UK Pension reforms: Changes ahead for QROPS transfers

IOOF TechConnect Technical bulletin: Autumn 2015 UK Pension reforms Page 1 Joint tenancy and age pension consequences Page 5 The three year bring forward rule explained Page 6 Legislative update Page 9 UK Pension reforms: Changes ahead for QROPS transfers By Pam Roberts, Senior Technical Services Manager Last year the UK Government announced sweeping reforms to the UK pension rules to commence from April 2015. The intention of the Government is to provide UK retirees with greater flexibility and freedom of choice as to how they take their retirement income. The changes passed into law on 17 December 2014. The changes will have a major impact on the type of transfers permitted to Qualified Recognised Overseas Pension Schemes (QROPS). Further QROPS funds will have additional reporting obligations under (as yet not finalised) complementary regulations released in December 2014 1. Pre 6 April 2015 UK pension arrangements. Currently UK pension schemes provide either defined benefit or defined contribution pensions from age 55 2. Under defined contribution ('money purchase') schemes, individuals can purchase either a guaranteed lifetime pension/annuity or a drawdown pension (similar to Australian account-based pensions) with their accumulated savings. These drawdown pensions are either: Capped drawdown where the amount drawn down is restricted to a maximum of 150 per cent of an equivalent annuity, or Flexible drawdown these have no restrictions but the individual must be already receiving a guaranteed annuity of at least 12,000 pa. Access to lump sum benefits from age 55 is limited, however individuals can take 25 per cent of the purchase price of their defined contribution pension as a tax-free lump sum but the rest must be taken as a pension. Also if pension savings are trivial (up to 30,000 in total) or the individual has one or more small accounts (less than 10,000 each) these can be cashed as a lump sum, however this is restricted to a maximum of three small personal accounts. 1 UK legislation made into law 17 December 2014: Taxation of Pensions Act 2014 and Pensions Schemes Act 2014. Draft regulations under these Acts have also been released covering information requirements for QROPS Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2015 (draft) 2 The requirement to compulsorily commence a pension at age 75 was removed in 2010. 1

UK Pension Reforms from 6 April 2015 The rules for new guaranteed income streams will be relaxed, with term certain and reducing annuities/pension permitted. New annuities will be able to provide lump sum withdrawals. All new drawdown pensions will be flexi access, with no restrictions on the amount of pension payment withdrawn. Although the option to take a 25 per cent tax-free lump sum on commencing a pension remains, individuals will no longer need to commence a pension to take lump sum withdrawals from their retirement savings from age 55. Lump sum withdrawals from accumulation phase 3 will be allowed and will be 25 per cent tax-free and 75 per cent taxable at the individual s marginal rate. As a consequence of these changes the rule allowing trivial commutations, of up to 30,000, will only apply to defined benefit schemes. Also the 55 per cent unauthorised payments charge will effectively cease for those aged 55 or more, and any benefits withdrawn will be taxed at no more than the marginal rate. The unauthorised payments charge will still continue for unauthorised withdrawals before age 55. There will be also changes to the annual allowance for individuals who commence flexi-access pensions or elect to take a lump sum withdrawal under the new rules (25 per cent tax-free, 75 per cent taxable) after age 55. Currently up to 40,000 pa, ie the annual allowance, can be contributed to pension schemes with tax concessions 4. However from 6 April 2015 this will reduce to 10,000 for those referred to above. This is to mitigate the UK equivalent of the Australian Transition to Retirement (TTR) strategy, whereby individuals over 55 redirect pre-tax salary (up to annual allowance) to their pension account and take withdrawals with 25 per cent tax-free. Changes affecting QROPS transfers from 6 April 2015 Most of the reforms relate to defined contribution pensions and lump sums payable in the UK, however there are significant changes that will have a major impact on potential transfers to Australian QROPs: Important note: For many advisers this will be of major concern as former public sector employers are a key market for transfers to Australian QROPS. Consequently it is important that any such clients intending to transfer their benefits to a QROPS, commence the process as early as possible so the transfer occurs before the deadline. Transfers from funded Government defined benefit pension schemes (such as the Local Government Pensions Scheme) will still be permitted, however transfer values may be reduced if, due to the number of transfer requests, there is a risk taxpayers would be required to top up the scheme. No transfers will be permitted from funded defined benefit private and public sectors schemes, if the defined benefit pension has started being paid. (This is an existing rule.) Funded defined benefit schemes can only transfer a benefit out of the scheme if the individual has received independent financial advice from a professional financial adviser authorised by the (UK) Financial Conduct Authority. The adviser must be independent from the scheme. Important note: Financial advisers authorised under Australian Financial Services Licenses are not authorised by the FCA. Clients in UK defined benefit schemes intending to transfer to an Australian QROPS from April 2015 must receive advice from a financial adviser authorised by the FCA. Transfers from defined contribution schemes will continue to be allowed from 6 April 2015 as currently applies. Some members who transfer UK pension monies to an Australian QROPS may have (or still are) contributing to pension schemes under the UK rules. The reduced annual allowance of 10,000 will also apply to these members if they commence an account-based pension with the Australian QROPS while still within the UK tax residency period. From 6 April 2015, transfers will no longer be allowed from unfunded defined benefit Government schemes to defined contributions schemes in the UK or elsewhere (including Australian QROPS). This is because commuting an unfunded benefit has a bring-forward cost to the Exchequer. Unfunded UK public sector schemes include those for teachers, police, army, public servants, NHS and university staff. 3 Called Uncrystallised Funds Pension Lump Sums (UFPLS) 4 The Annual Allowance can be topped up by any unused annual amount from the previous 3 tax years. 2

Reporting changes for Australian QROPS super funds from 6 April 2015 Managers of QROPS will be required to provide more information to members and other QROPS funds receiving rollovers. Members transferring to QROPS will be required to provide more information to the receiving fund. QROPS managers will continue to be required to report a benefit payment (pension or lump sum or rollover) to the UK tax authorities where the original transfer from the UK was within the last 10 years. However the additional requirement to consider whether the person has been a tax resident of the UK within the current and previous five full UK tax years (the UK tax residency period) will be removed. As the UK Government is concerned that members over age 55 and within the UK tax residency period will not be aware of the reduced annual allowance that applies if benefits are taken: A QROPS will be required to provide a notice to an affected member with information about the reduced annual allowance if he/she commences an account-based pension. If the member subsequently commutes the above account-based pension and rolls over to a new QROPS fund within the UK residency period, the releasing fund must notify the new fund that a pension had been payable to the member and the date it commenced. Members who are notified are required to advise any other fund with QROPS transfers that they have commenced an account-based pension. A QROPS that has been notified (by either the member or an earlier QROPS) that the member has previously commenced a pension is not required to provide a notice to member if he/she commences a new account-based pension. Under recent changes the UK tax authorities (HMRC) have advised that all QROPSs will be required to re-notify HMRC of their status every 5 years. If the QROPS does not reapply, it will lose its QROPS status and transfers to the scheme will be unauthorised payments. Originally the re-notification process was to commence on 1 April 2015, however HMRC has extended this until 1 April 2016. As a courtesy, HMRC will send out reminder letters to schemes six months before their re-notification date. For schemes where the QROPS status was granted before 1 April 2010, the date for the first re-notification will be phased in. Should my client transfer their UK benefits to an Australian QROPS? There are some advantages in transferring to a QROPS, especially for Australian citizens or permanent residents who have worked in the UK and are returning to Australia permanently. No UK tax applies if the transfer (plus benefits already received) is under the individual s (UK) Lifetime Allowance (currently 1.25m). After the transfer, benefits paid in Australia will generally only be subject to UK tax if taken within the UK tax residency period. Under Australian tax law, transfers are (generally) tax-free if made within six months of becoming an Australian tax resident. After six months the growth on the benefit since becoming an Australian is personally assessable, however the client can elect to have this taxed in the super fund at 15 per cent (link to ATO Election form on page 4). Transfers are, however, treated as non-concessional contributions and subject to the non-concessional contributions cap, however any amount covered by the ATO election form are not counted under either the concessional or nonconcessional cap. Australian superannuation death benefits are tax-free to a spouse and, even when paid to a non-dependant such as an adult child, the UK transferred amount (other than any amount covered by an ATO election form) will also be tax-free. Lump sum death benefits paid from UK pension schemes are tax-free only up to age 75 and are taxable thereafter. There are, however, a number of problems that can arise when advising clients on transferring benefits from the UK: The process in dealing with UK pension schemes can be difficult and convoluted, particularly as it involves a different time zone. A transfer is subject to superannuation fund capped rules, and therefore is limited to $540,000 ($180,000 for those 65 and over), including any amount covered by an ATO election form. If the Australian super fund is forced to refund any excess, this could be an unauthorised payment. Tax arrangements can become complicated, particularly as it involves the tax rules for Australia and the UK. Although most arrangements are straight forward, problems can arise particularly in calculating the assessable growth component of the transfer if outside the six month window. Clients leaving defined benefit schemes may be losing valuable rights to guaranteed retirement income. It may not be in the client s best interest to take a transfer value, particularly if the amount of the transfer value will be restricted to protect the pension scheme. 3

Transferring UK benefits to IOOF Pursuit Select Personal Super IOOF Pursuit Select is a QROPS and can accept transfers from UK schemes. Below is a summary of key considerations for advisers with clients transferring to IOOF Pursuit Select: The client must have a Pursuit Select personal super account available to receive the transfer. IOOF must hold the client s Tax File Number (TFN). Transfers from the UK are not rollovers under Australian tax law, but rather personal contributions. Consequently a super fund cannot accept a transfer from the UK unless the client has provided a TFN. The client must be an Australian citizen or permanent resident, who is moving to/living in Australia permanently and intends to retire here. This is to ensure the benefit does not get caught up in the Departing Australia Super Payment rules which may lead to the transfer being paid to the ATO, taxed and treated as an unauthorised payment. The amount transferred cannot exceed $540,000, including any amounts covered by an ATO election form (see below). The client will need to provide relevant details about their IOOF Pursuit Select personal super account to the transferring UK pension scheme. These include: QROPS number: 501229 and Scheme Manager ID: QSM001226L Scheme address; contact details; and bank account details scheme for direct credit purposes (most efficient method of payment) and account number. IOOF Pursuit Select is an Australian Regulated Superannuation Entity (RSE Number R1000627) The client will need to complete form APSS 263 and provide this to their UK scheme manager. This form is available at: https://www.gov.uk/government/publications/ pension-schemes-member-information-apss-263 The client will need to provide IOOF with details to facilitate the transfer. This includes: National Insurance Number (NINO) or any HMRC number he/she may have received if not entitled to a NINO. Date he/she migrated to Australia (or ceased to be a UK tax resident). ATO election form, if transferring more than six months after becoming an Australian tax resident and he/she wants the growth since becoming an Australian resident taxed by the super fund instead of being included in personal assessable income. This election form is available at: https://www.ato.gov.au/forms/tax-payableon-foreign-super-transfer/ IOOF has dedicated staff to help facilitate QROPS transfers to IOOF Pursuit Select Personal Super and other IOOF products with QROPS status. For assistance, contact your Business Development Manager. Conclusion The countdown to the 6 April 2015 changes has started and particularly in relation to those clients in unfunded public sector schemes, the need for early action is paramount. Transferring from an unfunded public sector scheme in the UK to an Australian QROPS can take weeks or months, and this will be further complicated by the numbers of individuals wanting to transfer out of these schemes before the deadline. Even where clients are in funded defined benefit schemes, post 5 April 2015 advice arrangements will be more complicated because clients intending to transfer will be required to receive advice from UK advisers (who may have limited understanding of the Australian superannuation environment). To assist you during this period, we will be updating Fact Sheets and Adviser Guides with the latest information about the UK changes and opportunities. 4

Who wants their home and an age pension too? William Truong Technical Services Manager, IOOF When downsizing the family home, many widowed clients find that they miss out on the age pension or, in some cases, pay more in residential aged care fees. With the right planning, this doesn t need to be the case. Usually, couples purchase their principal home as joint tenants. This ensures that the surviving spouse automatically retains access to their home on the death of their partner and a full capital gains tax (CGT) exemption on their home. As the principal home is not counted as an asset for the age pension asset test, having such a large asset doesn t affect their Centrelink support. However, this may change if the surviving spouse wants or needs to sell their home. Whatever the reason, selling the family home may affect their Centrelink entitlements because the funds received from the sale of the home would now count towards the assets and income test. The following case study looks at a proactive Centrelink/aged care strategy to consider if the client s home is worth a considerable amount with minimal debt