In my recent article, “How will the upcoming election affect you and your money?” I addressed the upcoming election and the proposed key policy changes. Now, I’m going to hone in on the proposed changes in Superannuation and the likely impact it may have on us.
Bear in mind, these are only proposed changes at this stage. For these changes to occur, there needs to be a change in government, new policies implemented via legislation before any appropriate strategies can be developed.
Let’s take a look at…
The ALP’s unpopular proposal to remove franking credit “cash refunds” where dividends are received has been proposed to commence 1 July 2019. The Coalition has not proposed any changes to the current legislation.
With an obvious attack on self-funded retirees and trustees/members of self-managed super funds, the ALP has “softened the blow” by:
- confirming that it won’t affect recipients of a Centrelink pension or allowance, or members of a SMSF with at least one member receiving a Centrelink pension or allowance (referred to as the ‘pensioner guarantee’); and
- that the franking credits could still be used to offset a tax liability and to reduce tax payable.
This means little to the thousands of self-funded retirees, individuals and SMSFs invested in either direct Australian equities (shares) and portfolios containing a mixture of Australian equities.
Capital Gains Tax (CGT) discount
There has been no proposed changes by either party to the CGT discount of 10% currently available to superannuation funds (including SMSFs) for those under the age of 60 years, nor the 0% CGT for assets disposed within superannuation for those retired and over the age of 60 years.
This is good news for clients nearing retirement and over the age of 60 years that have a self-managed super fund holding investment property (with or without an LRBA) that are looking to liquidate the asset.
Is it possible this has slipped under the radar? I doubt anything ever slips under the radar, so I’ll be keeping a close eye on this and let’s hope it remains unchanged for the foreseeable future.
Non-Concessional Contribution Cap (NCC)
The ALP has proposed a reduction to the non-concessional contribution (NCC) cap from $100,000 down to $75,000 pa. (No proposed changes to the current legislation from the Coalition).
This means that the existing bring-forward rule (which permits an “after-tax” contribution of up to $300,000 in a single year) would be reduced to a maximum of $225,000.
No commencement date has been put forward by the ALP, however my take is that this is not good news for anyone looking to retire within the next 12 months or beyond as it would limit the amount one can contribute to Super in a lump sum (which is a low taxed environment, perhaps even a 0% tax environment for retirees that qualify and are drawing a pension).
“Hold on” I hear you say, “what about the additional $300,000 (per person, if you’re a couple) that you can contribute to Super from the proceeds of selling your family home?”
Well that hasn’t been tabled, however you would have to give serious consideration to this strategy and how it could impact your pension entitlements as you could end up with no pension due to the assets test. If you’re looking to retire soon, it may be prudent to consider maximising the NCC contribution prior to the end of this financial year as part of a pre-retirement strategy (but not sell the family home).
Limited Recourse Borrowing Arrangements (LRBAs)
The ALP has proposed to ban Limited recourse borrowing arrangements (LRBAs) in a Self-Managed Super Fund, with the Coalition remaining silent on the matter with no proposed changes to the current legislation.
This will affect those individuals or business owners that are considering setting up a self-managed super fund to buy an investment property or transfer/buy business real property (with borrowed funds). If you consider this in light with the proposed reduction in contribution limits and bring-forward limitations, its going to be harder to payout an existing loan(s) in your SMSF by making Non-concessional contributions.
In particular for business owners looking to transfer their business premises into their self-managed super fund, I encourage you to meet with me sooner rather than later as the proposed commencement date is 1 July 2019.
Superannuation Guarantee Contribution (SGC) rates
If the ALP takes office, they plan to accelerate an employer’s compulsory Super Guarantee Contribution (SGC) from the current 9.5% to 12%.
The Coalition has not proposed any changes to the current rate (rising from 9.5% to 10% as planned in 2022, and gradually increasing to 12% SGC by 2026).
As an individual/employee this would be welcomed news as it would fast-track building up your super fund balance, but for a small to medium business this would only add to the pressures of having to find additional cashflow and increase profits to compensate, with a knock-on effect of a reduced bottom line.
Will this have a negative impact on the over 2.3 million businesses in Australia, small business accounts for 97% of all businesses? It’s a lot of undue pressure on such an important sector that has contributed to the increased employment rate, and may adversely impact the recent “tax breaks” that were announced in the budget to stimulate our economy.
There are many other budget and policy announcements that could affect you so staying informed is critical to your financial situation not just for the future but for today as well. We will be watching closely on the run up to the election and beyond so that we can keep you informed on the potential impact this policies may have on you.
In the meantime being prepared and aware of what’s happening with your money is the first step to ensuring you are in control. The time is now to catch up and assess your situation!
by Steve Luman AFP, TPB, ADFP
Sunlife Financial Advisory is a corporate authorised representative of Myplanner Professional Services Pty Ltd AFSL 425542.
All content contained this website is of a general nature and intended solely for illustrative purposes. Such content is not to be construed as advice (neither general or personal) as we have not taken into account your personal information, financial situation, goals & objectives or personal circumstances.
We recommend you consider the appropriateness of this content with regards to your own financial situation, goals and objectives and (before taking any action) consult with one of our financial advisers.