Last week in February 2016 I spent three days in Adelaide at the SMSF Association National Conference. It was great to hear from recognised leaders in the SMSF industry and more broadly from the regulators and policy makers.
The highlight was the Treasurer Scott Morrison addressing delegates and then being quizzed on superannuation policy and the direction the government intended to head. I summarise below my take on the Treasurers outlook for superannuation and tax policy:
- The government is against anything that can be seen as retrospectivity. By taxing people’s pensions on the way out (i.e. drawdowns – which are currently tax free over age 60) is quasi retrospective as these people have followed the rules through till their current retirement. Imposing for example a 15% tax on those drawdowns negates the right of these people to retire as they had planned – “Retrospectivity by stealth” as the Treasurer put it. The government would be loathe to do this – the backlash would be significant.
- A GST increase as widely publicised in the media is off the table.
- Negative Gearing: the treasurer sees negative gearing as an important part of the well being and retirement plans of middle income Australians. The majority who negatively gear have one property, a taxable income of less than $80,000 and net rental losses of less than $10k.
- Borrowing in Super: the Treasurer asserted that there is insufficient data to justify policy intervention and that the ATO will monitor this over a three year period.
However the Treasurer also stated “hard decisions must be made”.
There are many possibilities however I would like to focus on transition to retirement pensions (TTRP).
My expectation is that one of the most palatable decisions for the government that could be made would be to transform or even scrap TTRPs.
The TTRP is often structured so that people can work (even full time) and still receive the taxation benefits of a pension. Often the next step is to salary sacrifice into the fund so that your personal taxable income is reduced tax effectively. Generally your available cash has not reduced since you are topping up your income with tax effective pension income (if you are over 60 this top up income is entirely tax free). The other huge benefit is that earnings in your super fund that underpin the pension are 100% tax free!
So the take home message from this summary is:
If you are 55 or over and considering establishing a TTRP or wondering whether a TTRP would be suitable for you DO IT NOW. The industry strongly suggests to lock it in before possible adverse budget amendments.
If you are over 60 it is MADNESS not to at least review whether this strategy is right for you.
The industry anticipates that any changes made to TTRP would be prospective from the date of the announcement of a change – most likely budget night.