Category: Newspaper/Blog Articles/Hansard

Excess concessional contributions charge

Joseph Cheung (, Lawyer and Daniel Butler (, Director, DBA Lawyers

Contributions made in excess of an individual’s concessional contributions (‘CC’) cap can give rise to extra tax payable and a liability to excess CC (‘ECC’) charge for the individual. This article highlights how the ECC charge operates. Note that the law in this area is complex and a detailed and careful analysis is required to properly understand how the ECC system operates.

Background: Tax on ECC and entitlement to offset

Before considering the ECC charge, it is useful to consider the general tax treatment of an ECC.

Section 291-15 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’) states that where an individual has ECC for a financial year (‘FY’):

  • an amount equal to the ECC is included in the individual’s assessable income for the corresponding FY; and
  • the individual is entitled to a tax offset for that FY equal to 15% of the ECC.

Consider the following example:


For FY2018:

– Bob’s CC cap is $25,000

– Bob’s CC total $35,000

– Bob has $10,000 of ECC

Thus, an amount of $10,000 is included in Bob’s assessable income for FY2018. Bob is entitled to a tax offset equal to $1,500 (being 15% of $10,000) for FY2018.

A tax offset that arises because of the operation of s 291-15 of the ITAA 1997 cannot be refunded, transferred or carried forward.

ECC charge

Purpose of the ECC charge

Individuals who make ECC could benefit from tax advantages. This is because the ECC are not subject to the pay as you go rules. Moreover, earnings from ECC are retained in a concessionally taxed superannuation environment. To negate these benefits, the ECC charge was introduced in mid-2013.

Liability to ECC charge

Where the inclusion of an amount equal to the individual’s ECC results in an increase in their tax liability, the individual will be liable to the ECC charge. Section 95-10 of the Taxation Administration Act 1953 (Cth) (‘TAA’) sets out the methodology to determine whether an individual is liable to ECC charge. The following broadly summarises the main questions to ask when applying the methodology:

1          Does the individual have ECC for a FY?

2          Is the individual liable to pay an amount of tax for the corresponding FY?

3          Does the individual’s actual tax exceed the amount of tax they would be liable to pay for the FY if the ECC were disregarded? (If the individual would not be liable to pay tax for the FY if the ECC were disregarded, this question is modified as follows: Does the individual’s actual tax exceed a liability to pay a nil amount of tax?)

If the answer to all three questions is ‘yes’, the ‘excess’ (as calculated under question 3) is an amount of tax on which the individual is liable to pay ECC charge. This is illustrated in the following example:


Steve is an Australian tax resident and has taxable income of $87,000 and ECC of $10,000 for FY2018.

Question 1: Does the individual have ECC for a FY?

The answer to question 1 is ‘yes’, Steve has ECC of $10,000 for FY2018.

Question 2: Is the individual liable to pay an amount of tax for the corresponding FY?

Steve’s taxable income for FY2018 is $97,000 ($87,000 + $10,000 ECC). The tax payable on $97,000 of taxable income (not including the Medicare levy) is: $23,522. (Note: For taxable income in the range from $87,001 to $180,000, the tax on this income, not including the Medicare levy, is $19,822 plus 37c for each $1 over $87,000.)

Steve’s only tax offset is the ECC tax offset, which is calculated to be 15% of the ECC, ie, 15% of $10,000 = $1,500. Accordingly, the income tax payable on Steve’s taxable income including ECC less tax offsets is $23,522 – $1,500 = $22,022.

The answer to question 2 is ‘yes’, Steve is liable to pay an amount of tax of $22,022 for the corresponding FY.

Question 3: Does the individual’s actual tax exceed the amount of tax they would be liable to pay for the FY if the ECC were disregarded?

If Steve’s ECC were disregarded, Steve’s taxable income for FY2018 would be $87,000. The actual amount of tax on $87,000 would be $19,822.

If the ECC were disregarded, the ECC tax offset is also disregarded. Accordingly, the income tax payable on Steve’s taxable income if Steve’s ECC were disregarded is $19,822.

The answer to question 3 is ‘yes’, Steve’s actual tax ($22,022) exceeds the amount of tax that he would be liable to pay for the FY if the ECC were disregarded ($19,822).


As the answer to all three questions is ‘yes’, the ‘excess’ of $2,200 (being the difference between $22,022 and $19,822) is an amount of tax on which the individual is liable to pay ECC charge.

For completeness, we note that where an individual is not liable to pay an amount of tax for the corresponding FY (even after the inclusion of their ECC in their taxable income), they are not liable to pay any ECC charge.

Period for which the ECC charge is payable

The liability for the ECC charge begins on the first day of the FY and ends on the day before the day on which tax under the individual’s first notice of assessment (‘NOA’) for that FY is due to be paid, or would be paid if there were any to pay (TAA s 95-15(3)).

Amount of ECC charge

Section 95-15 of the TAA states the methodology to calculate the amount of ECC charge. Broadly, the ECC charge for a day is calculated by multiplying the rate worked out under s 4 of the Superannuation (Excess Concessional Contributions Charge) Act 2013 (Cth) for that day by the sum of the following amounts:

(a)       the amount of tax on which the individual is liable to pay the charge (refer to Example 2 above for details on how to calculate this amount); and

(b)       the ECC charge on that amount from previous days.

Broadly, the ECC charge is based on the same rate as the shortfall interest charge (‘SIC’) rate (calculated under s 280-105 of the TAA) and is calculated on a daily compounding basis.

When the ECC charge is due and payable and the consequences of an ECC charge remaining unpaid

Generally, the ECC charge that an individual is liable to pay for an FY is due and payable on the day on which tax is due to be paid under their first NOA for that FY that includes an amount of tax on which they are liable to pay the charge (TAA s 95-20(1)). Technically, however, an ECC determination by the Commissioner is required to issue before an amount of ECC charge is due and payable (TAA s 95-20(2)).

Where the Commissioner amends an individual’s ECC determination, any extra charge resulting from the amendment is due and payable 21 days after the Commissioner gives them the notice of amended determination (TAA s 95-20(3)).

Furthermore, if an amount of ECC charge or SIC (on ECC charge) remains unpaid after the time by which it is due to be paid, the individual will also be liable to pay the general interest charge (‘GIC’) (TAA s 95-25).

