Unlike the Coalition, Labor has shared many of its proposed superannuation policies in the lead up to the Federal Budget (2 April 2019).
Current polls suggest Labor could win the election this year. So, we take this opportunity to consider Labor’s super policies, and what they might mean for our financial futures.
Labor superannuation policy
The Labor party proposes to remove the franking credits that place people in tax a refund position.
It has been estimated by the Self Managed Super Fund (SMSF) Association that this policy would likely result in a 10 per cent reduction in retirement income for most SMSF trustees in retirement phase.
So, is there anything that you, as an SMSF trustee, can be doing now? In the lead up to the election:
1. Review investments
This is especially relevant for SMSFs trustees who hold a significant allocation of Australian shares and are looking at diversifying their portfolio to other income-yielding assets. Australian shares will remain appealing to SMSFs trustees looking for income to fund pensions should the franking credit policy proceed, but diversification is important. By spreading an SMSF’s investments across different asset classes and markets offering different risks and returns, SMSF tustees can better position themselves for a secure retirement.
2. Adding adult children to an SMSF
This will increase the taxable income of the fund to take better advantage of the franking credits. It is vital that SMSF trustees seek specialist advice, to ensure that any new members and trustees are suitable for the SMSF and are prepared to act accordingly.
3. Geared investment strategy
With Labor proposing to ban new limited recourse borrowing, SMSF trustees who have been considering a geared investment strategy should look at this sooner rather than later. Moreover, any arrangements entered into before any policy changes, will be grandfathered.
Consider maximising contribution opportunities under the current rules. Labor has signalled if they are elected contribution caps would be further reduced with non-concessional contributions (after tax contributions) cut back to $75,000 as opposed to $100,000. However, under the current government rules, non-concessional contributions are banned once a member’s account reaches $1.6 million. Labor would not change this.
In addition, Labor would:
- remove ability to carry forward unused concessional contributions
- reverse ability to contribute to superannuation and claim a tax deduction for doing so (personal deductible contributions).
5. Estate planning and SMSF exit strategies
SMSF trustees should consider estate planning and exit strategies, in light of the death benefit requirements which place focus on documentation and advice provided. This is often an afterthought for SMSF trustees.
When it comes to protecting your wealth, we always recommend that you talk to an advisor.
Contact Bentleys to discuss suitable SMSF strategies, and secure your financial future.
This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Bentleys (Australia) Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based on their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission.