Written by Hudson Adviser Michal Park
A looming Federal Election can only mean one thing – CHANGE. Specifically change to the superannuation system – though proposed changes the ALP have been somewhat under the radar so far, playing second fiddle to the more sensationalist headlines of negative gearing and franking credits. For those who need a recap:
A two fold proposal – halving the capital gains tax discount and confining negative gearing to new properties. The former somewhat justified given the decline in the inflation rate (as it was initially established to take into account the effects of inflation) but the latter likely to have an as yet unknown impact on an already unstable property market.
Labor plan to abolish cash refunds on franking credits which will impact low taxpayers who rely on them to boost income (think self funded SMSF retirees).
Now regarding super, having only just gotten our heads around the Coalitions changes (some of which only came into effect 1 July 2018), Labor has also announced the following proposed changes in this space – which may very well become law if they are to be our next Government:
A reduction in the non-concessional contribution cap to $75K
Currently set at $100K per annum (since 2017/2018), down from $180K per annum in 2016/2017 and prior. So essentially, the non-concessional super cap is set to be reduced by nearly 60% within the last two years.
One of the more beneficial uses of the non-concessional cap has been the ability to “bring forward” three years worth of non-concessional contributions and get a lump sum into super in one hit (generally from the sale of an asset or inheritance etc). With the proposed changes, this means an individual can only get up to $225K into super under this strategy.
The cessation of ‘catch-up’ concessional contributions
The idea of catching up on concessional contributions was to allow individuals with lower superannuation balances (under $500K), having temporarily left the workplace (eg maternity leave) to carry forward their cap and make higher contributions to “catch up” upon their return to work.
This came into effect 1 July last year and is likely to be scrapped under the ALP.
The cessation of deductibility of personal contributions within the concessional cap
This is likely to have the biggest impact with many individuals jumping on board when Turnbull, only last year, relaxed the restrictions around who could claim deductions on personal contributions up to the concessional cap. The concessional cap is currently set at $25K per annum and includes employer contributions, salary sacrificed contributions and personal contribution on which an individual can claim a tax deduction.
The cessation of borrowing within SMSFs
The plan is to adopt previous recommendations made by the David Murray Financial System Inquiry to prohibit SMSFs from borrowing to purchase investment assets.
Higher income tax lowered to $200K
This is a blatant tax grab. Division 293 tax is currently levied on the concessional contributions of individuals earning in excess of $250K per annum (was $300K prior to 1 July 2017). Essentially this means individuals earning above $200K per annum pay 30% tax on concessional contributions, rather than the standard 15%.
Employer superannuation contributions to rise to 12%
The phasing of SGC from 9.5% to 12% has always been on the cards, though Labor are proposing to do it over a shorter period. The current timetable is as follows: