Episode 20 — The latest changes in superannuation

For more information about The Tax Institute: https://www.taxinstitute.com.au/

Transcript

 Robyn Jacobson:
Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. We love the vibe of tax, and here at The Tax Institute, we do tax differently. I'll be chatting with some of the tax profession's great thought leaders who will share valuable and practical insights you may not hear every day. We hope you enjoyed this episode of TaxVibe. I'm joined by Jemma Sanderson, CTA, who is the director of Cooper Partners Financial Services in Perth and heads up their SMSF specialist services. Jemma provides strategic advice on SMSFs, estate planning and wealth management to clients, as well as technical support and consultancy to accounting, legal and financial planning groups. 

Robyn Jacobson:
Jemma has over 20 years experience in developing complex strategies for high net worth clients. Jemma has a bachelor of commerce and is a certified financial planner, a specialist member of the SMSF Association, a charter tax advisor and trust and estate practitioner. Jemma is a regular presenter and author on Superannuation Mmatters. Jemma was named the SMSF advisor of the year at the 2019 National Women in Finance Awards for the third year in a row and received the SMSF Association Chairman's award in 2018 for her contribution to the industry. Jemma, welcome back to TaxVibe.

Jemma Sanderson:
Thanks very much for having me Robyn.

Robyn Jacobson:
Look, it's great to have you back again. We last spoke in March of 2021 and a lot has changed since then, although you're still based in Perth and I'm still based in Melbourne, and borders thankfully have now opened up.

Jemma Sanderson:
Correct, yes. Especially for us. We were trapped over here for a while.

Robyn Jacobson:
Absolutely. Now, when we last spoke, we discussed contributions and today I'd like to discuss with you the latest changes in superannuation. It's a complex area, it's highly regulated and we've become accustomed over the decades to constant changes. Yet in this year's budget, there was barely a mention. So just your initial thoughts on people's appetite for change. Are we weary of it all? What's the future looking like for superannuation in this country, particularly with all the global instability we've got at the moment?

Jemma Sanderson:
Well, it's a really, really good question. I think that with the changes that come into play from 1 July, 2022, there have been positive to do with contributions, the extension, or the sort of removal of the work test up to age 75, those sorts of things, which no doubt we'll discuss later. However, because of this ongoing change, though we had a big lick of changes happening in 2017 with the introduction of the transfer balance cap, total super balances and things like that, and then of course, with COVID hitting us and JobKeeper and the like coming through and that's been a substantial cost to the bottom line for the country and then a new government coming through, all those sorts of things, I'm actually dealing with quite a few clients who are uncertain about super.

Jemma Sanderson:
They're really getting concerned with more and more changes coming through, and sure, there are little tweaks around the edges and so far they've been reasonably positive, but they're just waiting in the background for someone to come through and reach into their super, pull it out and benchmark them back to a particular amount and make them more restrictive. So I have got clients that are becoming more and more cautious about actually adding money to their super because of that uncertainty. So it would be nice to see a bit of certainty coming through from that perspective, and hopefully with a new government, perhaps we can get some certainty coming through.

Jemma Sanderson:
Again, the latest changes have been positive, so that's great for everyone from that perspective, but how do we then increase that confidence in the superannuation system, which I think has certainly waned a bit since particularly 2017. Recent tweaking around the edges and just that uncertainty about who's going to pay for all of this deficit that's sitting there, how are we going to pay for that? Superannuation is an enormous pot of money that is probably very tempting for people to reach into and try and grab. So how do we protect that and make sure that confidence remains in the system?

Robyn Jacobson:
Jemma, something that is certainly not on the table at the moment, I'm not suggesting that it is, but it often comes up in conversation. You and I and millions of other Australians are still some years off retirement and there's always been this question hanging over the profession and the balances and superannuation funds as to whether tax free super after age 60 will remain. Now, of course, Howard changed that in 2007. There is a perception among many practitioners that it is too generous, not withstanding it does benefit clients at the moment who are over age 60. But I just wondered about your thoughts on whether we're likely to see that change in the decades ahead. So by the time we get there, it may not be tax free.