We illustrate the interaction between ECC charge, SIC and GIC with an example:


Ray lodges his personal income tax return for FY2018 on 17 September 2018 and receives an NOA with a payment date of 1 November 2018. On 9 November 2018, the ATO determines that Ray has ECC for FY2018. The ATO provides Ray with an ECC determination and notice of amended assessment (‘NOAA’) on 9 November 2018, with a payment date of 30 November 2018.

The ECC charge applicable for Ray applies from 1 July 2017 until the day before the day on which tax under his first NOA for that FY is due to be paid, ie, 31 October 2018.

Ray must also pay SIC on the shortfall between the amount of tax that he originally paid and the amount of tax stated under his NOAA. We note that the amount of ECC charge payable as a result of the ECC increases the amount of the shortfall. The SIC is applicable from 1 November 2018 (ie, the payment due date under his original NOA) to 29 November 2018 (ie, the day before the payment due date stated on his NOAA).

Furthermore, if the amount of ECC charge or SIC remains unpaid after 30 November 2018 (ie, the payment due date stated on his NOAA), Ray will also be liable to pay GIC on any unpaid amount of income tax (which includes the ECC and ECC charge) and SIC.

For completeness, we note that the ECC charge is a tax-related liability and is not a penalty. However, and unfortunately, the ECC charge is not deductible for income tax purposes, unlike the SIC or GIC.

Refund of ECC

This article has focused on the ECC charge. For completeness, we briefly mention that an individual has a choice to either request for their ECC to be released from their superannuation fund(s) or to leave their ECC in their superannuation fund(s).

Broadly, an individual who receives an ECC determination for a FY may elect to release from their superannuation fund an amount of up to 85% of the ECC stated in the determination (TAA s 96-5(1)). An election is irrevocable and must comply with the requirements listed in s 96-5(3)-(4) and (7) of the TAA.

Once the individual makes a valid election under s 96-5, the Commissioner must issue a release authority to the nominated superannuation fund(s). Naturally, the SMSF deed must also provide the power to release such amounts and many SMSF deeds have not been updated in this regard.

One advantage of electing to release an amount of the ECC is that this amount is then grossed up (eg multiplied by 100/85) and the grossed-up amount is no longer counted in the individual’s non-concessional contributions (‘NCC’). To the extent that an individual leaves their ECC in their superannuation fund and that amount results in them exceeding their NCC cap for a FY, they will also be liable for excess NCC tax. Further consideration of the consequences of excess NCC is beyond the scope of this article.


The law in relation to ECC and ECC charge is a complex area of law and where in doubt, expert advice should be obtained. Naturally, for advisers, the Australian financial services licence under the Corporations Act 2001 (Cth) and tax advice obligations under the Tax Agent Services Act 2009 (Cth) need to be appropriately managed to ensure advice is appropriately and legally provided.

DBA Lawyers offers a range of consulting services in relation to individuals and advisers who have queries about the ECC and ECC charge. DBA Lawyers also offers a wide range of document services.

DBA Network has prepared a comprehensive training course which covers Contributions and excess contributions tax. This course is the only one of its kind currently available in Australia, prepared and presented by Australia’s most experienced SMSF lawyers.

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Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit

12 February 2018

Super’s attraction wanes as tax benefits decline

The Australian

5 February 2018

Stewart Oldfield

While some are calling 2017 the peak of the Australian housing market did another boom also peak but get far less attention?

For a couple of decades super has been the preferred vehicle for wealth accumulation for well off Australians, but according to some that might be changing.

Thanks to an ongoing legislative crackdown on the tax benefits of super there is a real prospect that over the next decade that Australians will direct more of their savings to homes outside of a super structure than within.

According to research house DEXX&R, retail funds held outside of super are projected to grow at 8.7 per cent per annum over the next 10 years while funds held within the pre-retirement super tax structure are projected to grow at only 6.6 per cent.

This is a big change from the past when post-GFC super funds under management was growing at 9 per cent or higher and super was the preferred tax effective investment vehicle for those on high incomes.

The switch of fund growth will have major ramifications for Australia’s financial services industry and the type of products it builds and markets to consumers.

“The days of high net worth individuals pumping money into super are pretty much over,’’ says Mark Kachor, principal of DEXX&R. “Super has peaked as anything other than its true purpose — funding working Australians in their retirement.’’

Rob Coombe, a former CEO of Westpac’s BT Financial Group and now the chairman of listed investment bond provider Austock Group, says negative investor sentiment towards super has been increasing for some time.

“People frankly don’t trust the system and are worried about putting more money into it in case the preservation age gets pushed out or the tax gets increased,’’ he said.

There were three changes introduced last year that look to have put the brakes on wealthier Australians pumping millions into super. From July 1 last year, the federal government introduced a $1.6 million cap on the total amount of super that could be transferred  into a tax-free retirement account.

It also lowered the maximum size of after-tax, (otherwise known as non-concessional) contributions to super to $100,000 a year from $180,000 a year.

Then there were changes to the size of permitted pre-tax (otherwise known as concessional) contributions to super.

The maximum size of concessional contributions to super was dropped to $25,000 per year for everyone under 75 and an extra 15 per cent contribution tax on concessional contributions was introduced for those lucky enough to be earning more than $250,000 a year (down from more than $300,000 a year).

The changes came on top of pushing out the so-called preservation age — the age at which you can access your super — announced back in 2015.

Coombe said that collectively the changes were extremely negative for wealthier Australians who had traditionally put a lot of money into super. He said the changes were going to stem flows into the super system as a preferred tax structure.

He said that even those with room to put more money into super under the $1.6m cap introduced in July were increasingly nervous about the “shifting sands” of the regulatory settings for the super regime.

Some analysts have estimated that in the current financial year there will be an additional $18 billion available to be captured by fund managers outside super.

And Coombe expects more legislative changes to super to come in the future. For instance, further delays to the age at which we can access our super.

“The government is always hungry for revenue so they are going to keep going back to the super pot,’’ he said. “That trend will continue whether Liberal or Labor, but will potentially accelerate under a Labor Party leading the country.’’

Not that change is a bad thing, according to Coombe.

