Liberal versus Labor: How they will tinker with your super

With the federal election less than a week away, many Australians are wondering how their nest egg will be impacted by the different policies.  With superannuation being a near $3 trillion-dollar pot of gold for the parties, we look at how the Liberals and Labor Party may tinker with your retirement plans.

Adding extra to your nest egg

Liberal policy

The amount of pre-tax dollars you can contribute to superannuation on an annual basis is $25,000.  This cap will continue and is called your concessional contribution cap.   Concessional contributions generally include those you personally contribute in pre-tax dollars where you claim a tax deduction, your employer contributions and any salary sacrifice contributions you make.

Starting in this current financial year, where you don’t utilise your cap each year, you may be eligible to carry forward your unutilised amount for up to five years.  For example, if your concessional contributions total $20,000 this year, you can carry forward $5,000 that you haven’t utilised and instead make $30,000 as a concessional contribution in the 2019/20 financial year.

This incentive is only available if your total superannuation balance as at 30 June in the previous financial year is below $500,000.

Labor policy

Labor has not announced any changes to the concessional cap of $25,000 per year however the catch-up contributions will be abolished.

Claiming a tax deduction for personal superannuation contributions

Liberal policy

A much-needed change to superannuation in the last few years has been the ability for employees to control their superannuation better and not rely on their employer to offer them benefits such as salary sacrifice.  Starting last financial year, if you wanted to add extra money into your super, you could do so and claim a personal tax deduction, regardless of whether your employer offered salary sacrifice or not.  This meant that many employees could start to make extra contributions to superannuation where previously they couldn’t.  The contribution would then be included in the individual’s personal tax return as a tax deduction.

Labor policy

Tax deductions for personal superannuation contributions will be limited, reverting to old rules where deductions were conditional on meeting a test.  The test was only passed by those who were effectively self-employed and not employees, where no more than 10% of your total adjusted taxable income came from employment sources.  This rule will again make it hard for employees to get extra pre-tax (concessional) contributions into their super fund unless their employer is prepared to enter a salary sacrifice arrangement.

Add your own money to superannuation

Liberal policy

If you have money sitting in your personal name, you can add this to your superannuation fund in after-tax dollars.  These contributions are called non-concessional contributions and currently, you can contribute up to $100,000 if you qualify and your total superannuation balance is less than $1.6 million at the end of the last financial year.

In addition to the $100,000 and if you are under 65, it is possible to access the ‘bring-forward’ provisions and make up to 3 years’ worth of contributions at once being $300,000.  Again, this depends on your total superannuation balance and there are different rules depending on where the balance of your superannuation sits, starting at $1.4 million.

Labor policy

The non-concessional contribution cap of $100,000 per year will be reduced to $75,000. This will then adjust the “bring forward” amount to $225,000 as opposed to $300,000. This will also only be made available as a “once off” strategy on meeting certain conditions including receiving an inherence or redundancy.

Hitting the high-income earners

Liberal policy

Currently, if your adjusted taxable income exceeds $250,000, you pay an additional 15% tax on concessional contributions going into your superannuation fund.  This is generally referred to as a Division 293 tax and effectively means that you pay 30% tax on your contributions.

Labor policy

The threshold will be reduced from $250,000 to $200,000 and consequently, those earning less will now be paying this extra tax.

Refundable Franking credits

Liberal policy

The basic rationale for franking credits and refundable franking credits is that the level of tax collected from a business activity should be the same regardless of whether the business is conducted by a company, an individual, partnership or a trust.

As an example, where an individual or super fund is receiving franking credits and paying tax less than the company tax rate (30%), these credits are refunded in full to the individual or super fund.

Labor policy

Labor will abolish refundable credits with very few exemptions.  These will include Age Pensioner and Allowance recipients and SMSF’s where one of the members was receiving an eligible payment from the Government as of 28 March 2018.

With the current government making significant changes to superannuation over the last two years and only just starting to settle into the new landscape, many older Australians will be concerned with the prospect of even more change.  Should Labor win this election, there will be many on the sidelines waiting in anticipation to see if these changes will be passed through the Senate.  If they are successful in the Senate, many will be bracing themselves for another year of change when it comes to superannuation.

Olivia Maragna is the co-founder of Aspire Retire Financial Services and is a respected financial expert.  Olivia’s advice is general in nature and readers should seek their own professional advice before making any financial decisions.

You can follow Olivia on Facebook or Twitter at https://twitter.com/oliviamaragna