What superannuation changes are on the horizon?

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The SMSF sector is perpetually in a state of flux, its laws and rules frequently altered to better fit the circumstances and needs of the present day. The last couple of months alone have provided ample proof of this, with discussion raging inside and outside the halls of power about which changes should be made to the Australian superannuation system.

The legislative shifts that have been proposed can ultimately affect everyone from trustees to SMSF financial planners. Whether minor or monumental, any individual working with SMSFs will want to be aware of what might be in store – but they’ll also want to keep their head about it.

Pension earnings tax, lower higher income threshold on Labor’s agenda

Labor has outlined a number of possible measures for what it sees as the greater good of Australian superannuation. At the top of its agenda is changing the tax exemption for earnings on superannuation balances, by introducing a pension earnings tax.

Under Labor’s plan, a tax of 15 per cent would apply to any pension account earnings per member of more than $75,000, which it claims would affect around 60,000 super account holders. However, the law would only take effect from July 1 2017, and any capital gains accrued before this point would be grandfathered – in other words, the law change won’t apply to these earnings.

Super account holders – particularly a husband and wife – might want to consider re-contribution in order to even out member balances, and avoid the sting of the tax. However, it’s also important to note that, should the tax ever come into place, a 15 per cent rate is still leagues better than paying the marginal rate on savings outside super.

Labor’s other proposal – also to take effect from July 1 2017 – is to reduce the income threshold at which account holders pay a 30 per cent rather than 15 per cent tax on super contributions. Labor wants the cap to fall from $300,000 to $250,000, a measure which it estimates would affect 110,000 Australians.

Other proposals in the mix

Labor aren’t the only ones who have come out with reform ideas. There are a number of other suggestions that have been floating around.

Some of these include increasing the base super contributions tax rate, making franking credits non-refundable once taxable income reaches $0, and even removing the pension tax exemption altogether. The Association of Superannuation Funds of Australia (ASFA) has also suggested placing a limit on the funds an individual can rollover to start an income stream, and capping non-concessional contributions at $1 million over a lifetime.

Keeping your cool in the midst of change

Because it’s still early days, it’s impossible to know which of these measures will be adopted, if any, or what exactly they will eventually look like. However, while it would pay for trustees to keep their eyes on how the situation develops, panicking is unnecessary.

For one, though many try to second guess and predict what the government does to super, there is realistically very little that can be done about it. It’s also important to note that, because of the power of the grey lobby, anything that is brought in will not be retrospective and have massive transitional provisions in place.

Finally, no matter what changes are made to super, it will still most likely be the most tax-effective vehicle for people’s money. Even if tax concessions are scaled back and new caps are put in, having money in super should remain more beneficial than keeping it outside it. Hanging on to the number of a good SMSF administration service provider will therefore continue to be a good idea.