attached to it. Case Study: Jack and Olivia s gifting strategy Jack and Olivia own their principal home outright as joint tenants, valued at $1,200,000. Upon Olivia s death, her share automatically vests to Jack. If Jack sells this home (tax-free) and downsizes to a $500,000 apartment unit, he would then have $700,000 in cash, which would be counted as an asset for his age pension assessment. With this level of assets, he would be nearing the higher asset threshold and qualify for a small part pension (assuming that he has no other savings). Alternatively, Jack and Olivia could change the ownership structure so that they own the principal home as tenants in common in equal shares. When either of them dies, their share can go to their children or dependants via their estate, leaving the surviving spouse with a 50 per cent interest in the home. Assuming all beneficiaries of the home agree, Jack may sell the home on the death of his wife, realise his $600,000 interest enough to purchase a small home unit of $500,000 and $100,000 for current living expenses. This will ensure that Jack is entitled to a higher age pension, if not the maximum pension. The beneficiary of the remaining interest will receive a cash inheritance. This gifting strategy relies on: Jack and Olivia having a valid, updated Will to direct their intentions, and an agreement from their beneficiaries to support Jack s wishes to downsize the home. Assuming that the home was not used to produce income at Olivia s date of death, the executor or the beneficiaries of the home will generally have two years from that date to sell the home and not incur any CGT. The surviving spouse should continue to enjoy the CGT exemption on their share of the home provided the home is not used to produce an income (exceptions apply). This strategy may have pros and cons for Jack. One positive implication is that if he ever needed to move into a residential aged care home, Jack would be assessed as having fewer assets than if the former home was held as joint tenants and later sold. This would translate into a lower accommodation payment and means-tested care fees as a result of the deemed income or actual incomes generated from remaining assets. For someone wanting to use this strategy, it is not too late to change the title holding now (please refer to the Capital Gains Tax information outlined on page 6). Some states charge little or no stamp duty on transfers between husband and wife. Clients should obtain independent tax advice regarding this point. One possible disadvantage of this strategy is that with fewer assets after downsizing, Jack finds the $100,000 insufficient to meet his retirement needs. Clients need to be well advised to ensure they have other assets to draw upon to protect themselves against longevity risk. continued... 5

Case Study cont. Alternative solutions Olivia may give a life interest to Jack with respect to her share of the home. This will allow him to remain living in the home and the remainder interest to be distributed to their children, with Jack retaining discretion as to when he wants to sell the home. Distribution of available sale proceeds to their children may occur only after he has sold the original home and has repurchased a smaller home or entered into aged care. Many variations of the above scenario could be tailored for clients depending on their individual circumstances and objectives. These will also largely be dictated by their estate planning requirements. Good advice becomes paramount as the variations of the strategy implemented is ultimately influenced by many specialty areas including tax, social security, residential aged care as well as legal advice. Capital Gains Tax Provided there is no change in beneficial ownership, no CGT 5 will be triggered on a conversion from a joint tenancy into a tenancy in common in equal shares. Stamp Duty State and territory governments impose stamp duty on the transfer of land. The amount of duty applicable depends on a scale fixed by each state or territory. Some states and territories permit exemptions for the transfer of land between spouses. This is normally restricted to transfers of a principal residence between spouses on the basis that, as a result of the transfer, the spouses both own the property either as joint tenants or as tenants in common. Conclusion Clients are seeking innovative strategies when completing their estate planning. A large part of the intergenerational wealth transfer will involve the family home or its net sale proceeds. These shouldn t be ignored or assumed to maintain current exemptions. This is especially so when clients are relying on retaining valuable government entitlements. The three year bring forward rule By Julie Steed, Technical Services Manager Clients are recommended to seek independent tax and estate planning advice in this matter. Although tax and super generally go hand in hand, the interaction between taxation law and superannuation law is not always clear. In this article we will explore the different rules that need to be considered when utilising the three year bring forward rule. The three year bring forward rule The three year bring forward rule is a taxation rule 6 that allows a client to contribute up to three times the non-concessional contributions cap in a financial year, or over the next two financial