Jemma Sanderson:
Well, there's two elements to this that I talked to clients about. One is that by the time we get there, it probably won't be 60, it'll be 65. So bit like the preservation age ratcheting itself up at the moment, whether that age itself also starts being phased up to age 65 to perhaps align better with the condition of release that's got the new caching restriction of retirement, so whether that works. Now, the retirement age may well ratchet itself up as well just as people are working longer. So that's one element. At the moment, really it's age 60 where we're getting to from that preservation age at the moment, it's very close to age 60 in any event. 

Jemma Sanderson:
The other thing is some of the strategies that people put in place and are putting in place is to hedge against that legislative risk. I do talk to some practitioners out there and I talk about pre-2007 when you had annual deductible amounts from your super account, which was based on undeducted purchase prices and everything else was taxable when it came out, but you got a 15% rebate. If you're over your RBL, the pension income from that was fully taxable and people are saying, "What do you mean if you're over 60, that you paid tax on what you took out of super?" I was like, "Yes, that's how the rules worked back in the day." 

Jemma Sanderson:
So particularly some of the younger practitioners, that was 2007, so it was pre 2007, that those were the rules, and so for anyone who's been in the industry for sort of 15 years or less, they have no familiarity with that sort of concept. That's certainly one of the areas where I know The Tax Institute has been talking about advocacy, at what point do you tax the money. So we're very different to other jurisdictions where we tax the money on the way in and on the way through, but not on the way out when people draw down. Now, on death is a little bit different. Whereas other jurisdictions, they don't tax you on the way in or on the way, but on the way out, it's taxed like normal income effectively. So that's oversimplifying it. 

Jemma Sanderson:
So whether we end up aligning ourselves with other international jurisdictions on that front, it's again goes back to that comment about that uncertainty. So 2007 was a lot of big changes. 2017, are we just five years off another round of big changes that are the same and going back to my previous point about that uncertainty.

Robyn Jacobson:
Your comment about it being taxable on the way out instead of on the way in, yes, it used to be like that, but Paul Keating changed that policy. That was essentially because the government was having to wait for people to retire and start pulling money out of their super before the government got revenue from the super. So it was all turned on its head and that's why we have today what's called the contributions tax and Div 293 tax for those who are slightly higher income earners. On that basis, it's essentially tax on the way in and no tax on the way out.

Jemma Sanderson:
Exactly. So it's just the modeling and all those sorts of things. It's very interesting. Now, of course, it all keeps us in a job, which is marvelous, all these changes. But the uncertainty that it does create, at the moment, I'm not a bad news bearer to a lot of clients in terms of the contribution changes and things like that. But when things like the transfer balance cap was introduced, and sorry, you can't contribute to super anymore because you're total super balance. So you are having to restructure things in order to accord with the new rules. So clients are getting a bit sick of that as well. 

Jemma Sanderson:
So they've structure their affairs in light of the rules at the time. They've been maximizing their super, building that up because the incentives were there to do that and they were sort of told that they needed to build their super and be self-sufficient so that they weren't on the public purse. So that's what a lot of them did. Then they traveled along quite happily on that way, and then all of a sudden in 2017, right, well, you can't have that much that you're getting exempt from tax. We'll pull that down to your transfer balance cap. Then of course that involves getting that right and it was so many different things. 

Jemma Sanderson:
The CGT relief, benchmarking that down, the reporting that needs to happen, not just then, but perhaps on an ongoing basis. All those sorts of things has increased the I'll say red tape and the cost of compliance for a lot of people as well, and dare I say it, for the industry, it's again, kept us in a job, but we are having to do more and more in order to remain compliant. Yes, superannuation is that fantastic structure. It's our own little tax Haven within the Australian tax system, but it's just becoming, the cost of maintaining that is also becoming a bit prohibitive for some people as well and they're thinking, "Oh, it has to be audited, got to do financials."

Jemma Sanderson:
The different types of investments that a lot of people have in their self-managed super fund, for example, have got additional reporting considerations for the auditors, which I'm not disputing that as the auditors going above and beyond. I think that they absolutely have to because of the nature of some of these investments, but if those investments were in the individual's own name, they wouldn't necessarily be having to go through that sort of process. So again, back to some people are just losing a bit of confidence in the superannuation system because of the extra compliance and the extra cost that goes along with that.

Robyn Jacobson:
All right. Well, let's have a look at some issues regarding '21, '22. Now we're sitting here on the cusp of the end of the '22 financial year. By the time some of our listeners do sit down and listen to this conversation, we may well be sitting into July. So there's little that can be done in the closing days of June, or of course once 30 June has passed. But let's just touch on some things that are needing to be considered. Firstly, the minimum pension draw down rate. So for those who are drawing or accessing an income stream from their super fund, what's happened with the minimum amount that they have to withdraw?

Jemma Sanderson:
Well, thankfully for a lot of people, it's remaining at 50% for the '22, '23 year due to COVID. I was actually a bit surprised at that. However, with the international landscape from an economics sort of perspective, it does make sense. So I think for a lot of people, they have been quite cautious on their draw downs and not taking too much out. I guess in the last couple of years, people's inability to travel and things like that have meant that they haven't had to spend as much necessarily. So that has been again extended for another year. So it's only a 50% draw down for the '22, '23 year. That applies to all pensions saved for those legacy lifetime pensions.

Robyn Jacobson:
Next, Div 293 tax. So this is the extra 15% contributions tax that is effectively paid when you are I'll call it income loosely, but there's a certain calculation as to how you work it out is more than $250,000.

Jemma Sanderson:
Yeah. So a lot of people forget about that. So yes, it's completely unavoidable if you earn over that threshold and then you have to add back your super contributions as well. So if you end up being over that threshold, that 15% tax gets imposed. From a timing perspective, a lot of people, they make their contributions in the lead up to 30 June, the super fund withholds that tax depending on which sort of fund they're making those contributions to. If it's a self-managed, that tax doesn't get paid until the fund does its tax return. So a lot of people think, "Oh, well, if there is more tax to pay on my super contributions, then it would come out of the super fund."

Jemma Sanderson:
But that's not necessarily how it works and the timing can be a bit skewed as well. So sometimes you won't get the notice from the tax office until sometime later, and then people are thinking, "Oh, what on earth is this about, a 293 notice?" They don't understand that they can pay that tax or they can request that their super fund pays it. So people are unaware of that particular fact. 

Jemma Sanderson:
The other thing that we're also seeing is in the lead up to 30 June, 2020, the carry forward concession contributions are starting to be a bit meatier. So people who perhaps haven't done those contributions because they had a startup business or they weren't even in the country in the '18, '19 or '19, '20 year, and all of a sudden they've got this extra money that they can put into super and claim a tax reduction for, those are subject to Div 293 tax if the person is over the threshold. So those could be some quite substantial amounts that people might be unaware of. 

Jemma Sanderson:
It's again just that education process, letting your clients know now, again, you're over this threshold, this notice of assessment is going to come through, but you can request that the money gets paid from your super fund rather than you paying it yourselves. Because I think that can be a bit of a confrontational thing to think, "Oh goodness, I've got to come up with this 15% tax myself." So just to again just make your clients aware that that may come through.

Robyn Jacobson:
So as far as employers are concerned, what are their obligations and commitments in terms of SG, because let's assume we're at the other side of June 30, there is still time to meet the SG obligations.

Jemma Sanderson:
Yes. So for the June quarter, they've got until the 28th of July to meet those obligations. So that's quite handy for a lot of those businesses from that perspective. It's worthwhile that they meet that timeline.

Robyn Jacobson:
What I've found Jemma is that most accountants, in fact just about every accountant I've ever spoken to can tell me when the super has to be paid by into the complying fund to meet their obligations. Very few seem to be able to articulate the date by which the SG statement and the SG charge must be lodged and paid if indeed the 28 July deadline isn't met.

Jemma Sanderson:
Yes. I probably am one of those people that couldn't tell you that date either at this point in time. But certainly you've got another 28 days to do that as well. Again, it's just so much easier to avoid anything to do with super guarantee charge because the penalties are horrible. 

Robyn Jacobson:
They are. 

Jemma Sanderson:
So it's a lot of employers make those contributions when they pay people. So I think that's the way to go. But again, if it is a quarterly payment, you just make sure it's done by the 28th of July, please.

Robyn Jacobson:
So the SG statement is actually the 28th day, the second month following the end of the quarter if you don't pay it by the 28th day of the first month following end of the quarter. 

Jemma Sanderson:
Yes.

Robyn Jacobson:
Another misconception I've come across is some people seem to think that just because super is paid late, it's automatically nondeductible. Now, it may surprise people to know that there is nothing in the tax or the super laws that says the contribution is nondeductible to an employer just because it's paid late. It's nondeductible when it's part of the superannuation guarantee charge. Now what that involves is of course making a disclosure to the ATO, telling them that you didn't meet your deadline or you didn't pay enough or you didn't pay it for the person and paying the charge, lodging the SG statement. Now, it's SGC and now it's nondeductible. 

Robyn Jacobson:
So there has been this misconception that, "Oh, as long as I treat it as nondeductible, then morally I've fixed up the problem." But it's a bit like saying, "I'll just treat an expense as being nondeductible. so I don't have an FBT problem." It's a totally separate piece of legislation and you can't get rid of an SGC problem by treating the contribution as nondeductible. It takes more than that.

Jemma Sanderson:
Yeah, absolutely. SGC is complex. Again, it's just makes sense just to meet the timing. I can't emphasize that enough because if you don't, just the flow on effects are horrendous. So it's not worth it.

Robyn Jacobson:
Agreed. Now, individuals and employees, can you give us a recap, pun intended, of where the superannuation caps are sitting because there has been some movement this year and what an individual needs to do if they want to claim a deduction for a personal contribution?

Jemma Sanderson:
So the caps from 1 July '21 increased, so it went up to 27 and a half thousand for the concession cap and the non-concession cap is four times that, so 110,000. With respect to claiming a tax deduction, so what you need to make sure is you're doing your 290-170 notice. A lot of super funds, if they're the APRA funds, they might have their own form to complete with respect to that. So it's worthwhile doing that, but there is one on the tax office's website that you can just download, fill in and send off to the fund. In order to claim the deduction, you need to complete that form and it needs to be acknowledged by the fund in order to claim that deduction. So if that's the intention, it's worthwhile doing it as soon as possible.

Robyn Jacobson:
What's your timing? Because there is a deadline of it has to be provided to the trustee at the earlier of lodging your tax return for, in this case, the '22 income year or June 30th, 2023. So in other words, you've got at the longest 12 months, but shorter if you lodge your tax return before then. But also, you can have an invalid notice if you commence an income stream or you move those benefits out of the fund as in the contribution sitting within the benefits to another fund, or you cease to be a member of the fund. I have seen people who have made their contribution, left it until lodgement day or their compliance time to prepare the notice and give it to the trustee, but in the meantime, they've commenced an income stream and not understood that that has turned it into a nondeductible contribution. Then also your concessional, which you thought it was, has now become non-concessional and that can play havoc with your caps.

Jemma Sanderson:
Absolutely. Certainly you don't want to do anything in the fund that might then limit your ability to claim it as a tax deduction. A lot of people may well make the contribution and not know at that particular time how much they'll be claiming because it depends on what their ultimate income may well be for the year. So it's a fine line, absolutely. So particularly for those people, like you mentioned, if they're starting a pension or a lot of people I'll say throw the money into a public offer fund in the lead up to 30 June, and then they look to roll it over to a self-managed or another fund early on in July or early on in the new year, and those ones can be the worst ones if you haven't actually gone through the procedure correctly to claim it. So again, it's worthwhile making sure that you're ticking all of those boxes.

Robyn Jacobson:
Also just a final tip on this point, making a contribution is based on when the fund receives it, not when you pay it. So Jemma we're sitting here on the 24th of June recording this. By the time the episode is released or by the time someone hears, it could well be sitting right on June 30, and that really is too late to start getting the money into super at that point.

Jemma Sanderson:
Absolutely. So that ship's sailed.

Robyn Jacobson:
All right. So let's look for it. What do we need to be thinking about regarding changes from 1 July this year? There are quite a number of them.

Jemma Sanderson:
So some of the big ones for our employers is that the super guarantee rate is increasing to 10 and a half percent. So just to watch out for that. It's a bit annoying, because 10% was just so easy to do that calculation in your head. So 10 and a half percent. We've got the removal of the $450 threshold from that perspective when you're paying people. So for some employers, particularly the small businesses that have got large workforces of I'll call them younger workers, university students, those sorts of people that are over 18, they might have to start paying some super. So just being aware if you are one of those people that you do get super, but if you're an employer, that you do need to have the fund offering for those employees.

Robyn Jacobson:
So Jemma, there may be some employers who are confused about the timing of the increase in the rate. For example, they may have an employee who does the work in the last week of June, but they're not paid for that work until the first week of July. So would that payment be subject to the increased rate?

Jemma Sanderson:
So it is when the payment is made. So they need to be really mindful of how that works as well.

Robyn Jacobson:
What else is changing 1 July?

Jemma Sanderson:
So one of the bigger changes is the removal of the work test for non-concessional contributions and salary sacrifice up to age 75. What it does mean is that if you are under 75 on the 1st of July in a particular year, you can use the three year bring forward period with respect to the non-concessional contributions. So will open up a lot of contribution planning for those people aged between 67 and 75 over the next few years, obviously still subject to our total super balance thresholds coming through. So that was one of the very positive changes that has come through recently for a lot of people. 

Jemma Sanderson:
There's the downsize of contribution limit, well, not limit, the age limit is reducing to age 60. So that's one for some people to be aware of. There's no total super balance threshold applicable to that. So that's quite good. So you could be 100 years old maybe and have $100 million in your super fund and you can use the downsize of provisions if that's what you want. We've got changes to the segregation methodology for the calculation of the exempt current pension income is probably a better way to phrase it. So that actually applies from 1 July, 2021. 

Jemma Sanderson:
So when the tax agent for the super funds is doing the 2022 financials, there's a different approach that they can take where there's segregated or deemed segregated accounts because 100% of the fund is in pension phase for the particular year. If there's any instances throughout the year where there's some accumulation accounts, et cetera, they've got a different approach, making it a lot easier for many funds to run from that perspective. So they are some of the bigger ones to come through.

Jemma Sanderson:
We've got non-arm's length income, the practical compliance guideline, the cans been kicked down the road another year just enabling people another year before they have to, the big ticket item here is those general expenses of a fund that may well taint all of the income of the fund and the consideration there is with the previous government had indicated that they would look at those particular rules and apply it as intended or look to amend the law so that these unintended consequences that I know The Tax Institute has been certainly lobbying to the tax office about those unintended consequences, not just for the small funds, but for the big funds as well, these general expenses.

Jemma Sanderson:
So we've got another year whereby we don't have to abide by that for want of a better phrase. Hopefully, again, part of The Tax Institute's submission to the Labor government was to make sure that that was remained on the agenda to have a look at, so hopefully we do get an outcome there because that's been something on everyone's radar and concern since those rules were introduced.

Robyn Jacobson:
Look, certainly Jemma, it's something that for I would say a couple of years, The Tax Institute has been working with all the other professional bodies in the superannuation space. So we're obviously a tax body. We've got accounting bodies. We've got those who are in the big super funds space, self-managed space, financial planning, et cetera. So there's been a lot of interest in this across the whole superannuation sector. Certainly, the former government had agreed that they would amend the law to make sure the provisions work as envisaged. The Tax Institute continues to advocate for legislative certainty on this. Just recently, we've provided the new government with an incoming government brief that is available on our website. One of the priorities is indeed to progress those legislative amendments that are needed to remove the unintended impact of the NALI provisions.

