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Superannuation1. Changes to lost and unclaimed superannuation

The Government will implement a package of measures that will reduce red tape for superannuation funds and individuals by removing redundant reporting obligations and by streamlining lost and unclaimed superannuation administrative arrangements. The measures will have effect from 1 July 2016.

2. Release of superannuation for terminal medical condition – relaxing criteriaFrom 1 July 2015, the Government will extend access to superannuation for people with a terminal medical condition by extending the life expectancy period from 12 months to 24 months.

3. Full cost recovery of superannuation activitiesThe Government will increase the supervisory levies paid by superannuation funds to APRA over a period of four years, commencing in 2015-16. This represents a 5% increase per annum based on current levies.

Age Pension4. Changes to age pension indexation reversed

The Government has reversed their decision from last year’s Budget to constrain increases in the age pension to the Consumer Price Index (CPI). Instead, pensions will continue to be indexed by the higher of the increases in the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI), and benchmarked against Male Total Average Weekly Earnings (MTAWE).

5. Changes to age pension asset test thresholdsThe Government will make changes to the asset test thresholds by increasing the minimum asset threshold and decreasing the maximum asset threshold, from 1 January 2017.

For pensioners who do not own their own home, their thresholds at both the lower end and the higher end will be set at $200,000 above those for pensioners who own their own home.

At the same time, the asset test taper rate will increase from $1.50 to $3. This means for every $1,000 of assets over the asset free threshold, the pension rate will reduce by $3 a fortnight.

Federal Budget 2015 - 16 OverviewThe 2015-16 Australian Federal Budget was delivered on Tuesday, 12 May, 2015. Measures impacting superannuation, retirement income streams and unit trusts, either directly or indirectly, were scarce, although there were a number of announcements affecting the age pension.

Analysis provided in this paper is based on initial observations and interpretation of the announced proposals and the details provided in the Budget papers. Importantly, these proposals will require passage of legislation before they are implemented.

While the industry will be relieved that there were no adverse changes made to superannuation in this year’s Federal Budget, there are likely to be further changes in the years ahead.

Recommendations stemming from the Financial System Inquiry, the Intergenerational Report and the Tax Reform White Paper may result in the Government tabling a number of additional reforms to superannuation and retirement income streams in coming years, as part of their policy agenda.

Bravura Solutions will continue to monitor developments in this area and keep our clients informed about potential future legislative reforms and their impact on Bravura Solutions’ systems. Should such reforms pass into legislation, changes to Bravura Solutions’ systems may be required.

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Federal Budget 2015 - 16 | Overview

6. Social security income test - defined benefit income streamsThis measure will ensure that a larger proportion of a superannuant’s actual defined benefit income is taken into account when applying the relevant social security income test by introducing an ‘income deduction cap’. In this case the proportion of income that can be excluded from any income test (the deductible amount) will be capped at 10% from 1 January 2016.

7. Age pension reforms not proceedingThe Government has confirmed that it will not proceed with elements of its 2014-15 Budget measures that related to:

> resetting the income test deeming rate thresholds, and

> maintaining the pension income test free areas and deeming thresholds over three years from 2016-17

Instead, the pension income test free areas and deeming thresholds will continue to be indexed annually by CPI.

Other Measures8. Managed Investment Trusts – transition period to apply

new tax system The Government is proceeding with the implementation of a new tax system for Managed Investment Trusts (MITs), with a 12-month transition period. The modernised tax rules will now apply from 1 July 2016, however, MITs can still choose to apply the new rules from the earlier start date of 1 July 2015.

9. Serious Financial Crime Taskforce – addressing financial and tax fraudThe Government will provide funding over four years to a Serious Financial Crime Taskforce for investigations and prosecutions that will address superannuation and investment fraud, identity crime and tax evasion.

10. Reversal of banking and life insurance unclaimed provisionsThe Government will restore the time before unclaimed money in savings accounts and life insurance policies are required to be transferred to the Government, from three years to seven years.

The Government will also make changes to protect the privacy of individuals that do have genuinely inactive accounts transferred to ASIC.

These changes will take effect from 31 December 2015.

11. Statutory remedial power for the Commissioner of TaxationThe Government will provide the Commissioner of Taxation with the power to make a legislative instrument that modifies the operation of tax laws to ensure that a law’s purpose or object is achieved. The measure will have effect from the date of Royal Assent of the enabling legislation.

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Federal Budget 2015 - 16 In detailSuperannuation1. Changes to lost and unclaimed superannuation

The Government will implement a package of measures that will reduce red tape for superannuation funds and individuals by removing redundant reporting obligations and streamlining lost and unclaimed superannuation administrative arrangements. The measures will have effect from 1 July 2016.

The Budget papers provide no further details, however, we have been advised that the measures include:

> removing the requirement for funds to lodge twice yearly Lost Members Statements, as the ATO can now derive sufficient data from the annual Member Contributions Statement

> updating the definition of ‘uncontactable’ to account for contemporary forms of member communication (e.g. online communication)

> simplifying the definition of ‘lost member’ by removing the ‘employer-sponsored’ arm of the definition

> improving the ability of Eligible Rollover Funds to reunite members with their lost superannuation

> allowing the ATO to pay unclaimed superannuation directly to a person who is suffering a terminal medical condition, and

> working with the New Zealand Government to investigate whether it is possible for the ATO to pay unclaimed superannuation directly into a KiwiSaver account.

Impact on Bravura Solutions’ systemsIt is anticipated that a system update will be required to support these changes. At present, the exact nature of these changes are unknown and further consultation will be required to understand this measure in more detail. Bravura will provide updates as analysis progresses.

2. Release of superannuation for a terminal medical condition – relaxing criteriaUnder the current provisions for early access to superannuation, a person with a terminal illness is required to obtain a certification from two medical specialists that they have less than 12 months to live.

As part of this measure, the Government will extend the life expectancy period to 24 months, with effect from 1 July 2015. The current 12 month limit has proven difficult for some people who understandably want access to their money as they may experience significant financial burden associated with treatment costs or want to make the most of their time with their family.

Impact on Bravura Solutions’ systemsThis change is not expected to have any impact on Bravura Solutions’ systems. We expect superannuation funds will incorporate this change as part of their business process when assessing whether they can pay a member a benefit under the terminal illness release condition.

3. Full cost recovery of superannuation activitiesThe Government will raise additional revenue of $46.9 million over four years from 2015-16 by increasing the supervisory levies paid by financial institutions to APRA. This will fully recover the cost of superannuation activities undertaken by the ATO and the Department of Human Services, consistent with the Government’s cost recovery guidelines.

This represents an approximately 5% per annum increase on current levies.

Impact on Bravura Solutions’ systemsThis change is not expected to have any impact on Bravura Solutions’ systems.

Age Pension4. Changes to age pension indexation reversed

This measure will ensure that the age pension will continue to be indexed, twice a year, using the average weekly earnings of men.

This reverses the proposal made in the 2014-15 Federal Budget to index the age pension based on CPI from September 2017. These changes would have impacted the future indexation of more than 4.1 million pensioners and those receiving pension linked payments, including veterans, by reducing the rate at which the age pension amount increases over time. Those changes will now not proceed. Instead, pensions will continue to be indexed by the higher of the increases in the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI) and benchmarked against Male Total Average Weekly Earnings (MTAWE).

Impact on Bravura Solutions’ systemsThis change is not expected to have any impact on Bravura Solutions’ systems.

5. Changes to age pension asset test thresholdsThe Government will increase the value of the assets pensioners can own in addition to the family home in order to qualify for a full pension – the minimum asset threshold. This will increase from $202,000 to $250,000 for single home owners and from $286,500 to $375,000 for couple home owners.

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Federal Budget 2014 - 15 | Overview

Pensioners who do not own their own home will also benefit by an increase in their threshold to $200,000 more than home owner pensioners.

At the same time, the Government will reduce the maximum asset threshold – the maximum value of assets individuals or couples can hold to qualify for a part-pension. This will decrease from $1.15 million to $823,000 for couple home owners. For single home owners this will decrease from $775,000 to $547,000.

