Superannuation Planning – What is happening / What might happen??

Matt Richardson

Peter Cramer, Kerry Schultz and myself recently attended the SMSF Association National Conference in Melbourne.

We spent some time reviewing the status of a couple of policy announcements from last year’s budget as well as reviewing some of Labor’s proposals for superannuation should they win Government.  I will provide some commentary on these below:

Previous Policy Announcements

  • 3 yearly audits for SMSFs – the basis of this announcement was to look at ways to possibly save compliance costs for Trustees.  There were many SMSFs which would be excluded from this (eg if there was a related party transaction, in-specie contributions, borrowings, member death or death benefit paid during the year, pension commencement during the year.  The SMSF Association’s position was this would not save any costs as it increases the likelihood of errors occurring and three years’ worth of audits still have to be carried out.  Regardless – there has been no legislation introduced to Parliament and there is not even any draft legislation in place at this stage.  It appears unlikely to be introduced prior to the election and if Labor win Government, they are unlikely to reintroduce this policy!
  • Increase maximum SMSF member numbers from 4 to 6 – this is to cater for larger family groups.  The advantages seen with this policy are the pooling of more member benefits which lowers the administration costs per member, the ability to purchase certain assets (such as direct property) due to having greater funds available and the ability to combine accumulation and pension members in the one SMSF (which would assist in counterbalancing the impact of the loss of refundable franking credits for pension members).  However – there will be disadvantages which will also need to be considered.  These include:
    • How will decisions now be made? Is it one member one vote?  Is it by account balance?  What if mum and dad have 90% of the assets and the 4 kids have 10% of the assets?
    • Are separate investment strategies required for each member?
    • Will this increase administration costs due to segregation rules having to be met?

Labor Superannuation Proposals

  • The obvious one here, which is not limited to SMSFs, is the abolition of the refund of surplus franking credits;
  • To lower the annual non-concessional contributions cap from $100,000 to $75,000;
  • To repeal the recently introduced concessional contribution “catch up” rules.  This was introduced to assist taxpayers with an irregular work history and smaller super balances (less than $500,000) where if you hadn’t fully utilised the maximum annual concessional contributions cap of $25,000 in any of the last 5 years you could “catch up” the unused portion;
  • To repeal the abolition of the 10% rule.  THIS IS SIGNIFICANT.  Prior to 1 July 2017, in order for a wage earner to claim a tax deduction for superannuation contributions, less than 10% of their total income could be in the form of wages.  This was recognised as an archaic and discriminatory rule and was abolished from that date.  Labor wants to reintroduce the 10% rule which would severely impact employees!
  • To abolish the ability of SMSFs to borrow via Limited Recourse Borrowing Arrangements (LRBAs).
  • To lower the “Division 293” threshold from $250,000 to $200,000.  This relates to higher income earners where their “adjusted” taxable income is above these thresholds they will effectively incur an extra 15% tax (to a total of 30%) on the contribution.
  • End the freezing of the 9.5% Superannuation Guarantee rate for employees and fast track an increase to 12%.

With the increasing likelihood of a change of Government, we are approaching the unknown.  Will Labor’s proposals go through or will there be changes?  We don’t know the answer to that.  However, as soon as changes appear, we will be in touch with you all about how it will/may affect you.

For all of your superannuation queries – contact the team at Green Taylor Partners.