

Historical deeming rates can be found here: https://guides.dss.gov.au/guide-social-security-law/4/4/1/10

3. Parliamentary timetable and legislation impacts

Recently the government announced a revised Parliamentary timetable. Parliament will not sit again until 11 August. This means many super policy measures that were due to commence on 1 July 2020 or later will not be legislated in time. These measures include most super announcements in the 2019 Federal Budget:

  • allowing personal contributions without a work test until under age 67 (up from 65) including access to the three-year bring-forward rule
  • increasing SMSF maximum numbers from 4 to 6
  • permitting more super funds to prepare their accounts using the proportional method
  • reducing how many funds require an actuarial certificate for tax-exempt pension income
  • CGT relief for merging APRA regulated super funds
  • three-year audit cycle for SMSFs
  • additional low balance account consolidations
  • allowing more choice for compulsory employer super contributions
  • amending WA defacto super splitting rules
  • all Royal Commission-related legislation.

Only time will tell if these measures proceed as announced.

4. Areas of immediate interest

We are constantly building a list of items that need to be addressed from a super law perspective. Thus far we have the following on our radar:

  • In-house assets (IHAs)
    • There will be many SMSFs with IHAs that now have at least two problems – reduction in rent to a related party; and a reduction in market value of all assets, meaning the IHA asset restrictions are breached.
    • In relation to the asset valuation issue, please refer to an ATO Practice Statement Law Guide produced in 2009 (2009-8) after this issue arose during the GFC: https://www.ato.gov.au/law/view/document?docid=PSR/PS20098/NAT/ATO/00001
    • In relation to arm’s length income, our anecdotal information is that many landlords are offering fee reductions and waivers. The problem for an SMSF trustee with a related-party tenant is that they do not want to offer a better deal than the prevailing market. Third-party documentation will be key.
  • SG amnesty end date
    • We provided some information about this subject last week. Cash-strapped employers can reach a payment agreement with the ATO and then potentially amend that agreement before payment due dates. At this time, we do not expect an extension to be granted for the SG amnesty but we will talk to relevant government departments.
  • Total Super Balance (TSB) and Transfer Balance Account (TBA) valuations based on 30 June 2019 valuations
    • As asset prices have fallen sharply, it does not seem appropriate that some people will remain locked out of the ability to make super contributions because their TSB, based on market valuations from 30 June 2019, was above A$1.6 million.
    • A similar problem arises for those with money in pensions assessed for TBA purposes based on much higher valuations. Should these people be permitted a concession?
  • Non-arm's length income measures within super funds – these have a commencement date of 1 July 2018, were not legislated until 2020 and the ATO is still to finalise its legislative interpretation. This policy should be delayed until 1 July 2021 at the earliest.

5. ASIC and APRA change focus

ASIC and APRA have both announced that they have temporarily stopped focusing on implementing the Financial Services Royal Commission recommendations to focus on Coronavirus considerations.