The maximum asset threshold for pensioners that do not own their own home will be set at $200,000 above those for pensioners who own their own home.

In addition, the Government will also reinstate the $3 ‘taper rate’ that applied from 1993 until 2007, when it was reduced to $1.50. This means for every additional $1,000 in assets above the ‘asset free’ threshold for a full pension, fortnightly payments will once again be reduced by $3.

All people affected by the scaling back of the maximum asset threshold will be guaranteed eligibility for the Commonwealth Health Seniors Card (CSHC) or Health Care Card, which provides the same concessional access to pharmaceuticals as given to those on the pension.

These changes are intended to apply from 1 January 2017. This is likely to mean that more than 90,000 Australians will no longer qualify for the pension and an extra 235,000 will have their payments cut. Also, these changes increase the threshold gap between home-owning pensioners and non-home owning pensioners by just over a third, recognising the higher living costs associated with not owning a home.

Impact on Bravura Solutions’ systemsThese changes are not expected to have any impact on Bravura Solutions’ systems.

6. Social security income test - defined benefit incomestreamsThe Government will improve fairness and equity in social security payments by ensuring that a larger proportion of a superannuant’s actual defined benefit income is taken into account when applying the relevant social security income test. This will be achieved by introducing an ‘income deduction cap’. Under this measure the proportion of income that can be excluded from any income test (the deductible amount) will be capped at 10% from 1 January 2016.

Under current arrangements, some defined benefit superannuants are able to have a large proportion of their superannuation income excluded from the pension income test. This measure ensures greater fairness and equity in the treatment of self-funded retirees and pensioners by introducing a cap on the superannuation income stream amount that can be excluded from relevant social security income tests.

Recipients of Veterans’ Affairs pensions and/or defined benefitincome streams paid by military superannuation funds are exempt from this measure.

Impact on Bravura Solutions’ systemsThis change is not expected to have any impact on Bravura Solutions’ systems.

7. Age pension reforms not proceedingThe Government has confirmed that it will not proceed with elements of its 2014-15 Budget measures that related to:

> resetting the income test deeming rate thresholds, and

> maintaining the pension income test free areas and deeming thresholds over three years from 2016-17.

The Government proposal was to change how it deems the return from a person’s financial assets for the purposes of the pension asset test. The deeming thresholds were to be reset from $46,000 to $30,000 for single pensioners and from $77,400 to $50,000 for pensioner couples from 1 September 2017.

Instead, the pension income test free areas and deeming thresholds will continue to be indexed annually by CPI. Major pension related payments affected include the Age Pension, Carer Payment, Disability Support Pension, and the Veterans’ Service Pension.

Impact on Bravura Solutions’ systemsThis change is not expected to have any impact on Bravura Solutions’ systems.

Other measures8. Managed Investment Trusts – transition period to apply

new tax systemThe Government is proceeding with the implementation of a new tax system for Managed Investment Trusts (MITs), with a 12-month transition period. The modernised tax rules will nowapply from 1 July 2016, however, MITs can still choose to apply them from the earlier start date of 1 July 2015.

MITs and other trusts treated as such will continue to be allowed to disregard the trust streaming provisions for the 2015-16 income year. This will ensure these interim arrangements for MITs continue to apply until the commencement of the new rules.

The proposed new tax system will modernise the tax rules for eligible MITs, increasing certainty for both trusts and their investors. The new rules will enhance the international competitiveness of Australian managed funds and promote the greater export of Australia’s funds management expertise.

The key features of the new tax system for eligible MITs include:

> an attribution model for determining member tax liabilities,which allows amounts to retain their tax character as they flow through a MIT to its members

> the ability to carry forward understatements and overstatements of taxable income, instead of re-issuing investor statements

> deemed fixed trust treatment under the income tax law

> upwards cost base adjustments to address double taxation,and

> legislative certainty about the treatment of tax deferred distributions.

The Exposure Draft Bill for the new MIT tax system was released for consultation in April and can be viewed here.

