• Bill Savellis

A Comparison Of Coalition And Labor Superannuation Policies

Updated: Mar 29, 2020

Like it or not, free and fair elections are the bedrock of modern democracies. While many of us devote more time to devising a strategy to avoid queues at the polling booth than we do to evaluating in depth the policies of each party standing a candidate for election, it is worthwhile looking at what the parties are offering voters.

Particularly this year, where the choice between the two major parties has never been starker.

In recent years, we’ve seen the changes the Coalition has made to superannuation rules. We also have their recent federal budget delivered just before the election. The Labor Party has also had the main planks in its election platform out in the sunshine for 18 months now. So, to get some perspective on Labor’s position on superannuation, let’s compare Labor’s policy position with the present provisions for superannuation legislation.

Superannuation Contributions

1. Cap On Concessional Contributions

Present Legislation Provisions

The current cap on concessional payments for the 2018/19 financial year, is set at $25,000 for an individual. No higher caps apply o older Australians. The present contribution cap is indexed and increases in $2,500 increments. Currently, the cap will remain at $25,000 for the 2019/20 financial year.

Proposed Labor Position

To date, the Labor party have not announced proposed changes to the existing concessional cap. It has, however, announced proposed changes to the catch-up concessional cap rules outlined below.

2. Non-Concessional Contributions Cap

Present Legislation Provisions

Non-concessional contributions of up to $100,000 can be made assuming you meet the qualifying criteria and your total superannuation balance is less than $1.6 million as of the previous 30 June.

Should you still be under 65, you are able to access the current ‘bring-forward’ rule to make non-concessional contributions over a fixed three-year time frame ranging up to $300,000. This is subject to your total superannuation balance being no greater than $1.4 million as of June 30 of the previous financial year. Should the total balance of your superannuation fund be between $1.4 and $1.5 million you are able to make non-concessional contributions over a fixed two-year time frame ranging up to of up to $200,000. Finally, should the total balance of your superannuation fund be between $1.5 and $1.6 million, the standard annual limit of $100,000 applies to your non-concessional contribution.

Proposed Labor Position

Labor plans to reduce the current of $100,000 standard annual non-concessional contribution cap to $75,000. Similarly, the existing ‘bring-forward’ rule will be amended to allow a one-off after-tax contribution for an individual of $225,000 or up to $450,000 for a couple. A maximum $225,000 cap will apply to each.

Currently, the proceeds from a redundancy payment, an inheritance or the sale of investments are often channelled into superannuation via a ‘one-off’ contribution. Labor’s proposed cut to the current cap reduces the availability to make these forms of contributions.

Access to the ‘bring forward” rule and non-concessional superannuation contributions will continue to be dictated by your total superannuation balance measured as at 30 June in the previous financial year.

3. Concessional Contributions Catch-Up Provisions

Present Legislation Provisions

Assuming you conform to certain pre-requisites, you may be eligible to claim your personal ‘catch-up’ concessional superannuation contributions. While this provision came into force during the present 2018/19 financial year, the first year an individual will be eligible to make a ‘catch up’ contribution will be the 2019/20 financial year.

This ‘catch up’ contribution is formulated as being: the gap between those superannuation contributions made for you by your employer together with your concessional contributions and your cap of $25,000 annual concessional contribution. This contribution shortfall may be carried forward for up to five years. Providing at 30 June in the previous financial year your total superannuation balance was less than $500,000, you will be allowed to claim a personal tax deduction up to the total catch-up amount.

Assuming, during the 2018/19 financial year, you earned $100,000 and your employer made their $9,500 compulsory super guarantee contribution (or 9.5 per cent of $100,000) a $15,500 unused catch-up concessional contribution would be available to you (i.e. $25,000 - $9,500) to claim. This concessional amount may be carried forward for the following five years.

Hence, if as at 30 June 2019 your total super balance was less than $500,000, your 2019/20 financial year concessional contribution cap would be $40,500 (or that financial year’s set $25,000 concessional contributions cap + the $15,500 carried forward from your previous financial year).

Proposed Labor Position

Labor is proposing to abolish the present ‘Catch up’ contributions. They are seen as providing an unfair advantage to higher-income earners.

4. Personal Superannuation Contributions Tax Deductions

Present Legislation Provisions

Current provisions allow you to claim a tax deduction for contributions to your personal superannuation, providing you have advised your fund of your intention in writing and the fund have written to you to acknowledge receipt of your notification. Your maximum personal superannuation contributions you are allowed to make without incurring a tax penalty is $25,000. This includes any salary sacrifice or employer component.

For example, if your salary for the current financial year is $100,000 your employer would be required to make a 9.5 per cent superannuation guarantee contribution of $9,500. This contribution would allow you to make tax-deductible personal contributions of a maximum of $15,500. This is calculated by subtracting the employer contribution of $9,500 from the maximum allowed contribution.

Proposed Labor Position

Your personal superannuation contributions tax deductions under Labor are likely to revert to the previous regulatory framework and hence will be more limited. However, additional details around the announcement are needed to establish just which group of taxpayers these possible changes could impact. The previous rules allowed a for personal contributions deduction if less than 10 per cent of your total adjusted taxable income was derived from your sources of employment.

5. Division 293 High-Income Super Contribution Threshold

Present Legislation Provisions

Should your adjusted taxable income exceed $250,000, the current legislation mandates you pay an additional 15 per cent tax on any concessional contributions up to the $25,000 standard cap threshold.

