Superannuation is always a contentious area and subject to constant interference by governments tinkering with the rules. A change of government will again see a shift in the goal posts for superannuation and the ability of people work towards a self-funded retirement.
Many of the Labor super proposals are about contributions and will further restrict the amount that can be made or do away with some recently-introduced concessions. Here is a quick summary of what Labor is proposing.
1. Reduction in non-concessional contributions
The standard annual non-concessional contribution cap of $100,000 will be reduced to $75,000. The ‘bring-forward’ rule will then change to allow a one-off (after-tax) contribution of $225,000 for an individual, or up to $450,000 for a couple to a maximum of $225,000 each.
The cut in the cap reduces the ability to make a “one-off” contribution to super, which can come from the proceeds of selling investments, an inheritance, a redundancy payment or some other means.
2. Changes to tax deductions for personal superannuation contributions
Since July 2017 it has been possible to claim a tax deduction for personal superannuation contributions provided the fund has received a notice to claim a tax deduction in writing. Any personal contribution still had to be within the $25,000concessional contribution limit of $25,000 was not exceeded.
This was a practical change that removed the cumbersome process of having to top up super by salary sacrifice. It is also useful for non-working people under the age of 65 to contribute to their fund and claim a tax deduction.
Under Labor, tax deductions for personal superannuation contributions will be more restricted and revert to the previous rules. However, more detail is required to work out who may be impacted.
3. Catch-up concessional contributions
You may be eligible to claim personal ‘catch-up’ concessional contributions from 1 July 2018 if you meet certain conditions. Under this rule, you can carry forward the shortfall in your concessional contributions for up to five years and can claim a personal tax deduction up to the catch-up amount if your total superannuation balance is below $500,000.
This rule was viewed as a positive change in 2017 to mitigate the reduction of the concessional contribution caps from $35,000 down to $25,000 for those who were over 50 years of age. It’s not until later in life after mortgages are paid down that people begin to have free cash to contribute to their retirement saving.
Catch-up contributions will be abolished under Labor as they consider these to provide an unfair advantage to upper-income earners.
4. Decrease in the Division 293 high-income super contribution threshold
If you are a high-income earner you are liable to pay an addition 15 per cent on concessional contributions up to the standard cap amount of $25,000 if your adjusted taxable income exceeds $250,000.
Labor has proposed to reduce the high-income superannuation contribution threshold to an adjusted taxable income of $200,000 from the current $250,000 threshold.
5. $450 superannuation guarantee threshold to be phased out
Superannuation guarantee is not payable by an employer for employees who earn up to $450 in a calendar month.
Labor will progressively reduce the $450 monthly threshold in increments of up to $100 each financial year between 2020 and 2024. This is a positive change benefiting low-income earners, casual employees and those in part-time employment.
6. Superannuation guarantee to be paid on the Federal Government’s paid parental leave
Under Labor superannuation guarantee will be paid on amounts you receive under the Federal Government’s paid parental leave scheme. At present, $719.35 is paid weekly for 18 weeks if you are female, meet a work test and earn less than $150,000 per year. The amount paid for the superannuation guarantee in this case would be 9.5 per cent of $719.35 ($68.34 weekly to a maximum of $1,230.08 over 18 weeks).
7. Direct borrowing by superannuation funds and limited recourse borrowing will cease
Currently, an SMSF can borrow for purposes of a limited recourse borrowing arrangement where a single acquirable asset like property is purchased by the SMSF.
Limited recourse borrowing arrangements by superannuation funds will cease prospectively
8. Franking credit refunds abolished
Individuals and superannuation funds are entitled to a refund of franking credits, if the franking credits plus any pay-as-you-go tax paid by the individual or fund exceeds their tax liability.
Under Labor refunds of excess franking credits that exceed tax liabilities will cease for some taxpayers. Generally, the policy will apply to most individuals, SMSFs and some larger superannuation funds.
What next?
It’s a bit of wait and see until the next election due in May. The Coalition has not announced any changes to their superannuation policies and it is likely to be a key point of difference between the two major parties.
The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.