Preparing your super for the election

SUMMARY: Labor dumps opposition to Coalition’s big-bang superannuation changes, admitting it will adopt them.

It’s official: You need to start preparing for an overhaul of superannuation changes – no matter who wins office on Saturday.

The biggest negative changes to super – announced by Treasurer Scott Morrison on Budget night – now seem almost certain to largely pass into law.

Why? Because Labor has, quietly, announced it will adopt most of the changes, even if it wins government on July 2.

Presumably, this also means they are likely to support most of the changes if introduced by a returned Malcolm Turnbull government.

Labor’s new stance negates super as an election and possibly even parliamentary issue. As a result, we are now likely to see the $1.6 million pension cap, new taxes on transition to retirement pensions, falling concessional contribution caps and, potentially, a lifetime limit of $500,000 for non-concessional contributions.

But we’ll also likely see the removal of the work test that will allow contributions up to age 74 and the catch-up provisions, which will allow workers to put in up to five years’ worth of concessional contributions into super.

And there is existing bi-partisan support for the a super contributions surcharge for those earning more than $250,000, and the low income superannuation contribution (which the Coalition has renamed the low income superannuation tax offset, or LISTO).

In announcing their Election costings in recent days, Labor adopted the package of $6 billion of changes to super to the bottom line. It said that it still opposed the retrospectivity of the change to a lifetime limit of $500,000 in non-concessional contributions, but given that it accepted the need for budget savings, it would need to “work out the best way to proceed to raise the same amount of money” as that NCC change would provide.

They haven’t ruled out adopting it later anyway.

Even if Labor wins, it will adopt most of the changes, subject to a fairness review of a limited number of those changes. (For a review of those changes, see my post-Budget column on 4/5/16.)

“We will take the outcomes of the review into account when implementing any proposals which turn out to be fair and workable and when considering any alternative measures which yield similar savings,” Opposition treasurer Chris Bowen said in a joint statement with Jim Chalmers, the shadow minister for superannuation.

“It isn’t possible or desirable to understand and untangle all of these complex changes without the resources of government, in a rush, and during a federal election campaign,” they said.

Except that if they win government, there is absolutely nothing to untangle. The changes are not law. They don’t even need to be ditched.

So, where to now?

Those who didn’t favour the changes had two things they could wish for. Firstly, that Turnbull wasn’t returned. Secondly, that a Turnbull government couldn’t get the changes through both houses of parliament.

And while the bookies have a Coalition victory at $1.10, with the Labor change in heart, that’s a bit of a moot point.

You need to start preparing now. And yes, I mean, it’s not too late to do at least a few things tomorrow (30 June).

As I said in this column (18/5/16), couples are going to have to work together. Some of the most important strategies are going to revolve around evening up super balances. You will jointly pay more tax, if one of you has more than the $1.6 million cap, but the other is well below it.

For those with APRA-regulated funds, you are highly unlikely to be able to organise the first of the two following suggestions by the close of business tomorrow. But the second is possible.

For those with SMSFs, you could consider the following, as it’s theoretically possible to do by COB.

Spouse super splitting: You can transfer concessional contributions from one partner to another for the previous financial year. That means, for CCs made up to 30 June 2015, you can transfer the contribution, less the 15% contributions tax, to your partner. But it must be done before the end of the following financial year, meaning COB 30 June.

This is, obviously, reasonably easily done inside a SMSF. And the contribution doesn’t not count as CCs for the person receiving it. It is counted as a rollover.

Maximise CCs for this year: If you haven’t used up your $30,000 (under 50) or $35,000 CCs for FY16, then consider doing that, as contributions will fall to $25,000 for everyone from 1/7/17. Be aware, however, that the contributions need to hit the account by 30 June. If they don’t hit the account until 1 July, the will count towards CCs for FY17.

This might most easily be done if you both your business and your SMSF bank accounts are with the same bank. But an inter-bank cheque that can be cleared immediately could also work.

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The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is managing director of Bruce Brammall Financial. E: bruce@brucebrammallfinancial.com.au . Bruce’s new book, Mortgages Made Easy, is available now.