Possible Superannuation Changes

There is much commentary about possible tinkering of Superannuation by the Federal Government.  When you understand that superannuation benefits cost the government budget $16 Billion per annum, it is easy to understand that there will be a higher likelihood of tinkering.  I think you can take it as a certainty.  So what can they do?

Well, they could make changes to Superannuation contributions.  At present, current tax benefit on contributions can be as high as 34%.  I would expect that super contributions may become taxed at your marginal tax rates.  Why? Because that increases Government revenue now, rather than a future government revenue stream. So with this in mind, what can be done to limit the impact to you? I think it’s unlikely that the change will take effect other than at year end date, however, to remove doubt you could always make current year concessional contributions now rather than leaving it until year end.  There is an alternative option getting some airplay which is marginal tax rate less 15% discount. Either way, I expect there will be greater tax on contributions.

Another possibility would be to tax annual income higher than a rate of 15%. I would be surprised if they take this option in favour of adjusting contributions tax. I expect it will stay the same since the Government still needs you to have an incentive to save for your retirement, as the treasurer has stated, you shouldn’t rely on the pension.

There is the unlikely option to cease or reduce the exemption on pension income streams. I think this one is going to be very difficult to implement. The previous Government tried, and backtracked, as it was too complicated. Although they are still putting that option forward in varying formats now! The way it could be achieved in my mind would be to alter the zero tax rate to a figure less than the Superfund ordinary tax rate of 15%. Such a move does make sense to a government trying to meet growing health and infrastructure costs, but it will be politically difficult for any government to change arrangements that many retirees are already dependent upon. So what can be done to limit the impact to you? Any change I would expect at the start of the year, but to remove doubt for the current year, you could fully draw the current year pension.

Finally, they could always alter contribution limits. I expect such will only benefit people who are in and out of the workforce however, I wonder if they will have the funds to take advantage of this initiative.

Please remember, Superannuation has inherent benefit as a means to provide for your retirement and provide asset protection. I expect it will remain a strong retirement planning option, notwithstanding Government tinkering.

So my best guess would be to expect that the tax benefit of super contributions will be reduced or removed, followed by changes to exempt status of retirement income streams.

By the way, watch out also for the possible tinkering of the 50% general discount on capital gains but that’s for another day….

-Ian Hogbin, FCA. 10/12/2015

The aforementioned comments should not be relied upon as certainty of what form Government changes will take. Should you have any questions or wish to discuss this matter further, don’t hesitate to contact Coffs Harbour’s leading Chartered Accountants, HQB!