“I felt that very strongly that the superannuation system in Australian had drifted away from the original intention of it when it was set up — to provide adequate retirement income for all Australians.

“In many ways … it had become a tax haven for the wealthy. People were incentivised to basically jam as much money into super as possible given the favourable tax environment.

“That era is coming to an end.

“The non-super market will explode’’.

Coombe’s Austock Group (which is changing its name to Generation Life) is preparing to launch a raft of new financial services product for Australians looking to invest outside of super.

“The best thing that happens to our business is all the bad things that happen to superannuation. So long may it last,’’ Coombe said. “In many ways I am hoping for a Labor Party to be elected.’’

For its part the federal government said at the time of announcing the $1.6m cap that only a select few people will be affected by the measure.

The average superannuation balance for a 60-year old Australian nearing retirement was $240,000 and therefore less than 1 per cent of fund members would therefore be affected by the cap.

Similarly, less than 1 per cent of fund members would be affected by the changes to the non-concessional contribution rules.

“Superannuation tax concessions are intended to encourage people to save for their retirement. They are not intended to provide people with the opportunity for tax minimisation or for estate planning,’’ the government said when announcing the measures.

Stewart Oldfield is a director of industry intelligence firm Field Research.

Super changes working, so no more meddling: ASFA

The Australian

5 February 2018

Glenda Korporaal

The key lobby group for the $2.3 trillion superannuation industry has warned the federal government to hold off making any more changes to super and the age pension in the May budget or risk eroding confidence in the system.

“We don’t want any more meddling with the super and age pension settings,” said Martin Fahy, the chief executive of the Association of Superannuation Funds of Australia in a budget submission to the federal government released on the weekend.

He said data put together by ASFA had shown that the changes made as a result of the 2015, 2016 and 2017 federal budgets were working to achieve the government’s goals of constraining spending on super and the pension.

“The changes the government has put in place in super and aged care in the past few budgets have given the government the outcome it was looking for,” Dr Fahy said.

“We don’t want things to be dialled down any further.

“The reforms to superannuation and the retirement system are working, but they need to be bedded down. “Stability needs to be achieved to maintain confidence in the system.”

Dr Fahy added that the changes to the asset test for the age pension, which came into effect on January last year, were “helping contain future growth in aged pension expenditures”.

The changes were estimated to cut back spending on the age pension over the period of the forward estimates by about $2.4 billion. The number of people getting the age pension has fallen from 2.57 million in December 2016 to 2.49 million in September last year

— a fall of more than 3 per cent.

“The changes to the age pension were substantial and appear to make the age pension fiscally sustainable for Australian governments in the years ahead,” Dr Fahy said.

“However, any further tightening of either the asset or the income test could leave many Australians in retirement worse off,” he warned.

Changes to the age pension system announced in the May 2015 budget cut back the maximum amount of assets a person could own and still receive a pension.

They also increased the “taper rate” — the amount of pension lost per extra dollar of assets owned.

ASFA said about 100,000 people were estimated to have lost their entitlement to the pension as a result of the changes, with another 330,000 receiving a lower age pension.

Improvements to the lower end of the asset scale saw an estimated 50,000 Australians receive a larger pension.

Dr Fahy said work done by ASFA showed that the compulsory superannuation system was working to cut back reliance by Australians on the age pension.

“Super is working and will do more of the heavy lifting to deliver retirement outcomes into the future,” he said.

He said projections done by ASFA showed that a combination of increasing super balances and the fact that people were working longer would help reduce reliance on the age pension.

Currently, about 70 per cent of people over 65 receive either the full or part pension, with 60 per cent of those getting the full age pension.

Dr Fahy said ASFA projections showed that only 30 per cent of Australians over 65 would be on the full pension by 2025.

He said it would fall further to below 25 per cent by 2055. Dr Fahy said the changes announced in the May 2016 budget on superannuation were estimated to be saving the government about $2.35 billion a year.

This was made up of $1.25bn a year saved from lower contribution caps and $1.1bn as a result of the introduction of the $1.6 million transfer balance cap, a tighter cap on post-tax contributions and changes to transition-to-retirement pension arrangements.

The 2016 budget reduced the annual concessional level of contributions from a maximum of $35,000 a year (or $30,000 a year for people under 50) to $25,000 a year.

It also increased the tax on superannuation contributions for people earning over $250,000 a year from 15 per cent to 30 per cent. (Before that, the 30 per cent tax rate kicked in for super contributions once people earned more than $300,000 a year).

The changes also cut the allowable level of post-tax contributions to super from $180,000 a year to $100,000 a year, with post-tax contributions banned once a person’s super assets reached $1.6m.

It also introduced a cap of $1.6m that could be transferred into a super fund in pension mode earning no tax, with amounts above that being subject to a 15 per cent tax on earnings.

Dr Fahy said the changes to superannuation had cut back the proportion of total tax concessions going to the highest income earners and increased the proportion of tax benefits going to lower and middle income earners.

The proportion of super tax concessions going to people on the top income tax rate fell from 13.3 per cent to 10.8 per cent.

The proportion of tax concessions going to people earning between $37,000 and $80,000 a year rose from 34.7 per cent to 36.9 per cent while the proportion of super tax concessions going to people earning between $18,201 and $37,000 a year rose from 11.9 per cent to 12.4 per cent.

“The changes (to superannuation and the age pension) have had a substantial and positive impact on budget outcomes, in terms of reducing government spending and increase tax revenue,” Mr Fahy said.

“The super tax changes have substantially reduced the tax assistance flowing to upper income earners.

Now is the time for consolidation”.

Deeming: pensioners lose out when rates don’t keep up

The Australian

3 February 2018

John Rawling

Over summer the big four banks quietly cut interest rates for online savings accounts, continuing a trend to squeeze customers. But spare a thought for age pensioners, who have been experiencing a similar squeeze for nearly six years.

For many years banks have offered age pensioners specialised bank accounts under various names: ANZ Pensioner Advantage account, Commonwealth’s Pensioner Security account, NAB’s Retirement account and Westpac’s 55+ and Retiring account.

Alongside the rates earned by these bank accounts is another rate — a deeming rate — which is set by the Minister for Social Services. Deeming rates are the key component of the income test for the pension.

Deeming rates assume that financial investments (including bank accounts, listed securities and managed funds) earn a certain amount of income regardless of the income they actually earn.

If a deemed rate is higher than an actual rate, the pensioner loses out.

For instance, a $200,000 deposit in the Commonwealth Bank’s Pensioner Security account will earn actual interest of $2965 per year. But deemed income is $5747. The end result in this instance is that it will reduce a pension by $26.52 a fortnight.

According to Centrelink, deeming is a simple and fair way to assess income from financial assets.

“By treating all financial investments in the same way the deeming rules encourage people to choose investments on their merit rather than on the effect the investment income may have on the person’s pension entitlement,” a Centrelink spokesman says.

Banks have offered specific accounts for pensioners/seniors since the deeming regime was adopted by Centrelink in 1996. They were marketed as “deeming accounts” and paid actual interest which closely matched the Centrelink deeming rates. Deeming rates were set at 5 per cent for the first $30,000 for single pensioners and $50,000 for couples. Higher amounts earned 7 per cent.

By 2010, in the wash-up of the global financial crisis, deeming rates had fallen to 3 per cent and 4.5 per cent, respectively — still at or below the cash rate. They remained there for three years, until March 2013.

When the official cash rate fell from 4.5 per cent to 2.5 per cent over a couple of years, the banks followed suit.

By December 2013 — as the official cash rate fell to below 3 per cent — the disparity between the cash rate and the deemed rate had become so great that ASIC stepped in. To avoid action for misleading and deceptive advertising, the banks were forced to remove references to deeming and rename the accounts.

July 2012, six years ago, marked the first time that the official cash rate was lower than the higher deeming rate. Pensioners with large deposits started losing out.

August 2016 was the first time the official cash rate, at today’s rate of 1.5 per cent, fell below the lower deeming rate. Suddenly all pensioners were affected.

Currently the deeming rates are set at 1.75 per cent for the first $50,200 for single pensioners and $83,400 for couples, with higher amounts assumed to earn 3.25 per cent.

There has been no comment from Centrelink or the Minister for Social Services as to why the large disparity between deeming rates and official interest rates has been allowed to occur.

One can only speculate how much pensioners subject to the income test have lost since 2012.

These days, finding a savings account with a major bank that pays an interest rate anywhere near the official deeming rates is close to impossible.

For pensioners not to lose out, either interest rates will have to increase, or the minister will have to lower the deeming rates, or both.

John Rawling is an aged-care consultant at Joseph Palmer and Sons

Treasury’s update on the ‘cost’ of limiting Australian taxes is easy to twist into bad arguments for raising them

Centre for Independent Studies

1 February 2018

Robert Carling

With the campaign to increase tax on superannuation in full swing two years ago, Kelly O’Dwyer (Assistant Treasurer at the time) let it be known that superannuation tax concessions were “a gift that the government should only provide when it makes sense”.

It has long been obvious there was a belief alive in some corners of Canberra that government has first claim on our income and the role of tax policy is to determine the residual available for private use. But it still came as something of a shock that this interventionist way of viewing the relationship between government and the people had spread so far.

It’s at this time of the year the government reveals the extent of its generosity, in the annual Tax Expenditures Statement (this year quietly released after the close of business on the day before Australia Day).

The government’s ‘gifts’ are all there to be seen in the TES, each one with its own price tag. Not taxing capital gains on the family home the same as other assets: $33 billion a year, thank you very much. Discounting capital gains by half: another $51 billion. Not taxing concessional superannuation contributions at full rates: another $17 billion. Not taxing superannuation fund earnings at full rates: another $19 billion. And so on it goes.

The problem with all this is that the estimates are extremely rubbery, and in any case they all depend on the benchmark against which the ‘gifts’ are measured. Taken to extremes, the notion of ‘tax expenditure’ could be used to claim that not taxing all income at the top marginal rate is a ‘gift’, or for that matter so is not taxing everything at 100%.

Thankfully the TES does not go that far. The benchmark used by Treasury to make the estimates is the so-called comprehensive income tax benchmark, under which the standard income tax scale is applied to any form of income.

But what is included in ‘income’ under this approach is still a matter of judgement. They don’t include in the benchmark the imputed rental income of owner-occupied housing, which a purist would include. They do include realised capital gains on such housing — and the purist would go further and include unrealised gains as well.

It’s not clear that capital gains should be included at all. And it’s not clear that taxes on saving through superannuation should be benchmarked against a comprehensive income tax on such saving.

In this year’s TES, the Treasury makes a concession to that viewpoint by including alternative estimates of tax expenditures on superannuation against an expenditure (or ‘consumption’) tax benchmark, and the result is a startling $28.7 billion a year lower.

Treasury concedes “there are reasonable arguments for both the comprehensive income tax benchmark and the expenditure tax benchmark” and adds that “caution should be exercised when drawing conclusions on the size of the superannuation tax expenditures.”

This is a warning to those who confidently state year after year, as if reciting an incontrovertible fact, that superannuation tax concessions are costing the budget more than

$30 billion. The Henry tax review went further than the TES warning, stating baldly that “comprehensive income taxation, under which all savings income is taxed in the same way as labour income, is not an appropriate policy goal or benchmark.”

The benchmark isn’t the only problem with tax expenditure estimates, and the Treasury has sprayed words of warning all over the document. The problem is that these warnings have been judiciously ignored by users in the past and are likely to be again this year.

The TES is like manna from heaven for those on a mission to increase revenue to fund more government spending or to promote ‘fairness’ by taking more from ‘the rich’. To such users of the TES it is nothing but a revenue-raising policy menu — and never mind the defects, judgements and ambiguities in its construction.

The huge amounts of tax expenditures reported for superannuation concessions — against the questionable comprehensive income tax benchmark — were instrumental in the campaign to reduce such concessions.

If the TES reveals distortions, rorts or concessions that have no good reason for being, they should go (in favour of lower tax rates for all, not more spending). But on closer inspection the TES isn’t the Aladdin’s cave it is often thought to be. Many tax expenditures are there for good reason and do not deserve to be labelled as rorts or distortions.