years. The three year bring forward rule is triggered when a client: makes a non-concessional contribution that exceeds the annual non-concessional contributions cap, and is under age 65 at the beginning of the financial year, and the three year bring forward had not already commenced in the previous two financial years. A client must be under age 65 on 1 July in the financial year in which they first trigger the three year bring forward rule 7, however they can turn 65 during the financial year and still utilise the three year bring forward rule for the remainder of the three year period. Indexation of the non-concessional contributions cap The non-concessional contributions cap is defined as six times the concessional contributions cap. The concessional contributions cap increased to $30,000 from 1 July 2014, up from $25,000 since 1 July 2009. Accordingly, from 1 July 2014 the non-concessional contributions cap is $180,000, up from $150,000 since 1 July 2009. 5 s.104-10 Income Tax Assessment Act 1997 6 Income Tax Assessment Act 1997 section 292-85(3) 7 Income Tax Assessment Act 1997 section 292-85(3)(b) 6

Indexation and the three year bring forward rule From 1 July 2014, the three year bring forward rule allows eligible clients to contribute $540,000, up from $450,000. Importantly, the amount of the three year bring forward cap is determined based on when the cap is triggered, not based on when a further or final contribution is made. If a client triggered the three year bring forward prior to 1 July 2014 then their cap will remain at $450,000, it will not increase to the $540,000 that applies for clients who trigger the cap from 1 July 2014. Transitional concessional contributions cap Older clients who are subject to the transitional concessional contributions cap of $35,000 do not get six times the transitional concessional contributions cap, instead they are also restricted to $180,000. From 1 July 2014, the $35,000 transitional concessional contributions cap was extended to clients aged 49 years or over on 30 June 2014. Case study: Peter Peter (age 48) made his first non-concessional contribution of $200,000 on 1 October 2013 His three year bring forward amount is crystalised at $450,000 Property Peter s three year bring forward is triggered in 2013/14 He can contribute up to $250,000 until 30 June 2016 Case study: Paul Paul (age 48) made his first non-concessional contribution of $200,000 on 1 October 2014 His three year bring forward amount is $540,000 Property Paul s three year bring forward is triggered in 2014/15 He can contribute up to $340,000 until 30 June 2017 Eligibility to make superannuation contributions As determined by superannuation law 8, super funds can accept any contributions for clients when they are under 65. For clients who have turned 65 but not yet turned 75, member contributions and employer voluntary contributions (including salary sacrifice) can only be made if a client passes the work test. The work test requires a client to have worked at least 40 hours in 30 days in the financial year in which the contribution is made. The work test must be passed if the client makes a non-concessional contribution after their 65th birthday, even though it may be possible that the work test was met prior to turning 65, but still during the financial year in which the contribution is made. Fund capped contributions Superannuation law 9 restricts the amount of contributions that can be made in a single transaction. For clients under age 65 at the beginning of the financial year the fund capped contribution is three times the non-concessional contributions cap ($540,000 from 1 July 2014). For members aged 65 to 75 at the beginning of the financial year the fund capped contribution is the non-concessional contributions cap ($180,000 from 1 July 2014). 8 Superannuation Industry (Supervision) Regulation 7.04(1) 9 Superannuation Industry (Supervision) Regulation 1994 regulation 7.04((3) 7

Case studies The interaction between the two laws is illustrated in the following case studies: Bill is age 64 on 1 July 2014 Bill makes contributions of $540,000 in December 2014 Bill works full time until his 65th birthday on 17 October 2014 Property Is Bill eligible for the three year bring forward? Yes he is under age 65 on 1 July 2014 What is the amount of Bill s three year bring forward? $540,000 (assuming that the three year bring forward has not previously been triggered) What is Bill s fund capped contribution amount? $540,000 as Bill is under age 65 on 1 July 2014 Does Bill need to meet the work test? Yes he makes the contribution after age 65 Does Bill meet the work test? Yes he has worked 40 hours in 30 days in the financial year in which the contribution is made Outcome Bill can take full advantage of the $540,000 contribution cap. Bob permanently retired in May 2014 Bob makes a $540,000 contribution on 29 June 2015 Bob turns 64 on 26 June 2014 Is Bob eligible for the three year bring forward? Yes he is under age 65 on 1 July 2014 Property What is the amount of Bob s three year bring forward? $540,000 What is Bob s fund capped contribution amount? $540,000 as Bob is under age 65 on 1 July 2014 Does Bob need to meet the work test? Yes he makes the contribution after age 65 Does Bob meet the work test? No he hasn t worked during the financial year Outcome the superannuation