Federal Budget / SMSF

Where to now for budget super changes?

turnbull v shorten

The activity surrounding the superannuation changes announced on budget night went into overdrive last week as people digested the measures that the Coalition looks to introduce.

Typically we see a process following Budget night whereby these measures are introduced as Bills into Parliament to enact these as laws – this requires the Bills having to successfully pass through the House of Representatives, then the Senate and finally onto receive Royal Assent.  However, this was clearly never going to be the case, with the now election called and the Government having moved into Caretaker mode.  What we saw on budget night was effectively election promises, nothing more, nothing less…

Unfortunately though, we can’t take these election promises lightly as we know the way forward with super policy under a Coalition Government if re-elected.

On Thursday night we saw the Opposition Leader, Bill Shorten deliver his budget reply.  Again, it wasn’t so much a reply, but an opportunity to present Labor’s blueprint to gain office come July 2.  Superannuation is also a central plank of Labor’s reform by redistributing the tax concessions.

So how do the party’s stack up?  I’ve put together a summary below that compares what we know about both parties and changes to superannuation:

Libs-v-Labor-super-policies

So, here’s the problem as I see it…

We have measures that impact retirement planning today, with potentially a level of uncertainty that could exist for 4 months or more.  Subject to who is elected, it could have a detrimental impact on a person’s ability to contribute money into super between now and 30 June.

Ordinarily, the decisions on such proposed measures would be debated, defeated, amended and potentially progressed through the various houses.  At least the time frames were such that we could gauge if and how these measures would impact an individual’s decisions going forward.  At the moment, it would be fair to say that the next 3-4 months are going to provide nothing more than confusion – this is because we lack policy detail to help us understand what change lies ahead.  Ultimately, all we’ve got to look forward to in the immediate future is 8 arduous weeks of campaigning in the lead up to the federal election (#shootmenow).

To find out more about each party’s respective policies:

PS.  I’m providing regular Facebook “live” videos on the budget and other super topics – you can like at http://www.facebook.com/thesmsfacademy

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One thought on “Where to now for budget super changes?

  1. Under the Labour plan it would appear that ‘earnings’ in the pension phase > $75k will be subject to tax. Most large pension accounts would have substantial longer term assets where there are no, or little, annual earnings.

    The ALP state ‘Importantly, the policy settings mean that this reform will not impact full or part aged pension as the basic income test for the aged pension (singles and partnered) is under the $75,000 threshold. Under the proposal, capital gains will be grandfathered.’

    The last line would suggest that there will be a notional ‘earnings’ based on the account size.

    Under the coalition very large funds will hold very long term assets in the accumulation account and pay zero tax until sold and then only 10%. As there is no minimum draw down in accumulation funds (unless a small print change) then it would be an ideal vehicle for property investments.

    I don’t see the ATO gaining very much from the large funds, over the next 5 to 10 years.

    If there was a real political will to reduce the very large funds, then a possible solution would be to increase the minimum draw down over various limits. A 25% minimum for accounts of $20 – $100m would bring these accounts down to $20m in a maximum 6 years, and accounts of $10-$20m, at 15% draw, would bring these accounts down to $10m in 4 years. Accounts of $5-$10m, at 10%, would bring these accounts down to $5m in 5 years. All assuming a current draw down status of 5% and zero earnings to keep the math comparable.

    By year 4 or 5, the total tax take would be more than the current coalition proposal, and from then on, the tax take would be substantially higher. And no retrospective changes!

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