The government’s proposal to increase self-managed superannuation fund member caps from four to six has been dropped after it was wedged into a bizarre Bill that included a plan to apply concessional tax rates to smaller kegs of craft beer.
Despite a recommendation from the Economics Legislation Committee that it be passed, the Bill failed earlier this week amidst finger pointing from both major parties.
“It is regrettable that the opposition would not support a sensible change to that law and thus provide additional choice [and] flexibility for Australians,” Liberal MP Scott Buchholz said in a speech to parliament in February.
Labor’s Matt Thistlewaite, in turn, called out the government for including the proposal on the same Bill as an unrelated plea for kegs of craft beer measuring between 8 and 48 litres to get the same reduced excise rate as containers over 48 litres, saying it “sought to poison” the keg tax proposal with an “unnecessary and unrelated measure” relating to SMSFs.
“The government was… looking to hold an uncontroversial measure supporting craft brewers’ hostage to a purely partisan and political policy,” Thistlewaite said.
In the March, Labor senators submitted comments to the Economics Legislation Committee stating that “no cogent policy rationale” had been given for the SMSF member cap proposal. No “formal public consultation” was conducted by Treasury on the measure, opposition committee members argued.
Thistlewaite subsequently got his wish when the Liberal party agreed to remove the SMSF member cap increase from the Bill.
Jonathan Steffanoni, principal at consultancy firm QMV, says the incongruous matching of the two proposals was “the most miscellaneous Bill I’ve ever seen”.
Steffanoni believes it is unlikely that a change of heart caused the government to pull the SMSF proposal out of the Bill.
“A more likely reason… is that it did not believe that it had the support of the crossbench in the Senate to pass the Bill.”
He says the chances of the proposal being resurrected will depend on the result of the federal election next week.
“It seems likely that a coalition government could seek to introduce a Bill of similar effect if it forms government. A Labor government would be unlikely to introduce such a Bill.”
The government announced its intention to expand the number of SMSF members in April 2018 and subsequently introduced Treasury Laws Amendment (2019 Measures No.1) Bill 2019 in February this year.
When announced, ex-Financial Services Minister Kelly O’Dwyer said the measure would “ensure SMSFs remain compelling retirement savings vehicles into the future”.
In his speech to parliament on the bill, Assistant Treasurer Stuart Robert argued that for families with more than four members, “currently the only real options are to create two self-managed superannuation funds (which would incur extra costs) or place their superannuation in a large fund.”
The proposal received support from the SMSF Association, whose chief executive John Maroney said in March that the increase would mean “individuals can enjoy the benefits of consolidating assets, increased investment opportunities and flexibility to diversify.”
Opponents pointed to the 2017 Super System Review’s exploration of the idea, which came to the conclusion that increased membership size would “blur the lines between SMSFs and APRA-regulated funds”.
“If all members were still to be trustees, increased numbers would raise management, agency and control issues, which would place a strain on the SMSF model given that it does not employ prudential supervision,” the final report stated.
The report also noted that over 90 per cent of SMSFs have one or two members, and 95 per cent have three or fewer members.
QMV’s Steffanoni points out that the concept of increasing membership size – especially by adding young children – is “problematic from a sole purpose test perspective”.
“Purposes of intergenerational wealth transfer would generally not be seen as consistent with this legal obligation on all superannuation trustees.”