fund will not accept Bob s contribution as he has not met a work test during the financial year. Ben contributed $151,000 in April 2014 Ben contributes $299,000 contribution in December 2014 Ben turned 65 in May 2014 and continues working full time Is Ben eligible for the three year bring forward? Yes he triggered it in 2013/14 when he was under age 65 on 1 July 2013 Property (assuming that the three year bring forward has not previously been triggered) What is the amount of Bill s three year bring forward? $450,000 What is Ben s fund capped contribution amount? $180,000 as Ben is not under age 65 on 1 July 2014 He will need to make at least two separate contributions of no more than $180,000 Does Ben need to meet the work test? Yes he makes the contribution after age 65 Does Ben meet the work test? Yes he has worked 40 hours in 30 days in the financial year in which the contribution is made Outcome this will work as long as Ben s contributions are below the fund capped amount. If he made a single contribution of $299,000, the superannuation fund would return the contribution to Ben. He could then make multiple contributions before 30 June. 8

Legislation update February 2015 The following Acts have received Royal Assent: Legislation Purpose of Act Assent date (2014 Budget Measures No. 6) Act 2014 Private Health Insurance Amendment Act (No 1) 2014 Minerals Resource Rent Tax Repeal and Other Measures Act 2014 (Seniors Health Card and Other Measures) Act 2014 This Bill proposes a number of changes: Include untaxed superannuation income in the assessment for the CSHC (with products purchased before 1 January 2015 by existing cardholders exempt from the new arrangements), and extend from 6 to 19 weeks the portability period for cardholders. From 20 September 2014, re-name the clean energy supplement as the energy supplement, and permanently cease indexation of the payment. Implement the following changes to Australian Government payments: from 1 July 2015 pause indexation for 2 years of the assets value limits for all working age allowances, student payments and parenting payment single (PPS); and from 1 July 2017 - pause indexation for 3 years of the assets test free areas for all pensions (other than PPS). From Royal Assent, review DSP recipients under age 35 against revised impairment tables and apply the Program of Support requirements. Generally limit the overseas portability period for DSP to 28 days in a 12 month period from 1 January 2015. Implement the following reforms from 1 July 2015: Limit the family tax benefit Part A (FTBA) large family supplement to families with four or more children. Remove the FTBA per-child add-on to the higher income free area for each additional child after the first. Reduce the primary earner income limit from $150,000 to $100,000 per annum for FTB Part B (FTBB). This Bill seeks to pause the thresholds: to which the Australian Government rebate for private health insurance applies for 3 years. on which the Medicare levy surcharge and the applies for three years from 1 July 2015. The thresholds which will apply will be those of 2014/15. They will apply to the 2015/16, 2016/17 and 2017/18 years. The amendments in this Act: maintain the SG rate at 9.5% until 1 July 2021. After this time the SG rate will increase by 0.5% until it reaches 12% from 1 July 2025 restrict the application of the School Kids Bonus (SKB) to those families with income of less than $100,000 pa discontinue the SKB and the Income Support Bonus after 31 December 2016. The low income superannuation contribution (LISC) will continue in its current form until 30 June 2017. The Act will ensure that the income test thresholds for the Commonwealth Seniors Health Card (CSHC) are indexed annually to CPI starting 20 September 2014. The thresholds for adjusted taxable income are now: $51,500 for singles, $82,400 for couples combined, or $103,000 for couples combined where they are separated by illness or respite care or where one partner is in prison. on 26 November 2014 on 26 November 2014 on 5 September 2014 on 11 September 2014 9

Legislation Purpose of Act Assent date Tax and Superannuation Laws Amendment (2014 Measures No.2) Act 2014 Income Tax Rates Amendment (Temporary Budget Repair Levy) Act 2014 Family Assistance Legislation Amendment (Child Care Measures) Act (No. 2) 2014 Tax Laws Amendment (Temporary Budget Repair Levy) Act 2014 Superannuation (Departing Australia Superannuation Payments Tax) Amendment (Temporary Budget Repair Levy) Act 2014 Superannuation (Excess Untaxed Roll-over Amounts Tax) Amendment (Temporary Budget Repair Levy) Act 2014 Fringe Benefits Tax Amendment (Temporary Budget Repair Levy) Act 2014 Superannuation (Excess Non-concessional Contributions Tax) Amendment (Temporary Budget Repair Levy) Act 2014 Income Tax (TFN Withholding Tax (ESS)) Amendment (Temporary Budget Repair Levy) Act 2014 Family Trust Distribution Tax (Primary Liability) Amendment (Temporary Budget Repair Levy) Act 2014 Act 2014 Tax and Superannuation Laws Amendment (2014 Measures No.1) Act 2014 The Act: increases the Medicare levy low-income threshold for families and the dependent child-student component of the threshold from the 2013/14 financial year. limits the ability of taxpayers who obtain additional franking credits as a result of dividend washing to obtain a tax benefit. The Act increases