Robert Carling is a Senior Fellow at the Centre for Independent Studies

(emphasis added by Save Our Super)

Age pension: 90,000 lose payments as new assets test bites

The Australian

30 January 2018

Tony Kaye

The new assets test has become an acid test for many who were receiving a part age pension.

Almost 90,000 individuals and couples around Australia who previously received a part age pension payment completely lost their entitlements in 2017 as a ­result of the federal government’s changes to the pension assets test rules.

In addition, hundreds of thousands of individuals and couples who were previously receiving a full pension have had their payments reduced. The revised pension assets test rules also mean many Australians who had based their ­retirement income stream on receiving a part age pension in the future should seek out professional advice urgently to re-evaluate their financial position.

The Department of Social Services has confirmed about 86,600 part-rate age pensioners had their pension cancelled as a result of the assets test changes that came into effect on January 1, 2017. And, as we head into 2018, more retiring Australians will likely miss out on receiving any level of age pension.

The new limits on the amount of assets outside of a family home that could be held by couples or individuals before their pension rate was reduced was introduced last year as part of a wider plan by ­Financial Services Minister Kelly O’Dwyer to reform the pension and superannuation system. The amount of pension received is now reduced by $3 per fortnight for every $1000 over the new limits under the pension taper rate.

Using the latest official government data, it is clear that between the end of December 2016 and the end of June the number of recipients receiving a part age pension under the assets test fell from 486,031 to 321,106, a variation of just over 147,000. The DSS has claimed only part of that difference was due to the actual changes in the assets test, and that no full-rate age pensioners have had their pension cancelled due to the ­assets test changes.

However, between December 2016 and mid-2017, the total number of Australians receiving an age pension dropped from 2.57 million to 2.49 million. The number of couples receiving a full or part pension fell by about 61,000, from 1.43 million to 1.37 million, while the number of singles slipped from 1.13 million to 1.12 million.

How it works now

In terms of assessing the age pension under the assets test, the DSS data shows about 1.18 million recipients are couples owning a home. A further 660,000 are singles owning a home. These cohorts tend to have the highest value level of ­assets outside of their homes.

The pension assets test does not apply to the family home itself, but it does apply to its contents and any other assets owned, including property, vehicles, caravans, boats, superannuation holdings and funds in bank ­accounts.

Average superannuation balances at retirement already put many Australians close to or over the new asset test thresholds. But one of the biggest problems for those in this position is that having higher superannuation retirement savings may actually generate less tax-free income than those relying solely on the age pension. In other words, having more ­assets can potentially be a big disadvantage.

On current age pension rates, a single person receives $23,254.40 a year. A couple receives $17,529.20 each. A couple with $850,000 of personal assets outside their home is not eligible for any age pension, but based on a 4 per cent annual return they will need that amount saved to generate the same level of tax-free income as an individual or couple receiving the full age pension.

As such, the changes to the assets test could deter some individuals and couples from putting money into their superannuation, as even a couple can only hold $375,000 in retirement savings collectively ($175,000 each) before their age pension entitlement begins to fall. The alternative is to ­direct more capital into the principal place of residence, which does not count towards the assets test.

Data released last month by the Association of Superannuation Funds of Australia shows a retired single person needs $43,694 a year and a couple needs $60,063 to be considered as having a comfortable standard of living. To achieve that sort of income, ASFA says singles need $545,000 in their super and couples need $640,000. But having those levels of superannuation could put many singles and couples out of contention for receiving the age pension, depending on whether they own a home.

The assets test changes have led to some people moving around their financial assets so they can receive the age pension, including directing more money into their tax-exempt family home. There are various strategies to reduce your assets, but the secret is to maintain your standard of living using current income sources.

In effect, while low-income earners will get the full age pension as a matter of course, and high-income earners have too many assets to be entitled to any pension anyway, those in the middle income bands have been most affected by the asset test rules.

Tony Kaye is the editor of Eureka Report, which is owned by financial services group InvestSMART.

Age pension and superannuation changes hit home

The Australian

10 January 2018

Glenda Korporaal

It has been a year since stricter asset tests for the age pension came into force — overshadowed by a flurry of changes to super­annuation that hit mid-year.

But the longer-term financial impact on those affected is now becoming more apparent.

The Self-Managed Superannuation Fund Association threw a spotlight on the issue yesterday.

In a statement, chief executive John Maroney said it was now apparent that the changes to the means test taper rates and thresholds have had “significantly adverse and presumably unintended consequences”.

He said the steeper taper rate that took effect from January 1 last year is now actively discouraging middle-income wage earners from saving to be self-sufficient in retirement.

Maroney argues that the changes have created a “black hole” for people directly affected by the changes that makes them worse off in terms of income — encouraging them to spend up (or cut back on their savings) to reduce their assets to qualify for the pension. He cites the example of a home-owning couple who have a superannuation balance of between $500,000 and $800,000.

For couples in this situation, he says the taper rate (the rate at which higher assets reduce entitle­ment for the pension) is the equivalent of about 7.8 per cent a year. With today’s low interest rates, this is well above the amount that a retiree could expect to be receiving from their investment or time deposit.

(Under the steeper taper rate that came into effect in January last year, retirees lose $3 of age pension a fortnight for every $1000 above a certain assets threshold, compared to losing only $1.50 of age pension for every $1000 over the threshold before January 2017.)

The couple in question is better off spending their money, reducing their assets to enable them to qualify for the pension, or shifting their assets from financial assets into non-financial assets such as the family home and getting as much of the pension as they can.

The pension may not be much, but for those who are eligible, it is a worry-free government guaranteed amount that a retiree can ­depend on rather than an investment, where returns can be vulnerable to market swings as well as administration costs, or cash in the bank or time deposits, which don’t pay much these days.

(A three-month bank time deposit pays about 2 per cent, rising to 2.7 per cent for 24 months.)

And as any retired person knows, there are many more benefits to keeping the pension than just the pension itself.

The SMSF Association agrees that some means test is necessary for the sustainability of the age pension (there has to be a cut-off somewhere), but argues that the current situation is “not appropriately integrated with the broader retirement system”.

Maroney says the government should scrap the assets test and move to a more appropriate, simpler way of integrating superannuation and the age pension.

