With the federal election just around the corner let’s take a closer look at what each of the major parties is planning with respect to superannuation. Sometimes it’s hard to look beyond the visions spruiked so fiercely by each party and get under the covers of what is ‘actually’ proposed and what implications this will have for you. Let’s start by looking at what is currently in place with superannuation laws and what Labor is proposing.
Under current law, the maximum non-concessional (after tax) contributions that can be made to superannuation is $100,000 per financial year, provided this contribution won’t take you over the $1.6 million total superannuation balance. The bring-forward rule, allows individuals under 65 to bring forward two additional years’ worth of contributions, meaning a maximum of $300,000 can be made.
Labor is proposing the non-concessional contribution cap be reduced to $75,000. This would also see the bring forward amount reduced to $225,000
The reduction in this cap reduces the ability to make larger one-off contributions to super, such as from the sale of an asset or an inheritance.
The current concessional contribution cap is $25,000 per annum. The Labor government are not proposing any changes to this cap.
Those that earn income above $250,000 per annum are required to pay an additional 15% tax on super contributions. For high-income earners, this could mean a total of 30% tax on their superannuation contributions.
The Labor government are proposing a reduction of this threshold to $200,000 from the current $250,000 threshold. This would affect a much greater number of individuals resulting in them paying higher tax on their super contributions.
A new measure that commenced in the 2018/19 financial year allows individuals under 65 with super balances under $500,000 to make catch up concessional contributions. For example, if a year is missed, the following financial year, total concessional contributions of $50,000 can be made ($25,000 for the current financial year and another $25,000 for the year that was missed).
Labor plan to abolish this newly commenced provision which would result in less flexibility for those that may have a period where they miss contributions, such as having time off due to a career break or travel.
From 1 July 2017, a loosening of the rules makes it a lot easier for employees to make concessional super contributions and claim a tax deduction, much like those that are self-employed have been able to do for some time. With the Liberal government’s removal of the 10% rule, all individuals are now able to make use of personal deductible contributions.
Further clarification of Labor’s possible changes are required, however, tax deductions for personal contributions would most likely revert to the old rules or similar. This would make it much less flexible for individuals to make contributions in which a deduction can be claimed.
Super guarantee contributions are only mandated for employees that earn over $450 in a calendar month. Labor plan to progressively phase this threshold out by 2024, which is intended to benefit lower income earners, such as those in casual or part-time employment.
In this year’s federal budget, the Coalition announced only a handful of proposed changes to superannuation. Including:
To wrap things up, it’s evident that if Labor are elected into government, they do plan to remove some of the concessions available under the current superannuation laws.
To discuss how any of these proposed changes may impact you and your superannuation, you should contact your Hewison Adviser.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email email@example.com or visit www.hewison.com.au
Please note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.