Government's best intentions can lead to legislation silliness
A classic example was the Coalition's legislation that enabled SMSFs to borrow. At the time of its introduction, many superannuation legal experts said it took the award for the most badly drafted piece of legislation ever.
Under the Rudd/Gillard governments there have been at least three examples of policies that fit into this good-idea-at-the-time category. Thankfully, only one of them has become legislation and the other two will hopefully never become law.
The first policy came out of the Cooper Review. It intended to ban off-market transfers of investments from members into an SMSF. The legislation would have resulted in shares being bought and sold simultaneously on the stock exchange.
Unfortunately the legislators forgot about an ASIC regulation that banned people buying and selling listed shares in the one transaction.
After delaying the introduction of the redrafted legislation the policy has now been dropped.
The second policy is unfortunately still on the Labor Party drawing board. It is all about increasing taxes on superannuation. It involves taxing currently tax-exempt income on pension accounts that exceed $100,000.
This policy is not covered by the Labor promise to not make any adverse changes to superannuation for five years. Where a person has only one superannuation pension account it would be relatively easy to administer, but where a person has multiple pension accounts it would be a logistical nightmare.
On fairness and equity grounds this policy would be the worst piece of superannuation legislation that has been proposed by an Australian government. This is because it would be the first retrospective imposition of income tax on superannuation ever made.
The final policy, that has become legislation, almost manages to have all of the bad characteristics of the previous two examples. It is the imposition of the extra 15 per cent contributions tax on super contributions on incomes above $300,000 a year.
There is a social equality case that can be made for the imposition of this new tax: it is not fair for someone on the highest tax rate to receive a tax benefit of 30 per cent, while people on middle incomes only receive 17.5 per cent. It means high-income earners will receive a tax benefit of only 15 per cent.
The drafters of this new tax have also forgotten about another piece of conflicting legislation that allows a person to split up to 85 per cent of their concessional superannuation contributions with their spouse.
Frequently Asked Questions about this Article…
The article highlights several examples: the Coalition’s law enabling SMSFs to borrow (widely criticised as badly drafted), a Cooper Review proposal to ban off‑market transfers into SMSFs that conflicted with ASIC rules, and more recent Labor proposals and legislation affecting pension taxation and contribution taxes.
When introduced, many superannuation legal experts said the Coalition’s SMSF borrowing law was one of the most badly drafted pieces of legislation, despite enabling self‑managed super funds (SMSFs) to borrow.
The Cooper Review proposed banning off‑market transfers of investments into an SMSF, which would have forced simultaneous buy/sell transactions on the exchange. Legislators overlooked an ASIC regulation that bans buying and selling listed shares in a single transaction, so after delays and redrafting the proposal was dropped.
The Labor idea would tax currently tax‑exempt income on superannuation pension accounts that exceed $100,000. It’s controversial because it isn’t covered by Labor’s five‑year promise on super changes, would be administratively difficult for people with multiple pension accounts, and the article says it would amount to the first retrospective imposition of income tax on superannuation if applied.
New legislation imposes an extra 15% contributions tax on concessional super contributions for people with incomes above $300,000. The article notes a fairness argument: previously those on the highest marginal rate could get a 30% tax advantage while middle incomes got 17.5%; with the extra tax high‑income earners’ net tax benefit from concessions would fall to about 15%.
Yes — the article points out the drafters appear to have overlooked existing legislation that allows a person to split up to 85% of their concessional super contributions with a spouse, creating potential conflicts or unintended consequences.
The article explains it would be fairly simple to administer the tax where a person has only one superannuation pension account, but where a person has multiple pension accounts the tracking and allocation of taxable income would become a logistical nightmare.
The article’s theme is that well‑intentioned policies can be poorly drafted or conflict with existing rules, so everyday investors should be aware that superannuation laws can change and sometimes produce unintended outcomes. Keeping an eye on legislative proposals affecting SMSFs, pension account taxation and contribution rules is important.
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