2019 Federal Election: ALP policies on super, tax and retirement

• Fast-tracking the super guarantee
• Lowering the non-concessional contributions cap
• Lowering the Division 293 threshold
• Removing the catch-up concessional contributions cap
• Removing the tax-deductibility of personal super contributions
• Banning new limited recourse borrowing arrangements (LRBAs)
• Investing in improving women’s superannuation entitlements
• Including a right to superannuation in the National Employment Standards
• General superannuation and retirement statements

Labor have announced several general taxation policies that they propose to implement if elected, including changes to:

• The dividend imputation system
• Negative gearing
• The taxation of trusts
• The capital gains tax (CGT) discount

They have also proposed to:

• Raise the top marginal tax bracket
• Provide tax cuts for lower-and middle-income Australians
• Provide free tax clinics for low-income Australians

We will now examine each of these policies and statements in turn.

Superannuation policies

Fast-tracking the superannuation guarantee

The superannuation guarantee is the term for the compulsory super contributions made by employers on behalf of their employees. The superannuation guarantee amount is currently 9.5% of an employee’s ordinary time wages or salary. This coalition government has  scheduled to increase this rate to 10% from July 2021 and progressively increase it to 12% by July 2026.

However, Labor is proposing to end the freeze on the current rate of 9.5% and fast-track the increase to 12% sooner. They have not provided a specific timeframe for the fast-tracking as yet.

Lowering the non-concessional contributions cap

The non-concessional contributions cap is the total amount you can contribute to your superannuation from your after-tax income. The current cap is $100,000 per financial year.

Labor is proposing to lower this cap to $75,000. Their rationale for this and many other changes is the claim that half of all super tax concessions are currently delivered to the top 20 per cent of income earners.

If Labor is elected and this change is made, it is likely to also impact the bring-forward rule. Under this rule, if you’re aged under 65, you can make up to three years’ worth non-concessional contributions above the non-concessional contributions cap. You can therefore currently bring-forward up to $300,000 (i.e. 3 times the current $100,000 annual cap). Labor’s proposed reduction to the annual non-concessional contributions cap would reduce the amount you can bring-forward over three years to $225,000 (i.e. 3 x $75,000).

Lowering the Division 293 threshold

The Division 293 threshold is currently an additional tax of 15% paid by people whose combined income and concessional super contributions exceed $250,000. The tax payable is levied on the excess over this $250,000 threshold, or on the super contributions, whichever is less.

Labor is proposing to lower this threshold to $200,000 if elected.

Removing the carry-forward concessional contributions cap

The carry-forward concessional contributions cap (also known as the ‘catch-up’ concessional contributions cap) allows you to accumulate any unused portion of your annual cap (currently $25,000) for up to five years in order to make additional super contributions, provided your total superannuation balance is less than $500,000.

The policy was announced by the coalition in the 2016 Federal Budget but only first comes into effect from 1 July 2019, allowing you to catch-up on unused contributions from the 2018/2019 financial year.

Labor is proposing to remove the carry-forward concessional contributions cap.

Removing the tax-deductibility of personal super contributions

The coalition government implemented a policy in July 2017 that made personal super contributions tax-deductible for employees, up to the annual concessional contributions cap. Previously, only self-employed people could claim a tax deduction for personal super contributions.

Labor is proposing to remove the tax-deductibility of employee personal super contributions if elected.

Banning new limited recourse borrowing arrangements (LRBAs)

An LRBA is a type of loan that self-managed super funds (SMSFs) can take out from a lender. They trustees of the fund can then use those funds to purchase an SMSF asset (typically property). Any asset purchased with LRBA funds must be held in a separate trust from the SMSF.

Any returns from the purchased asset are distributed to the SMSF. If the SMSF defaults on the loan repayments, the lender only has a claim on the asset that was purchased using the LRBA funds, not on any of the other SMSF assets. LRBAs therefore protect SMSFs from potentially losing other assets.

Labor is proposing to ban new LRBAs for property investment if they win the election. Their rationale is that LRBAs have grown by over 800% since 2007, increasing demand in the housing market and pushing up prices. They argue that this reduces housing affordability for first home buyers, as well as increasing the risk of a housing bubble and potential financial system instability.

Investing in improving women’s superannuation entitlements

Labor has announced that they will make a $400,000 investment into improving women’s super. Their rationale is that women retire on average with $113,000 less super than men, due to factors such as taking time out from their careers to have children and being the primary care providers.

To address this imbalance, Labor is proposing to ensure that recipients of Commonwealth Parental Leave payments continue to receive super contributions. They have also announced that they will phase out the current $450 minimum monthly income threshold to be eligible for the super guarantee.

Including a right to superannuation in the National Employment Standards

This Labor policy will give all employees the power to pursue any unpaid superannuation guarantee from their employer through the Fair Work Commission or Federal Court.