Impact on Bravura Solutions’ systemsIt is anticipated a system update will be required to support these changes. We also anticipate that the new MIT tax system may lead to subsequent updates to the Annual Investment Income Report (AIIR) in 2016.

9. Serious Financial Crime Taskforce – addressing fraudThe Government will provide funding over four years to a newly established Serious Financial Crime Taskforce.

The Taskforce is being established to address superannuation and investment fraud, identity crime and tax evasion. Its aim is to maintain integrity and community confidence in Australian financial markets and regulatory systems.

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Federal Budget 2014 - 15 | Overview

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info@bravurasolutions.com @BravuraFinTech Bravura Solutions

About Bravura Solutions Pty LimitedBravura Solutions Pty Limited is a trusted provider of software solutions for the wealth management, life insurance and transfer agency industries, underpinned by functionally rich technology that enables modernisation, consolidation and simplification.

We are committed to increasing operational and cost efficiency for our clients, enhancing their ability to rapidly innovate and grow, minimising their risk and enabling them to provide better service to their customers.

Backed by over 30 years of experience, our installed or managed hosted solutions are mission critical to some of the world’s leading financial institutions. In excess of A$2.5 trillion / £1.4 trillion in assets are entrusted to our systems.

We support our clients with a team of more than 920 people in 16 offices across Australia, New Zealand, Asia, United Kingdom, Europe and South Africa.

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The Taskforce agencies include the Australian Taxation Office, Australian Crime Commission, Australian Federal Police, Attorney-General’s Department, Australian Transaction Reports and Analysis Centre, Australian Securities and Investments Commission, Commonwealth Director of Public Prosecutions and Australian Customs and Border Protection Services.

Impact on Bravura Solutions’ systemsThis change is not expected to have any impact on Bravura Solutions’ systems.

10. Reversal of banking and life insurance unclaimed provisionsUnder this measure, the Government will amend the time period money in a savings account or life insurance policy is deemed to be unclaimed from three years to seven years, effectively reversing the changes made by the previous government in 2012.

Children’s bank accounts will also be exempt to ensure funds put aside in these accounts will never be transferred to the government.

The Government will also make changes to protect the privacy of individuals that do have genuinely inactive accounts transferred to ASIC to address concerns around identity theft and to stop unscrupulous people preying on vulnerable Australians. Requirements for ASIC to publish the Unclaimed Money Gazette will be removed and restrictions introduced to generally limit Freedom of Information requests to an individual’s own details.

These changes will take effect from 31 December 2015.

Impact on Bravura Solutions’ systemsThis change is not expected to have any impact on Bravura Solutions’ systems.

11. Statutory remedial power for the Commissioner of TaxationUnder this measure, the government will provide the Commissioner of Taxation with the power to make a legislative instrument that modifies the operation of a tax law to ensure that the law’s purpose or object is achieved.

The nature and volume of tax law and its evolution has sometimes produced unforeseen or unintended outcomes when applied. The statutory remedial power will allow the Commissioner to administer the law consistently with its purpose or object. This power can be applied where it has no more than a negligible budget impact and provided it has a beneficial outcome for affected taxpayers. The measure is intended to reduce the regulatory burden on taxpayers by enhancing certainty.

A legislative instrument made by the Commissioner will be subject to extensive consultations and disallowance by Parliament.

The measure will have effect from the date of Royal Assent of the enabling legislation.

Impact on Bravura Solutions’ systemsWhile this is not expected to have a direct impact on Bravura Solutions’ systems, there may be unexpected impacts in the future should the Commissioner of Taxation exercise their new power to amend tax law.

The content of this publication is for your information only. It does not constitute, and should be not relied on as, legal or financial advice. Bravura Solutions recommends seeking advice from a qualified professional on issues affecting you.

While Bravura Solutions tries to ensure that the content in its materials is accurate, adequate or complete, it does not represent or warrant its accuracy, adequacy or completeness. Bravura Solutions is not responsible for any loss suffered as a result of or in relation to the use of this publication or any of its content. To the extent permitted by law, Bravura Solutions excludes any liability, including any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of the publication or any of its content.