Jemma Sanderson:
One of the things with those NALI provisions that I think some people might misunderstand, whilst we're on the topic, is that what has been I'll say kicked down the road for another year, that PCG, is about those general expenses that might taint the whole income. It's not about a particular asset where you might have paid less than market value. That is still the non-arm's length expense rules that apply to those sorts of transactions have applied since 1, July '18. So that hasn't been postponed. So people sort of need to be aware of those issues are still absolutely current and need to be addressed. It's the general expenses that we are awaiting. Hopefully, fingers crossed, that brief, the Labor government does come through with the goods on that front.

Robyn Jacobson:
Agreed. Now, there's another outstanding measure now that we're moving into what's in the pipeline. Self-managed funds residency requirements. So all these years we've had a rule that if the trustee was temporarily outside Australia, there was a possibility that they could have contravened or breached what's called the central management and control test, which determines whether the fund is resident in Australia, because that's where the decisions are made. We've got a two year rule, which allows you to be outside the country and not result in the fund becoming non-resident. 

Robyn Jacobson:
The former government said they would extend that to five years primarily in response to those being tracked outside Australia during the pandemic that it's a reasonable proposed amendment in any case. Also, for both self-managed funds and small APRA regulated funds, we have something called the active member test, which broadly says that if more than half of your member balances are represented by active members, those who are contributing to the fund who are non-residents, then there's no temporary absence period that they can be outside the country. 

Robyn Jacobson:
If you have more than half the balances effectively represented by non-resident members, you've got a non-compliant fund. The former government indicated they would remove the active member test for all these funds, other than large APRA managed funds. We're waiting to see what the new government's position on both of these measures is. We don't have clarification at this point.

Jemma Sanderson:
That's right. Even the first one regarding the increase in time from two years to five years, the way that the rules are currently drafted and the tax office did respond to that, they released a ruling back in 2009 about what is an Australian superannuation fund under those particular provisions. You nailed it earlier when you said that temporary absence. So the outcome of the ruling was that the tax office indicated that it was the temporary absence that was the key. The two years was almost irrelevant. So if there's just a repeal of two and an insertion of five into that particular legislation, it will have no impact at all on the way that it's intended to operate. 

Jemma Sanderson:
So under the previous rules, there was that safe harbor where you could come back into the country and then it would reset the two year timeframe. But then the rules changed back in 2007 it was, I think it was 2017. Anyway, can't keep track. So I await the actual legislation whether that change will occur. The active member thing I think will be a game changer for a lot of people who are non-residents overseas, and they want to have that small super fund. So you can manage the central management and control issues with an enduring power of attorney. But with that active member, you can't manage that at all. 

Jemma Sanderson:
It's very black and white. If you fall into those rules, there's zero discretion for the commissioner to say, "Oh, well it was $1.50 as a contribution." Now, if you fall foul of those rules, it's a non-complying fund and the outcome can be horrendous. So I think that it will be a game changer for a lot of people being able to contribute to super whilst they are overseas and not be concerned about it and have that investment freedom that is available through a self-managed super fund as an example.

Robyn Jacobson:
[inaudible 00:28:36] the need for them to be forced to contribute to a large APRA regulated fund to make a contribution, because at the moment they can't make it as you say to a small fund. So it would give them the flexibility and surely it would be more efficient to have a contribution going where you want it to go, rather than having to make it to a large fund to satisfy the rules and then move it across by way of a rollover some time later when you become a resident again.

Jemma Sanderson:
100%, that's exactly right. Yes.

Robyn Jacobson:
So legacy retirement product conversions, another outstanding announcement.

