In late April, the Australian Labor Party introduced changes to its superannuation policy, which seek to remove the tax-free concessions available to people with high annual superannuation incomes. If implemented, the changes will affect 110,000 Australians. This article discusses the proposed changes and how they may affect you or your clients. Stephanie McLennan, Maddocks Lawyers
In late April 2015, the ALP announced changes to its superannuation policy which will impact those who earn $250,000 or more per year or have $1.5 million or more in superannuation. The proposed purpose of the changes are to save an estimated $14 billion over 10 years.
If the ALP is elected, it proposes to:
The changes, which could come in from 1 July 2017, seek to target the superannuation concessions enjoyed by high net wealth individuals.
Currently, earnings from superannuation in the retirement phase are tax free.
The ALP proposes to make the following changes:
At this stage it is not entirely clear how the tax will be imposed, for example, whether the individual or the fund will be taxed. The ALP's policy suggests it will be assessed in the hands of the individual, by stating that the additional 15% tax will be applied to 'annual superannuation incomes from [superannuation] earnings of more than $75,000'.
The ALP website provides the following examples:
Example 1. Doug
Example 2. Susie
The ALP also proposes to reduce the threshold at which HISC kicks in from $300,000 to $250,000.
Individuals who earn more than $250,000 per annum could be required to pay an extra 15% tax on super contributions. The extra amount is only payable on an individual's super contributions which push them over the $250,000 threshold.
At present, someone on $250,000 receives a concession of 30% from their top marginal tax rate on superannuation contributions. The ALP seeks to change this, so those who earn $250,000 will also be subject to HISC and their tax concession will be reduced from 30% to 15%.
Under the proposed changes, high income individuals will still receive a 15% tax concession on their superannuation contributions.
The ALP website provides the following example:
Example 3. Jane
Shadow treasurer Chris Bowen stated that if the ALP was elected, these were the only changes they were seeking to make to the tax treatment of superannuation.
These policy changes need to be kept in context - namely they are changes proposed by the party currently in opposition. However it is worthwhile bearing in mind some implications of the possible changes.
Administration and compliance
It seems apparent that such a policy will greatly increase administrative and compliance issues for super funds. If, say, the tax is assessed on:
then an exercise must be undertaken to determine what part of the pension income is attributable to those earnings, and what part of the pension income is funded by a return of the capital funding the pension. Such an approach certainly runs counter to one of the key original rationales for tax-free pensions, namely administrative simplicity.
Planning for such changes
It is sensible, however, for all advisors to be aware of the possible implications of such a legislative change, and to consider how such changes may affect you or your clients.
For instance, if clients who are in a relationship have drastically different account balances in super, then advisors should bear in mind the benefits of implementing measures aimed at evening out those balances (including by using contributions- splitting). This will help ensure that, if such policies become law, couples will not pay more tax than they have to just because one partner has a much larger account balance (and pays tax on earnings/income over $75,000) than the other (who may have earnings/income nowhere near $75,000 per annum).
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
You can read earlier ClearLaw articles on a wide range of SMSF topics.
Julian Smith is a partner in the Maddocks Commercial team.
Julian advises extensively in the following areas:
Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.
Julian has been with Maddocks since undertaking articles in 2001.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.