He supports the idea suggested in the Ken Henry-led Australia Future Tax System Review that has a single means test that ­applies a deemed income rate to financial and non-financial assets.

While it is not likely to happen in this government’s term (the government has indicated it has no stomach for further changes to the pension or super system within the lifetime of this parliament at least), it does raise a longer-term debate about fairness.

The SMSF Association’s comments yesterday follow the very vocal comments made for some time by the Melbourne-based Save Our Super group that was set up in response to the sweeping superannuation changes announced in the 2016 budget.

Online publication Super­Guide has been working with Save Our Super to highlight what it calls the regressive impact of the stricter assets tests. The group argues that there is a “savings trap” as a result of last year’s asset test changes that particularly hits ­people with assets of more than $400,000 and below $1 million.

In an article published on the Save our Super website ( in November, writer Trish Power argues that a single person who owns their own home would be better off in terms of total retirement income having $300,000 in super than by having $400,000, $500,000 or even $600,000 in super. Power points out that a home-owning single person is hardest hit when they hold $550,000 in super. At this level they receive less total income (super pension plus age pension payments) than a single person who has $300,000 in super.

Power argues that the January 2017 changes “ambushed more than 300,000 retirees who could do little to mitigate their circumstances” and “threw into disarray the retirement plans of many hundreds of thousands of Australians within five years of retirement”.

Save Our Super, which describes the situation as Retirementgate, has engaged in a letter-writing debate over the issue with federal Assistant Treasurer Michael Sukkar that can be read on their website.

Sukkar challenges the assumptions in the Save Our Super paper, arguing that it is not the role of the age pension to support retirees with a higher level of assets to maintain their capital base.

He argues that the steeper taper rate was introduced to encourage people to draw down their private savings more rapidly.

Whether it is a “black hole” or a “savings trap”, those hit by the 2017 changes should by now have at least assessed if they can re-­arrange their affairs to minimise the adverse impact of the changes.

There is no appetite for more radical changes to super in the short term, but the SMSF Association comments yesterday could revive the debate over the fairness of the current super and pension situation.

Superannuation rackets and fee mysteries

The Australian

22 December 2017

Robert Gottliebsen – Business columnist

One of the most important issues of 2018 is going to the management and behaviour of our non self-managed superannuation funds.

And there is no better time to get it right than when the share market is rising and there are good news stories to tell.

As things now stand what is happening is a national disgrace. So let’s put four items on the agenda for superannuation change in the year ahead.

  • Total disclosure of all fees paid to employers and unions in the case of industry funds and all fees paid to banks, AMP and other retail fund owners, plus all other management fees
  • An end to the current racket that stops people choosing funds and being ripped off with multiple fees as a
  • The unravelling of the “Great Investment Fee Mystery” where it looks like some of the wealthiest investment managers and advisers in Sydney are donating their services to superannuation for no That can’t be right. This smells of yet another bank scandal for the banking royal commission to look at.
  • At least make a start on getting investment managers to think about the long-term interests of members rather than short-term profit forecasts. I will elaborate on this theme during 2018 because it’s vital to members of non-self managed funds and the nation.
  • An end to the racket where those who chose funds see their money held by the so-called “manager of choice” for one or two months and then passed onto the fund of This certainly happens in the retail area and may happen in industry funds. The money should go straight from the employer to the fund of choice. It’s just another racket that reflects a sector that is lazy in protecting members’ interests.

During 2017 I wrote many commentaries demanding that industry superannuation funds disclose all direct and indirect payments to employer groups and unions. It’s important that fees disclosed cover situations where money is drafted into low cost so-called “my super” funds and where members make a choice of fund. If I make a choice I need to know the fees, including owner fees, being charged on my money. To me that’s elementary and I can’t believe we are debating this.

Somehow under the proposed and ill-fated legislation the government required fee disclosures on the so-called “my super” funds, but nowhere nearer the same level of disclosure in the “choice funds”. It made no sense.

Now it so happens that 80 per cent of industry funds were based on the “my super” schemes (where there must be backer disclosure) whereas in the retail area it was the reverse— roughly 80 per cent were “choice” funds (no disclosure) and 20 per cent “my super”.

The industry funds tell me that they are happy for full disclosure of all direct and indirect payments to their backer, but it must apply industry-wide to both the “my super” and “choice” sectors, not just the sector where they dominate. And they are absolutely right. The minister, APRA or the royal commission need to fix it. Frankly the retail funds and the industry funds should together volunteer full disclosure.

It so happens that overall costs of industry funds are much lower than in retail funds so full disclosure in the retail sector is very important.

But the industry sector has its own set of bad practices.

People, usually on low incomes, are forced or shepherded into different industry funds when they work for, say, a pub and a retailer. The low income earners with two or more funds are then slugged multiple fees. There must be an ability to chose your fund so that retail workers who have a fund from their work in the pub can easily stay with one fund. The industry funds are proposing a scheme that will help reduce this fee racket and that’s good but fund choice is vital.

Now to the “Great Investment Fee Mystery”.

What makes it such an enthralling saga is that by reputation the characters in our tale have magnificent houses and drive fast luxury cars. How do they get this money? Either the investment managers have family money, a generous banker lending them vast sums, or they are on a high income. Clearly I am jesting but it’s a joke with a serious twist.

In the superannuation figures required by APRA there is a column called “investment fees” and that’s where we should look for clues as to the source of this well-displayed wealth.

In the industry funds there are some very large disclosed sums. For example, Australian Super public offer funds paid $418 million in investment expenses but to be fair this represented only 0.4 per cent of their assets. The health employees paid $101 million in investment fees but the ratio was only 0.28 per cent. All the funds have disclosed a figure and while there are percentage charges above and below, most fall into those brackets.

The point is that there is disclosure.

Now we go to the public offer retail funds. It looks like there are roughly about 80 retail funds. But about half of them have what looks like the deal of a lifetime because they pay no or token investment fees. Among those who do not pay investment fees are the heavy hitters like AMP, Commonwealth Bank’s Colonial, and NAB’s MLC, while Macquarie’s costs are 0.03 per cent of assets.

And so where do those fast cars and luxury houses come from?

