Non-concessional cap reduced to $75,000
The Labor Party proposes to reduce the non-concessional cap (subject to the $1.6 million total superannuation balance) to $75,000. The $1.6 million total superannuation balance cap will not change although a lower annual contributions cap means that fund members have a little less flexibility in the years they can build up their balances. The non-concessional cap is currently $100,000.
Concessional deductions for employed taxpayers denied
Under this proposal, employed taxpayers will no longer be able to contribute deductible superannuation contributions where their employer contributes less than $25,000 on their behalf. Currently, individuals can make such deductible contributions on their own behalf. The removal of this ability rolls the superannuation law back to its previous state.
High income superannuation contribution threshold
The Labor Party proposes to lower this further to $200,000 meaning that more workers will be subject to additional tax on their superannuation contributions. Division 293 tax reduces the tax concession on superannuation contributions for individuals with income greater than the threshold. Essentially this means that certain high income individuals contributing to superannuation via concessional or tax-deductible contributions pay an additional 15% tax contribution. Currently the income threshold for the tax applying is $250,000 and the Labor Party proposes to lower this threshold to $200,000.
Abolition of catch-up concessional contributions
The Labor Party opposes the introduction of catch-up concessional contributions over a five-year period that commenced on 1 July 2018 as introduced by the Coalition Government. No start date has been announced. Currently taxpayers can only contribute concessional contributions up to the annual cap ($25,000), but if the contribution for one financial year is less than $25,000, they can carry forward any unused cap to be contributed above the $25,000 cap in future years. Potentially, someone who leaves the workforce for a period of time (such as maternity leave) can carry forward their cap and upon return to work, make higher contributions to ‘catch-up’ for their absence.
The Labor Party proposes, when prudent, to end the freeze of the superannuation guarantee at 9.5% and return to the previous bipartisan proposal to increase the superannuation guarantee to 12% over time. Currently the Superannuation Guarantee rate is set to remain at 9.5% for another three years (until 30 June 2021), increasing to 10% from July 2021, and eventually increasing to 12% from July 2025.
Borrowing by SMSFs prohibited
The Labor Party has consistently said that they will prohibit SMSFs from entering limited recourse borrowing arrangements for housing investments if it wins the next election. A limited recourse borrowing arrangement (LRBA) involves a SMSF taking out a loan from a third party lender and then using that loan to purchase an asset held in a separate trust with investment returns earned from the asset going to the SMSF. If the loan defaults, the lender's rights to the asset are limited because the asset is held in a separate trust. LRBAs are almost completely exclusive to SMSFs.
Most of these superannuation announcements limit the flexibility with which individuals can make contributions to their superannuation savings. In an environment where the policy settings around superannuation limit total benefits available, it should be queried why these flexibility measures are being repealed.