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While it is not clear what is going to happen in the Budget, there is little chance super will escape untouched. The following is an update on some views we are hearing.

Fairfax Media reported yesterday that the Turnbull government is preparing to reveal on budget night that it will cut the income threshold for more heavily taxing super contributions from $300,000 to $180,000. This is an extra 15% tax on contributions taking tax to 30% above incomes of $180,000 (previously $300,000).

The SMSF Association has voiced concerns around some of the speculated changes, in particular the lowering of concessional caps.

SMSFA’s head of policy Jordan George said the association sees these speculated policy changes to the superannuation as “tinkering with the system with an ad-hoc approach”.

“Our biggest concern of the measures suggested is the lowering of the concessional contribution cap from $30,000 to $20,000 because we do think that could damage the ability for people to save for retirement going forward, and make catch-up contributions to super to boost their incomes,” Mr George said.

Meg Heffron from Heffron SMSF Solutions, a respected consulting and high level training provider to quality self managed super advisers, said she fully expects to see reductions in the non-concessional contributions cap (after tax contributions) and greater restrictions placed around the bring forward rules in the future.

“Those who are making large contributions this year might choose to do so before budget night,” Ms Heffron said.

SMSF practitioners and their clients should remember that it’s entirely legal to borrow money to make a personal super contribution, but the interest is not tax deductible and security from personal assets would be required, she said.

“Long-term borrowing in this way is unlikely to be tax effective but it would allow a contribution to be made quickly if the personal cash is not yet available,” Ms Heffron said.

Clients who want to withdraw large amounts of taxable money and make non-concessional contributions should also act before budget night on 3 May.

Transition to retirement pensions are also likely to be reined in, particularly for those who start pensions without any change to their working arrangements, Ms Heffron cautioned.

The original purpose of transition to retirement pensions was to ease the transition from full- time work to retirement by allowing superannuation pensions to start before full retirement, in order to fill the income gap created when someone winds back to part-time.

“However, they were legislated by simply allowing anyone over their “preservation age” to start one, regardless of whether or not anything had actually changed in their work life,” Ms Heffron said.

Consequently, Ms Heffron expects transition to retirement pensions to be pushed out to a later age or linked to personal circumstances.

“The gradual increase in preservation age has already started to push out the earliest starting date for many looking to start a transition to retirement pension.

“This budget is a possible time where the eligibility rules might be reined in. It would be politically easier than many other changes to super. It is the kind of change that could be introduced with effect from budget night without major complexity in the law.”

What to do?

  • – Consider maximising contributions before the Budget;
  • – If possible, do recontribution strategies prior to the Budget;
  • – If you are over 55 and preferably closer to 60 or have a high tax free component in your super and you are st Ill working, it might be worth starting a pension now, even if it means a little extra tax now, so you can get all the benefits that this strategy gave you post age 60.

If you have any queries, please do not hesitate to contact an Intralink adviser at the office.

Head of Strategic Advice

Mark Serry

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