So, should your income equal or exceed $250,000 this will trigger a further 15 per cent tax levy (this represents a total effective tax rate of 30 per cent after factoring in the contributions tax 15 per cent already paid by your super fund) on any concessional contributions inside the $25,000 cap that exceed the levy threshold.

For example, should you have an adjusted taxable income of $275,000 and your employer contributes $25,000 to your super fund, you would owe $3,750 ($25,000 x 15%) in additional taxes. However, if your adjusted taxable income was $260,000 and $25,000 in concessional contributions were made to your fund then the amount taxable at 15 per cent ($1,500) would be only an additional $10,000.

Proposed Labor Position

Labor is proposing to substantially reduce the high-income superannuation contribution from the present $250,000 threshold to $200,000. This will potentially impact a significant number of individual taxpayers.

Superannuation Guarantee

1. Government’s paid parental leave is to attract the Superannuation guarantee

Present Legislation Provisions

The current Superannuation guarantee contributions usually paid by your employer are suspended should you be receiving paid parental leave.

Proposed Labor Position

Superannuation guarantee contributions will be paid on any parental leave payments received under the federal government’s paid parental leave scheme. Currently, a weekly payment of $719.35 is made weekly over 18 weeks if you earn less than $150,000 per year, are female and meet a work test. The amount payable under the SG will be 9.5 per cent of the $719.35 payment (or $68.34 weekly up to a maximum of $1,230.08 over 18 weeks).

2. Phasing out the current $450 superannuation guarantee or SG threshold

Present Legislation Provisions

The Superannuation guarantee is currently not payable by employers for their employees earning up to $450 in a calendar month.

Proposed Labor Position

Under Labor, the current $450 monthly threshold will be progressively reduced in $100 increments in each financial year from 2020 to 2024. This change is intended to benefit casual employees, those in part-time employment and full-time low-income wage-earners.

Limited Recourse Borrowing

1. Superannuation Funds Claiming ECPI or Exempt Current Pension Income

Restrictions now applying to the amount of fund income that can be claimed as exempt current pension income (ECPI).

Present Legislation Provisions

From 1 July 2017 a transfer balance cap or TBC of $1.6 million of a member’s benefits that may be transferred to a ‘retirement phase income stream’ was introduced. This cap effectively confines the amount of ECPI able to be claimed by a superannuation fund, where it has a balance greater than $1.6m in total superannuation benefits together with members with retirement phase income streams.

Proposed Labor Position

Prior to the TBC introduction, Labor articulated a policy of limiting the total ECPI a fund could claim to $75,000 per member. Current Labor policy on this provision remains unclear.

2. Limited recourse borrowing and direct borrowing by a superannuation fund.

Present Legislation Provisions

Your SMSF is allowed to borrow for investment purposes providing the loan provisions and the asset being acquired conform to strict criteria.

Proposed Labor Position

Labor’s policy is to abolish limited recourse borrowings. Those currently in place prior to the law changes will be protected under a grandfathering provision.

Common Ground

1. Lifting The Aged Pension Qualifying Age

Present Legislation Provisions

By 1 July 2023, six-monthly increases in the Age Pension age will take place raising the qualifying age for a retirement pension to 67.

Proposed Amendments Abandoned

The current Coalition government abandoned its previous plans to lift the qualifying age for the age pension age to 70. Under its current policy settings, Labor will not increase the aged pension qualifying age if it takes government.

2. Increase the superannuation guarantee (SG) rate to 12 per cent.

Present Legislation Provisions

The Superannuation guarantee rate will currently increase from the 2021/22 financial year at 0.5 per cent per year until it reaches 12 per cent during the 2025/26 financial year.

Possible Amendments

Labor has outlined its preference for increasing the superannuation guarantee rate as soon as it is feasible. Recently, the Productivity Commission opposed increasing the SG, which is planned to rise to 12 per cent.

Other Potential Policy Differences With The Potential To Impact Superannuation

1. CGT Discount

Present Legislation Provisions

A 50 per cent discount applies to any capital gains made on CGT-liable assets held by an individual for at least 12 months. A one-third discount applies to those assessable capital gains realised on the CGT-liable assets held within a superannuation fund for a minimum of 12 months.

Proposed Labor Position

Labor is proposing to halving to 25 per cent, the 50 per cent discount applying to capital gains made by individuals on CGT assets held for at least 12 months. This will apply to CGT assets acquired from 1 January 2020. The one-third discount applying to superannuation funds will remain unchanged.

2. Taxing Discretionary Trust Income

Present Legislation Provisions

Distributions from discretionary or family trusts are taxed according to the beneficiaries personal tax rate.

Proposed Labor Position

Currently. Labor proposes to introduce a minimum tax rate of 30 per cent to distributions from discretionary trusts. This measure is intended to reign in artificial income splitting and tax minimisation. This is unlikely to impact SMSFs, given the trust distributions they receive are typically sourced from unit or fixed trusts, rather than discretionary trusts. Current legislation treats as non-arm’s length income and distributions flowing from a discretionary trust to an SMSF. Consequently, these distributions are taxed at the top marginal tax rate.

3. Dividend imputation

Present Legislation Provisions

Superannuation funds and individuals and qualify for a franking credit refund, should the franking credits together with any PAYG tax paid by the superannuation fund or individual exceed their tax liability.