Clearly there are side deals and somehow, some way, in parts of the retail sector investment charges are contracted out to others and not disclosed. I am sure the industry funds contract out as well but at least on the surface it would seem they and many of the retail funds include those costs in investment fees. But let’s get it all out in the open.

Remember this is not employer body, union or bank money — we are looking at funds owned by ordinary Australians who are members of non self-managed funds. Self-managed funds know exactly what they pay and APRA should want the same privilege for non self-managed funds. APRA needs to stop turning a blind eye to those funds showing no or token investment fees.

The head of the bank industry body, Anna Bligh, proudly has set out new rules for bank conduct. That’s good. But let’s start by disclosing what is really being paid in investment expenses.

When people say the cost is “nil” when it is clearly not “nil”, it usually means there is something to hide. Let’s get it out into the open.

Have a wonderful Christmas and see you in the New Year.

Robert Gottliebsen has spent more than 30 years writing and commentating about business and investment in Australia. He has won the Walkley award and Australian Journalist of the Year Award, two of journalism’s highest honours. He is an economic writer at The Australian, and he appears on television and various radio stations.

My 2018 checklist for investors

The Australian

16 December 2017

James Kirby

Looking out 12 months is never easy, but most investors would agree conditions are as promising as we have seen them in many years. As an active investor the summer break is a good time to review what you have been doing in the last 12 months and, importantly, make some key decisions for the year ahead.


Here’s my checklist for 2018.

Explore borrowing at low rates

Official rates remain at 1.5 per cent. In order to reach levels that central bankers regard as “normal” they would have to double to 3 per cent. In reality banks have tried everything to push the actual rates borrowers pay in the market higher. Home mortgage rates are close to 4 per cent or higher if you are an investor or interested in interest-only loans. Nonetheless, this extended era of low rates means that many investors can remain comfortable with borrowing to leverage their performance in any investment class, and that includes shares. (Remember negative gearing is not just for property).

ETFs remain market darlings

With the majority of brokers forecasting strongly positive returns on the ASX for 2018, it is a year which may very well suit index funds, or exchange traded funds. Brokers are looking at stock price increases across the market of 9 per cent with an additional 4 per cent from dividends. If the market is going to offer on average 13 per cent or anything near it, then there is a very compelling argument for ETFs, which simply reflect the performance of the index. Certainly, there are flaws in non-discerning approach of  ETFs, but for the year ahead they would seem to answer a lot of questions.

Don’t miss a mining a rebound

It’s been a while since the miners were front and centre of the investment scene — last year the mining index outpaced the wider market: The mining index returned close to 17 per cent against around 10 per cent for the wider market. What’s more, there is every reason to believe the miners can do it again in 2018 with synchronised 3 per cent-plus global growth expected to push all resources higher.

Under this scenario household names such BHP and Rio are perfectly placed. On top of that there is the dramatic requirements that EVs (electric cars) are expected to place on selected resources: nickel, lithium, cobalt and graphite. Junior miners that supply into the EV battery market such as Syrah, Orocobre, Iluka and Galaxy are expected to benefit as electric cars move towards representing one in five cars by 2020.

Stick with residential property

Is it a soft patch or the long-anticipated disaster gloom merchants would have us believe? It looks for all the world like a soft patch engineered by the macroprudential restrictions regulators imposed on the banks this year. Yes, house prices are expected to be flat in 2018, but that is not a signal to sell property, rather it is a signal to hold on.

There is undoubtedly weakness in Sydney market and risks of further weakening in Melbourne. At the same time there are convincing signs that Perth will have a better year in 2018 than it did in 2017. There will be problems in inner city apartment projects and second-grade properties across all cities, particularly Brisbane. But with low interest rates and unemployment levels at less than 5.5 per cent, it does not represent a threat to mortgage servicing patterns … that’s the heart of the housing market.

Know your retirement sweet spot

Earlier this year the government announced major changes to superannuation which included new contribution caps coupled with subtle but severe restrictions on pension access. These changes have changed the dynamics of retirement savings. The system is absurd and now so poorly structured that you can quite literally get more income by saving less. Put simply in terms of annual income don’t be in the middle zone! Wealth writer James Gerrard has estimated that the annual income of a couple who own their home with $400,000 get an income $52,395 a year thanks to Centrelink, a couple in the same position with $800,000 get $42,251.

Yes, of course it is better to have your own savings, but it is surely galling to know you can have a higher income if you save less.

Find your non-correlated assets

This is a bull market — know it when you see it. US and Australian shares are expected to return 10 per cent-plus in the year ahead. Tech stocks are selling at remarkable prices and then there is the unprecedented excitement around bitcoin. Sooner or later we will get a correction and eventually we will get a sharemarket crash. Non-correlated assets are assets that are expected to “perform well” when this happens. The last time the markets crashed in 2008 we found out the hard way that many of the newer breed non- correlated assets did not work — this would include hedge funds and a variety of products which are exposed to weakness in securities markets. There are two enduring non-correlated assets which have proved themselves in all weather: cash and gold.

  • Cash: In Australia cash deposits have the exceptional advantage that they are guaranteed by the government at up to $250,000 (per person, per bank). Moreover, cash rates though historically low are inching
  • Gold now has a rival in bitcoin but it would be a brave investor who would depend on cryptocurrency when the RBA deputy governor Guy Debelle just this week blasted the cryptocurrency craze warning it was “a speculative mania”.

Gold — the bullion not gold shares — proved to be a very effective non-correlated asset after the GFC and it will no doubt do it again in the future.

(Emphasis added by Save Our Super)

Payments above ABP minimum — Reasons to prospectively document a strategy ASAP

Joseph Cheung (, Lawyer and Bryce Figot (, Special Counsel, DBA Lawyers 

Payments above the account-based pension (‘ABP’) minimum annual payment have the potential to become a trap. The June 2017 SMSF Benchmark Report by Class Super states that ‘the average SMSF pensioner withdraws about $74,000 annually on their pension over a series of 12 transactions and overdraws $24,000 above their minimum’. This means that the average pensioner is withdrawing more than 32% above their relevant ABP minimum and could miss out on significant opportunities unless timely action is undertaken! This article summarises the trap and examines the main reasons to prospectively document a strategy as soon as possible.

What is the trap?