General superannuation and retirement statements

In addition to the more specific policies outlined above, Labor has made some more general superannuation and retirement statements, including:

• Supporting exploring a policy to potentially provide Aboriginal and Torres Strait Islander (ATSI) peoples with early access to both super and the aged pension (to reflect the lower life expectancy of this group compared to the rest of the population).
• Pursuing policies that promote the super guarantee coverage for workers in Australia despite the increasing fragmentation of work arrangements (for example, the rise in contracting and casual work versus more traditional employer/employee relationships).
• Committing to implement the recommendations of both the Financial Services Royal Commission and the Productivity Commission in relation to underperforming super funds.
• Recognising “the need to review the interaction between the Age Pension and superannuation”. This is a general statement but may potentially involve a review by the Productivity Commission.

Tax policies

The dividend imputation system

Labor has proposed a significant change to dividend imputation, which is a part of Australia’s company tax system. It allows Australian companies to provide their shareholders with a tax rebate on the share dividends they receive. These rebates are known as “franked credits”. This credit reflects the tax already paid by the company on the dividends they distribute o to their shareholders.  

A shareholder receiving franked credits is able to reduce their tax payable by the amount of the credit. The dividend imputation system therefore avoids dividends being taxed twice (once at the company level and once at the shareholder level).

Under the current dividend imputation system, if you receive more franking credits than you owe in tax, you’re entitled to a tax refund from the Australian Taxation Office (ATO).

Labor’s policy is to abolish cash refunds generated by franking credits for all Australians except:

• pensioners (who will be protected under a “Pensioner Guarantee” provision),
• charities, and
• non-for-profit organisations.

In other words, under Labor’s policy you’ll only be able to use franked credits to reduce the amount of tax you pay, you won’t be able to use them to receive a tax refund (unless you’re an age pensioner).

If they win the federal election, Labor plans to make this change to the dividend imputation system from 1 July 2019.

Negative gearing

Labor has also proposed a significant change to negative gearing. Many property investors currently use negative gearing as a tax-effective investment strategy. A property is negatively geared if the expenses associated with it (for example, loan interest, repairs, maintenance, and depreciation on furniture and appliances) exceed the rental income that it generates from tenants.

You can deduct your investment property expenses and lower your taxable income to pay less tax. If the property achieves capital growth over time, this can more than offset its additional expenses.

Currently you can negatively gear any type of investment property (i.e. both new and existing homes). Labor’s policy is to limit negative gearing in the future to newly constructed homes only. They argue that negative gearing is a speculative strategy that is primarily used by wealthier Australians and that it drives up property prices, making home ownership less affordable for all Australians.

Under Labor’s proposal, this change to negative gearing won’t be retrospective. In other words, if you’re already negatively-gearing an existing investment property, you’ll still be able to do that. You just won’t be able to negatively gear any existing properties that you might want to buy in the future. You’d have to buy a newly constructed property instead.

The taxation of trusts

Trusts can be used as an income-splitting vehicle to distribute income from trust members on higher marginal tax rates to those on lower rates. They can therefore be used to minimise tax.

Labor’s policy is for trusts to be taxed at a standard rate of 30%, rather than enabling income to be transferred to trust members who are either in the 19 per cent  marginal tax bracket (i.e. earning $18,200 to $37,000), or who earn below the tax-free threshold of $18,200.

Labor’s rationale is that this policy change will only affect 2% of wealthy Australians.

The capital gains tax (CGT) discount

Labor is also proposing to reduce the CGT discount for capital gains made on future asset sales. Currently, you’re liable for CGT on any capital gains you make on an asset that you’ve held for 12 months or more at your marginal income tax rate, less a 50% discount. Labor’s policy is to reduce this CGT discount to 25%.

As with their negative gearing policy, Labor is claiming that this change to the CGT discount won’t be retrospective. In other words, it will only be applied to assets purchased and subsequently sold after the date the CGT discount rate is changed. Their rationale is that the current CGT discount arrangements are more beneficial for wealthier Australians.

Raising the top marginal tax bracket

Australia’s top marginal tax rate is currently 45% for people earning over $180,000 (47% including the 2% Medicare levy). Labor’s policy is to increase this rate to 47% (49% including the Medicare levy). 

Tax cuts for lower-and-middle income Australians

Labor is promising to deliver higher tax cuts to Australians earning between $25,000 and $125,000 than those that the coalition government is introducing. People earning between $50,000 and $90,000 will benefit the most, receiving a $398 tax cut.     

Tax clinics for disadvantaged communities

Labor has announced that they will establish ten tax clinics across the country where low-income taxpayers will be able to obtain assistance and free legal advice to resolve any issues or disputes with the ATO.

The information contained in this article is general in nature.