Contact: Edwina Ring, ESV (New South Wales, Australia)
Earlier this year the Abbott Government commenced a process for implementing major tax reform, however after a change in leaders there has been some uncertainty as to what this reform will now look like.
Prime Minister Malcolm Turnbull has continued this process, however, he has put many options previously dismissed by Mr Abbott back on the table. In particular, the spotlight has been on superannuation tax concessions that provide generous tax breaks for the wealthy.
Super is an attractive area for investment as it holds many tax advantages, as well as being tax free when in pension phase. Although super tax concessions were designed to help people save for retirement, this comes at an estimated cost to the Government of $32 billion a year and there is a growing concern that the concessions are no longer fit for purpose.
In April 2015, Labor promised to implement changes to super taxes should it win the next election. The plan included a 15 per cent tax on the super income of retirees on all earnings in excess of $75,000 (such a plan was previously dismissed as unworkable), as well as decreasing the income threshold for the 30 per cent tax rate on contributions from $300,000 to $250,000.
At the time, Mr Abbott rejected Labor’s plan and promised to impose no further taxes on super. Mr Turnbull has now put super tax reform back in the mix and confirmed he will consider various options, including the proposal put forward by the opposition.
Another option put forward by industry groups is to introduce a lifetime cap of $2.5 million, limiting the amount of money that can be held in super. The Association of Superannuation Funds of Australia has also suggested limiting super contributions to $1 million as an alternative to increasing super taxes.
Most recently as a result of the Murray Inquiry, an additional potential change to super has been highlighted being the proposed removal of limited resource borrowing in superannuation. This could impact investment classes for SMSF’s along with taking the heat out of the property market. Close attention will need to be paid to this proposal especially by those contemplating or with pre existing limited recourse borrowing arrangements.
Mr Turnbull has made clear his promise that any changes to super taxes will be taken to the 2016 election. We will keep you updated on the tax reform debate as it progresses.
