You’ve all heard the expression of having dodged a bullet, well on the night of Saturday 18 May, I think superannuants around the country dodged a ballistic missile, such was the magnitude of the superannuation changes the Labor Party had in store had they won the election.
I have written in this column before the raft of superannuation law amendments were overshadowed by the ALP’s franking refund policy, but that didn’t mean they were any less egregious not only to the SMSF sector, but to all superannuants across the country.
Reducing the concessional contributions cap to $20,000 a year and the non-concessional contributions cap to $75,000 a year, scrapping the tax deduction status for personal contributions, banning limited recourse borrowing arrangements and abolishing the ability to carry forward the unused component of the concessional contributions cap were just a few of the things superannuants would have to have braced themselves for had Labor come into power.
So as far as the retirement savings system goes, it is a little like normal transmission has resumed. What does this mean? Most importantly it means some of the more positive reforms previously announced but not passed as legislation have life again.
One of these items is the move to increase the maximum number of SMSF members in a single fund from four to six. It will be interesting to gauge the government’s attitude to this measure. When announced, a lot of industry commentators saw it as a means of thwarting Labor’s franking refund policy as it would ostensibly allow more people in accumulation phase to be included in an SMSF, which would in turn guarantee a tax liability and thus access to franking credit refunds.
Now the threat of change to the imputation credit system has been averted, perhaps the urgency of this measure has abated. However, the ability for families with more than two children to set up a single SMSF as a family super fund instead of multiple funds remains a resulting benefit and a commitment to this aim could still see some speed involved in the process.
In addition, the initiative to allow high-income earners to opt out of compulsory super guarantee contributions could become law. This is a common-sense policy that would basically eliminate automatic breaches of the concessional contributions caps stemming from the super guarantee – an unintended outcome of the system.
On a slightly more negative note, the changes to the non-arm’s-length income (NALI) rules will now likely be implemented. This amendment basically dictates if an SMSF income is higher than it would otherwise be because the associated expenses were not incurred at an arm’s-length price, it will be categorised as NALI and the fund will be made to pay tax on this income at the highest marginal tax rate.
One item SMSF trustees are curious about is whether the election result will mean the introduction of a three-year audit cycle for simple funds with a good compliance history.
While no one can shed any light on this topic, we can be assured of one thing: the case for this change was being prosecuted very hard, and some might say stubbornly, by former assistant treasurer Stuart Robert.
As per the new cabinet appointments of the re-elected Morrison government, Robert now has a new portfolio and superannuation has become the responsibility of Jane Hume and Michael Sukkar. It is unlikely they will have the same devotion to this policy, but we will have to wait and see.