Until a proposal or change is finally introduced as law, it is should not be relied on as law. It is important to understand that the measures in this article are only proposals announced by the Labor Party.
Labor’s policies provide that franking credits would no longer be refundable where dividends are received after 30 June 2019. However, it would still be possible to use franking credits to offset a tax liability and to reduce tax payable to nil. This proposal would largely impact individuals and self managed superannuation funds (‘SMSF’).
On the 27th March 2018 Labor issued its Pensioner Guarantee, and stated that the distributional analysis shows:
80 per cent of the benefit accrues to the wealthiest 20% of retirees;
90 per cent of all cash refunds to superannuation funds accrues to SMSFs (just 10 per cent go to APRA regulated funds) despite SMSFs accounting for less than 10 per cent of all superannuation members in Australia; and
The top 1 per cent of SMSFs receive a cash refund of $83,000 (on average) – an amount greater than the average full time salary (based on 2014-15 ATO data).
However, an individual who receives a Centrelink age pension, will be exempted from the proposal under Labor’s Pensioner Guarantee.
Under the Pensioner Guarantee:
Every recipient of an Australian Government pension or allowance with individual shareholdings will still be able to benefit from cash refunds. This includes individuals receiving the Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart and Sickness Allowance.
SMSFs with at least one pensioner or allowance recipient before 28 March 2018 will be exempt from the changes. For example, if one member was receiving a part Centrelink age pension of $100 before 28 March 2018, the SMSF will be exempt under the proposal.
Interestingly, of the around 1,160,000 individuals who claim around $2.3 billion in cash refunds, 320,000 of them are expected to be exempt as a result of the pension guarantee. Accordingly, there will be around 840,000 individuals who will be subjected to the proposal.
Large industry and retail superannuation funds will typically be able to offset any franking credits received against tax payable in each FY and will therefore generally not be adversely affected by this proposal.
Taxation of trusts
The Opposition has proposed for a minimum tax rate of 30% to apply to distributions made to adult beneficiaries from discretionary trusts, which would commence from 1 July 2019. The minimum tax rate would not apply to fixed trusts, such as unit trusts. Labor has announced that certain types of trusts would be exempt, including testamentary trusts, special disability trusts and farm trusts.
Labor propose to increase the current superannuation guarantee charge rate from 9.5 per cent to 12 per cent as soon as practicable instead of the current gradual increase – which is already law to 12 per cent from 1 July 2025 – see table below. Should this be achieved, Labor then proposes to achieve its original objective of increasing the minimum rate to 15 per cent.
Labor will also pursue policies that seek to reduce the extent of unpaid superannuation in Australia, and seek to improve the ability of workers to recover their unpaid superannuation as an industrial right.
Non-concessional contributions cap
If elected, it would appear that there is the prospect that Labor will limit the non-concessional contribution (NCC) cap, decreasing it to $75,000 pa. The Opposition has not announced from which financial year this reduction would be effective.
Currently, the annual NCC cap is $100,000 (applies in 2018/19).
Division 293 threshold
The threshold at which high income earners pay additional contributions tax will be lowered from $250,000 to $200,000.
Rolling 5 year catch-up concessional contribution cap
Members with a TSB of less than $500,000 are currently permitted to make additional concessional contributions (‘CCs’) where they have not reached their CCs cap in the prior five FYs. Under the Opposition’s proposal the catch-up concessional contribution (CC) regime would be abolished.
Tax deduction for personal superannuation contributions
The eligibility requirements to claim a tax deduction for personal contributions would be amended. It is not clear at this stage whether the Opposition’s intention is to reinstate the ‘10% rule’, or whether the ability to claim a deduction would be removed for all individuals.
Low income superannuation tax offset
The ALP’s 2018 National Platform, ‘A Fair Go for Australia,’ states that Labor will maintain a low income superannuation tax concession (currently called the low income superannuation tax offset, ie, ‘LISTO’) and will develop policies that will further support low income earners to save for their retirement. Further, Labor will review the interaction between the age pension and superannuation.
Low income earners may receive a tax offset of up to $500 per FY on their CCs to help them save for their retirement. Broadly, to be eligible for this payment, the member’s adjusted taxable income must not exceed $37,000 and 10% or more of the member’s total income must have been derived from business or employment.
Ban new LRBAs
Labor is committed to banning SMSFs entering into new limited recourse borrowing arrangements (‘LRBA’). As part of Labor’s housing affordability policy, in April 2017, it announced that it would ‘restore the general ban on direct borrowing by superannuation funds, as recommended by the 2014 Financial Systems Inquiry’.
Limit negative gearing
Labor stated in its ‘Positive plan to help housing affordability’ that it will limit negative gearing to new housing from a yet-to-be-determined date after the next election (which is expected to be 1 July 2019). All investments made before this date are not be affected by this change and will be fully grandfathered.
This will mean that taxpayers will continue to be able to deduct net rental losses against their wage income, providing the losses come from newly constructed housing.
From a yet-to-be-determined date after the next election losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment.
Labor propose to reduce the 50% general CGT discount available to individuals on asset disposals where the asset has been held for more than 12 months under div 115 of the Income Tax Assessment Act 1997(Cth) to 25 per cent from 1 July 2019.
Labor has stated in its ‘Positive plan to help housing affordability’ that:
All investments made before this date will not be affected by this change and will be fully grandfathered.
It is believed that this policy change will also not affect investments made by superannuation funds.
Deductions for tax advice
Labor propose to limit deductions for tax advice to $3,000 a year. Individuals, SMSFs, trusts and partnerships are to be subject to the cap while companies would not be.
It is unclear at present if this limit will apply on a per entity basis or whether it might apply on an aggregated ‘associated’ entities basis.
It is yet to be determined if this limit will include litigation costs, ATO audit costs and ATO interest payment costs. There have also been calls for a small business concession to be applied.
Further policy proposals
Labor also has planned policy releases leading up to the election which are not yet publically available. Namely, as outlined in ALP’s 2018 National Platform, ‘A Fair Go for Australia,’ Labor proposes to:
Ensure that the superannuation guarantee is legislated to become part of the national minimum employment standard (NES) so that it is enforceable as an industrial entitlement. Broadly, this will, among other things, give employees access to the Fair Work Commission and pursue other industrial remedies for unpaid superannuation guarantee contribution.
Implement policies that work towards closing the significant gender gap in superannuation savings, including eliminating the $450 minimum threshold for compulsory employer contributions.
Legislate to provide superannuation contributions on the Federal Government paid parental leave scheme.
In Australia, there is one certainty in superannuation and tax law –– constant change. Invariably the devil is also in the detail. If you have any questions or if we can be of further assistance please call us on 9562 0742.
Important information and disclaimer –
Any advice and information in this publication is of a general nature only.
Information in this publication is accurate as at February 2019 and is subject to change without notice. In some cases the information has been provided to us by third parties. While it is believed the information in this publication is accurate and reliable, the accuracy of that information is not guaranteed in any way.