What to expect from the budget for superannuation
There continues to be conflicting and mixed messages surrounding what superannuation reforms might form part of the Government’s looming Federal Budget announcement.
Every day, a range of changes are reported as being on the table then off the table. Obviously, there is no superannuation crystal ball and it really does pay to be patient in these circumstances by waiting for a conclusive answer on what reforms, if any, are planned.
How should you react to the guesswork?
There are a couple of golden rules you should follow around Budget time:
1. Continue to act on the basis that the current law will remain current. Taking drastic action based on rumours could create bigger tax issues if nothing comes to fruition.
2. If appropriate and achievable, before budget night, finalise any actions you were planning to implement before 30 June 2016.
History suggests that superannuation policy changes are not usually backdated as it is practically difficult to apply many changes retrospectively. There is also a tendency with super changes to allow a grace period from the announcement date up to 1 July or even 1 January in the following year.
What changes have been said to be on the table?
- Some form of lifetime caps on super contributions
- Removal of transition to retirement pensions
- A reduction to contribution limits. We may see the current $30,000 and $35,000 caps reduced back down to $20,000 and a reduction in the $180,000 non-concessional cap
Changes rumoured to be off the table
- Super contributions tax
- Tax on super fund earnings
- Capital gains tax concessions
While it is true that you shouldn’t react to rumours, there are some practical things you can consider in the lead up to the Budget to be safe in the event of unprecedented changes, including:
- Ensure planned concessional and non-concessional contributions are made if practical and possible
- Trigger three year bring forward non-concessional contributions (if in line with established strategy)
- Make minimum pension (income stream) payments
- Start any planned transition to retirement income streams
- Carry out any re-contribution strategies where practical and not at the cost of creating a tax event that would be avoided if nothing changes
We are in an election year and this is expected to impact the Government’s decision making on super reform. We will continue to monitor this space in the lead up to the Budget announcement and will keep you informed if any evidence of a real answer emerges.