Jemma Sanderson:
So this was again a positive when it came through. It's been one of those areas that since 2017, and even earlier than that, people have been talking about these sorts of pensions are ones that were put in place. From 2005 was with the legacy pensions, the lifetime pensions is where they stopped being available within a self-managed fund. In 2004, changes were made from an assets test exempt perspective. So very, very many years ago. In RBL time, a lot of people did put a market link pension or these complying pensions in place. 

Jemma Sanderson:
Then of course, 2007 came along and the requirement to have these sorts of pensions in place just wasn't there anymore. However, they've just sort of been ticking over. Now, the issue that we're starting to encounter with these is a lot of people put these in place in the early nineties, and they are starting to get quite old, some of these people, and they're concerned about the estate planning impact of them. They're also looking at the fact that they've got these pensions in place that are no longer really relevant to the current rules. So it was quite helpful that this came out, allowing people to stop their pensions, transfer the money back into accumulation effectively, and then have a standard account based pension going forward.

Jemma Sanderson:
Now, what has been introduced is the ability for people to commute one of these lifetime pensions and not have an excess to their transfer balance cap, but it hasn't enabled people to then be able to just remove that whole pension entirely out of the complying lifetime into accumulation. So we await that legislation. One of the areas that I'm not too keen on is that if you have a pension reserve in there and you allocate that to your accumulation account, it will be hit with a 15% tax rate. I think that's unnecessary because the reserve by its nature would've been treated as an accumulation account and taxed at 15% over that period of time. So we await what that looks like. 

Jemma Sanderson:
Also looking from that perspective that the expectation and all of the guidance and announcements were that the transfer balance cap and assets test exempt nature of these restructures, there won't be any concessions on that front if that restructure happens. So again, we'll just have to wait and see. The devil will be in the detail if we end up seeing that coming through.

Robyn Jacobson:
Another announcement from 2018 that remains outstanding and I'm not sure that many in the profession would be unhappy about that at the moment, and that was the proposal to move from annual audits for certain self-managed funds that have a good compliance history and no prescribed events. So it was actually going to quite narrow the population of eligible self-managed funds to a three year audit cycle rather than annual. Now, whilst on the face of it, it seems like a good idea because you don't need to do it as often, there is actually a risk that there would be more difficulty in locating paperwork. There would be more opportunity for breaches of the superannuation rules. Certainly, in my travels around the country, I found almost no practitioner or superannuation expert who actually supported this proposal. What are your thoughts?

Jemma Sanderson:
It was a very strange proposal at the time, as if someone had an epiphany about it and then didn't consult anyone. The industry has been scathing ever since. That sort of did get dropped. So hopefully it stays dropped. All of those points you've just made would be horrendous. We struggle for clients to get the information, to do it yearly, let alone three yearly. I can just see the cost of audit actually going up because trying to get and verify all of that information historically, and if it was three years, then you're probably picking up the fund sort of in its fourth year. That's a long period of time where a lot of things can go down in that super fund, like you said.

Jemma Sanderson:
So you've got a great clean compliance history to this point, and then all of a sudden you don't. The other thing with that is these prescribed events. So you're just adding another layer of is it a three year audit or a one year audit for any particular super fund. Oh, it meets these criteria, but does it meet that one? So how do we know if it's three years or one year? Just blanket every year, it's worked fine. I just don't understand why it was even broached as a thing. So I'm quite happy for that to remain on the cutting room floor, to be perfectly honest.

Robyn Jacobson:
Most auditors that I spoke to about this said, "Don't think that just because we're doing it once every three years, instead of every year, that it would be cheaper or the same price as three lots of an annual audit fee. It would actually be more expensive because there would be more work involved in going through three years worth in one year and digging out old paperwork and verifying and the inefficiencies that would result." So it really doesn't seem to be able to achieve what someone in government thought it possibly could.

Jemma Sanderson:
Yeah. I just don't know what happened there.

Robyn Jacobson:
Now, the new government has already identified that they are keen before the end of the current parliamentary term. So just to explain what I mean by that, we're obviously at the beginning of a three year parliamentary term for this new government. So by the end of this current parliamentary term being three years, they would like to identify a pathway to an increased SG rate of 15%. Now, that's not to say the rate would go to 15% within three years, but by the end of the term, they would examine how that might be possible, for example, in the next parliamentary term. Your thoughts on SG, because it's already to go to 12% by 2025. What would another 3% do?