For pensioners who receive payments above the ABP minimum for their ABP(s), the capital supporting the ABP(s) is reduced by the amount of pension payment(s). However, there is no corresponding debit to the pensioner’s transfer balance account (‘TBA’)!

Where the pensioner had ‘maxed out’ their transfer balance cap, they cannot add any further capital to start a new pension that is in the retirement phase (ie, a pension that will obtain a pension exemption). Therefore, drawing more than the minimum payment will exhaust the capital supporting the ABP(s) significantly faster than would otherwise be the case. Where the pensioner had not ‘maxed out’ their transfer balance cap, there will be limited capacity to add further capital to commence a new ABP.

What is a strategy to avoid this trap?

DBA Lawyers understands that many advisers in the SMSF industry have been contemplating various strategies to avoid this trap. A common theme in the strategies involves partially commuting some or all of the amounts above the relevant ABP minimum(s). The following is an example of one of the strategies:

  • Pay all amounts above the relevant ABP minimum(s) as a lump sum payment from the pensioner’s accumulation interest.
  • Where there is no accumulation superannuation interest or the accumulation superannuation interest is insufficient to pay the amounts in excess of the relevant minimum ABP amount(s), these excess amounts are to be paid as a partial commutation of the relevant ABP.

What are the main reasons to prospectively documenting a strategy as soon as possible?

Compliance with the Australian Taxation Office’s (ATO’s) view

In relation to the partial commutation of pensions, the ATO‘s view (as expressed in SMSFD 2013/2 and TR 2013/5) is that the pensioner must consciously exercise their right to exchange something less than their full entitlement to receive future pension payments for an entitlement to be paid a lump sum. Where no documentation exists either before or at the time of payment, it is hard to prove that the pensioner consciously exercised their right. The ATO could decide that there was no partial commutation and that the amount was just paid as a pension payment in excess of the relevant ABP minimum(s).

Similarly, where the payments are allocated and the strategy documented ‘after the fact’, the ATO might take the view that that the payments did not come from an accumulation superannuation interest as it could not be proven that this was the parties’ intention at the time of payment, and it was not a valid partial commutation. Accordingly, a conservative approach is to have relevant documentation completed and signed before the payment of the amounts in excess of the ABP minimum payment.

The onus of proof rests with the taxpayer. Also, the ATO may allege false and misleading disclosure and, in addition to winding back any tax benefit from the ‘fabrication’ of any documents that did not exist before the relevant commutation, may impose penalties of up to 75% plus the general interest charge.

Achieving administrative efficiency and certainty under ATO reporting requirements — Transfer Balance Account Report (‘TBAR’)  

The ATO new reporting regime associated with the transfer balance cap commenced on 28 September 2017 and applies from 1 October 2017. Broadly, the TBAR regime will involve a need to report on an events basis regarding events since 1 July 2017 that have an impact on the pensioner’s TBA. (TBAR also extends to reporting where further information is required to calculate a member’s total super balance or concessional contributions averaging amount from 1 July 2018.) For example, all ABP commutations will need to be reported. Reporting will be required whenever there are events that result in a debit or credit to the pensioner’s TBA. SMSFs will not be required to report until 1 July 2018 due to an administrative concession. However, it is best practice for SMSFs to start reporting from 1 October 2017.

The ATO’s rationale for the introduction of TBAR is to enhance visibility of each pensioner’s TBA. There will be time limits for reporting events. TBAR is relevant for strategies to avoid the trap described above. Amounts that are paid directly from a pensioner’s accumulation interest will not need to be reported. However, amounts that are paid as a partial commutation of the pensioner’s relevant pension will need to be reported.

To the extent that pensioners (and their advisers/SMSF trustees) are not aware of their TBA, the TBAR regime could exacerbate this trap. For example, a late lodgement penalty may be imposed by the ATO if a pensioner’s partial commutation in relation to the amount above the relevant ABP minimum is not reported on time.

The introduction of the TBAR regime is also likely to increase the administrative costs for SMSFs. If a strategy was not prospectively documented for all future payments above ABP minimums, the adviser/SMSF trustee may have to liaise with the pensioner prior to each payment regarding the treatment of any amount above ABP minimums. For example, they would have to decide on which pension account the payment is to come from, and whether the amount above the ABP minimum was to be treated as coming from the pensioner’s accumulation interest or as a partial commutation. After making this decision, the SMSF trustee would then have to document each decision. The more payments there are during the year that are in excess of the relevant ABP minimums, the greater the frequency of the attendances and liaising required. Where an adviser is assisting the pensioner with the TBAR reporting, the extra attendances and liaising may translate to increased costs for the SMSF. The pensioner may also feel burdened by the extra amount of time needed to liaise with the adviser.

Moreover, advisers need to ensure their advice and services comply with the Australian financial services licence (‘AFSL’) regime. Where a strategy was not prospectively documented for all future payments above ABP minimums, advisers without an AFSL would be at further risk of attending on multiple occasions a ‘restructure’ of the pensioner’s payments. We would generally recommend that pensioners be provided advice from a licensed adviser prior to the commencement or commutation of an ABP.

One way to achieve administrative efficiency is to prospectively document a detailed strategy for all future payments above ABP minimums. Less documents are involved provided that the strategy is applied consistently to all future pension payments. Less attendances are required from advisers — this should hopefully translate to reduced costs for the SMSF and more time and resources for advisers to perform other tasks. Prospectively documenting a strategy also adds certainty to the treatment of future payments. The adviser/SMSF trustee could then follow the documented strategy when reporting under the TBAR regime.


Unless SMSF pensioners take timely action and prospectively record a strategy for payments above ABP minimums, they may be at risk of falling into an inescapable trap. Naturally, developing a strategy to cover all future payments above ABP minimums is no easy task!

DBA Lawyers offers documentation to prospectively record a strategy for all future payments above ABP minimums for any pensioner who wishes to protect the capital supporting their ABP(s) from being exhausted beyond the relevant minimum pension amount. For more information, please visit

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Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit

24 October 2017

We disclaim all liability howsoever arising from reliance on any information herein unless you are a client of DBA that has specifically requested our advice. No unauthorised copying of any material produced by DBA should be made unless you have our prior written consent.


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