the 45% marginal tax rate (MTR) to 47% by introducing a 2% levy on all incomes over $180,000 per annum (from 1 July 2014 to 30 June 2017). This Act to amend the A New Tax System (Family Assistance) Act 1999 to maintain the Child Care Benefit (CCB) income thresholds at the amounts applicable as at 30 June 2014 for 3 years from 1 July 2014. It seeks to continue to maintain the Child Care Rebate (CCR) limit at $7,500 for 3 income years, starting from 1 July 2014. The Act introduces the temporary Budget repair levy of 2%. It also seeks to avoid the use of deductions to reduce the levy by ensuring that offsets reduce the basic income tax liability first. The operational date is from 1 July 2014 to 30 June 2017. The Act increases the tax on departing Australia superannuation payments (DASP) to 38% for taxed funds and to 47% for untaxed funds (from 1 July 2014 to 30 June 2017). The Act increases the tax on excess untaxed rollover amounts to 49%. The operational date is from 1 July 2014 to 30 June 2017. The Act increases the fringe benefits tax rate from 45% to 47% (from 1 April 2015 to 31 March 2017). There will be specific exclusion for public and not-for-profit hospitals, public ambulance services and certain other tax-exempt entities. The Act increases the tax on excess non-concessional contributions from 45% to 47% plus the Medicare levy for a period of 3 years from 1 July 2014. The Act increases the withholding tax rate where employees receive shares via an employee share scheme where no TFN is quoted to 47%. The full withholding tax rate will now be 49% (including the Medicare levy). The Act increases the tax on family trust distributions made to an individual other than a member of the family group of the family trust to 49% (from 1 July 2014 to 30 June 2017). The main features of the Act include the: deeming of account-based pensions from 1 January 2015 change in the length of working residence requirements for those going overseas on a Centrelink age pension continuing the freeze on indexation of the child care rebate continuing the freeze on indexation of the upper income limits for family tax benefits removal of late registration for the pension bonus scheme. This Act includes: the gradual phasing out of the net medical expenses tax offset (NMETO) penalties for promoters of early release schemes for superannuation penalty regime for contraventions relating to self-managed superannuation funds (SMSFs). on 30 June 2014 on 30 June 2014 on 31 March 2014 on 18 March 2014 10

Legislation Purpose of Act Assent date Health Insurance Amendment (Extended Medicare Safety Net) Act 2014 Defence Force Retirement Benefits Legislation Amendment (Fair Indexation) Act 2014 Tax Laws Amendment (2014 Measures No. 1) Act 2014 This Act introduces an increase to the Extended Medicare Safety Net (EMSN) to $2,000 from 1 January 2015 (up from a current level of $1,248.70). The main features of the Act are: changes the indexation for the Defence Force Retirement Benefits (DFRB) and DFRDB super payments from CPI to male total average weekly earnings (MTAWE) received by members age 55 or over from 1 July 2014. exempts DFRB and DFRDB members from the higher contributions tax applied to people with incomes over $300,000 (Division 293 tax) if it would otherwise apply due to the one-off increase in the capitalised value of the benefit arising from the new indexation arrangements. From 1 July 2014 the following applies: miscellaneous amendments to the farm management deposit (FMD) rules. increasing the non-primary production income threshold for FMDs from $65,000 to $100,000. allowing consolidation of existing eligible FMD accounts that have been held for longer than 12 months without triggering tax liabilities. on 17 July 2014 on 9 April 2014 on 30 May 2014 The Bills currently before Parliament are listed below: Bill name Purpose of Bill Progress (2014 Budget Measures No. 5) Bill 2014 (2014 Budget Measures No. 4) Bill 2014 This Bill proposes to change the following Australian Government payments: maintain, for 3 years, the current income test free areas for all pensions (other than PPS) and the deeming thresholds for all income support payments (from 1 July 2017). ensure all pensions (other than PPS) are indexed to the CPI only (from 20 September 2017), by removing: benchmarking to MTAWE, and indexation to the Pensioner and Beneficiary Living Cost Index. reset the deeming thresholds to $30,000 for singles and $50,000 combined for pensioner couples from 20 September 2017. increase the qualifying age for age pension, and the non-veteran pension age, to 70, increasing by 6 months every 2 years and starting on 1 July 2025. This Bill proposes to implement a number of changes including: implementing changes to Australian Government payments: stop indexation for 3 years the income free areas for all working age allowances (other than student payments), and the income test free area for PPS (from 1 July 2015). index PPS to CPI only instead of MTAWE (from Royal Assent). maintain at their current levels several FTB free areas for 3 years (from 1 July 2015). implement the following from 1 July 2015: maintain the standard FTB child rates for 2 years in the maximum and base rate of FTBA and the maximum rate of FTBB. revise the FTB end-of-year supplements to their original values and cease indexation. limit FTBB to families with children under 6, with transitional arrangements applying to current recipients with children above the new age limit for two years. introduce a new allowance for single parents on the maximum rate of FTBA for each child aged 6 to 12 years inclusive, and not receiving FTBB. extend and simplify the ordinary waiting period for all working age payments. cease pensioner education supplement. cease the education entry payment. extend Youth Allowance (YA) (other) to 22 to 24 year olds in lieu of Newstart Allowance (NSA) and sickness allowance (SA). require young people with full capacity to learn, earn or Work for the Dole remove the three month backdating of disability pension under the Veterans Entitlements Act 1986. Introduced to House of Representatives on 2 October 2014 Introduced to House of Senate on 2 October 2014 11

Senior Supplements Cessation Bill 2014 Tax and Superannuation Laws Amendment (2014 Measures No 7) Bill 2014 Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014 Labor 2013-14 Budget Savings (Measures No. 1) Bill 2014 (Student Measures) Bill 2014 National Health Amendment (Pharmaceutical Benefits) Bill 2014 Higher Education and Research Reform Amendment Bill 2014 Higher Education Support Amendment (Savings and Other Measures) Bill 2013 This Bill abolishes the seniors supplement for holders of the CSHC. Veterans who hold a CSHC or Gold Card will also no longer receive the seniors supplement. Cardholders will continue to be paid the clean energy supplement (renamed the energy supplement). Cardholders will receive their last quarterly seniors supplement payment in September 2014. This Bill proposes to allow individuals the option of withdrawing excess non-concessional superannuation contributions made from 1 July 2013 (plus 85% of the associated earnings). The full amount of the associated earnings will be taxed at the individual s marginal tax rate (subject to a 15% tax offset). A super fund that receives a release authority must pay to the individual, within 21 days, the amount specified by the release authority. This Bill proposes to: abolish the mature age workers tax offset (MAWTO) as of 1 July 2014, and abolish the seafarers offset as of 1 July 2015. This Bill seeks to amend the Clean Energy (Income Tax Rates Amendments) Act 2011 to repeal: the personal income tax cuts that were legislated to commence on 1 July 2015, and associated amendments to the low-income tax offset (LITO) that were legislated to commence on 1 July 2015. This Bill seeks to amend: the Social Security Act 1991 and Student Assistance Act 1973 to enable an interest charge to be applied to certain debts relating to Austudy payment, fares allowance, YA payments to full-time students and apprentices, and ABSTUDY living allowance payments, and nine Acts to replace the student start-up scholarship with an incomecontingent student start-up loan. From 1 January 2015, this Bill seeks to increase the: concessional patient co-payment by 80 cents general patient co-payment by $5.00 concessional safety net threshold by two prescriptions each year for 4 years from 2015 to 2018, and general patient safety net threshold by 10% each year for 4 years, from 2015 to 2018. This Bill introduces a new minimum repayment threshold of 2% for incomes over $50,638 in 2016/17. The Bill also seeks to change the indexation arrangements of HELP debts from the current CPI to the Treasury 10 year bond rate, up to a maximum of 6% per annum. This Bill includes the removal of the: 10% discount for eligible students who pay at least $500 of their student contribution up-front 5% bonus for those with outstanding HELP debts who make voluntary payments to the ATO. Introduced to the Senate on 28 October 2014 Introduced to the House of Representatives on 4 December 2014 Introduced to the Senate on 25 September 2014 Introduced to the House of Representatives on 16 July 2014 Introduced to the House of Representatives on 17 July 2014 Introduced into the Senate on 17 July 2014 Introduced into the Senate on 4 September 2014 Introduced into the Senate on 4 December 2013 Find out more For more information on the IOOF TechConnect team or any of the IOOF AdviserConnect services, please speak to your business development or relationship manager, go to www.ioof.com.au/adviserconnect or call adviser services: For IOOF Pursuit please call 1800 659 634 For IOOF Alliances please call 1800 205 951 For IOOF Employer Super please call 1800 333 909 This document is for financial adviser use only it is not to be distributed to clients. Issued by IOOF Investment Management Limited (IIML) ABN 53 006 695 021 AFSL 230524. IIML is a company within the IOOF group of companies consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate, and is not a registered Tax Agent. Examples contained in this communication are for illustrative purposes only and are based on the assumptions disclosed and the continuance of present laws and our interpretation of them. Whilst every effort has been made to ensure that this information is accurate, current and complete, neither IIML nor its related bodies corporate within the IOOF Group give any warranty of accuracy, reliability or completeness, nor accept any responsibility for any errors or omissions and shall not be liable for any loss or damage in connection with, any use of or reliance on, the information provided. INV-549