Jemma Sanderson:
One of the things with SG is I think that the marketing of it and the PR on it has been misinterpreted or misconstrued, and a lot of people, the general population. Now, it does depend on what their employment contracts do say, but a lot of people think, "Oh, well, if we don't increase it, then I'm missing out on pay." But a lot of employment contracts are drafted on the basis of a total package. So when the SG rate goes up, it means that you're still getting paid the same, but your super contributions form a higher part of that total pay. 

Jemma Sanderson:
So for a lot of people, they then end up with less in their back pocket. So I think that that is very misconstrued out there. People think, "Oh, well, my employer is getting a free ride because it hasn't gone up," or whatever that might look like. So I'm all for people building up their super to provide for their retirement in the future. But I think it needs to be targeted well. If you're in the younger generations, then you want money in your back pocket more so. I'm not saying don't put money into super at all, but you won't be able to access it for decades. So you need to balance that with sure, if you have that extra 3% in super, that's going to grow and that's going to be fantastic in 40 or 50 or however many years time.

Jemma Sanderson:
But we also need to look at things like it's very expensive for the kids these days to try and get into to the housing market. Yes, there's the first home savers scheme that they could use through their super and other avenues there. They're paying off perhaps student loans. They're having families and dealing with the cost of having children, all those sorts of things. You can elect to put in more super. So if you want 15%, you can make that happen yourself. 

Jemma Sanderson:
So I think it's an education process there. Compulsory super has served the country very, very well since it was introduced. What a great policy. Those increases, particularly when it was at the nice 10%, nice and easy. So I'm not disputing that people putting in more super, it is a good thing, but I think the target of it needs to be that education process of you can put in more if you want to, but not being forced to do that. That's really where my view lands on it.

Robyn Jacobson:
Now, the new treasurer, Dr. Jim Chalmers has undertaken to deliver a budget to update the '22, '23 federal budget that was of course announced by the former government on the 29 of March. We are expecting this on or around the 25th of October. Would you expect from this? Is it too early to think there might be significant superannuation changes? Do you think they'll leave it alone?

Jemma Sanderson:
Well, given my opening comments, I hope that they leave it alone. What I would like to see is the objectives of superannuation actually coming through. So that was something that no one seems to be able to agree on what that looks like. The whole basis of that was so that we wouldn't get these substantial changes coming through so that confidence could be in the system, but no one can agree on what that might look like. So I'd like to see nothing almost coming through in that budget. Everything recently has been positive. So it's probably not nothing.

Jemma Sanderson:
It's confirming some of the things that the previous government, the good things that we wanted, like the NALI change, the legacy pension confirmation, the active member and the residency. I think all of those things would be great to see, that confirmation of those and some legislation there, and just a representation that there'll be no big tweaks to super just to really come back to building that confidence in the system going forward.

Robyn Jacobson:
Look, Jemma, I know over the last 20 years, you have had more than enough to keep you occupied in the superannuation space. I don't see that changing anytime soon. 

Jemma Sanderson:
Agree, agree. I just don't want more things to do, Robyn. It's hard enough to keep up with all the other things that are already there.

Robyn Jacobson:
Your time and your insights and it's always great chatting with you.

Jemma Sanderson:
Thanks very much for having me, Robyn. 

Robyn Jacobson:
Thanks, Jemma. Thank you for listening to this episode of TaxVibe. I've been chatting with Jemma Sanderson, CTA at Cooper Partners. To keep up to date with TaxVibe, be sure to subscribe, rate and review wherever you listen to your podcasts. If you'd like to connect with us on social media, follow The Tax Institute on LinkedIn, Facebook, Instagram and Twitter. You can join the conversation on our member only community forum at community.taxinstitute.com.au. 

Robyn Jacobson:
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