The Labor party have announced their superannuation policy to “improve the fairness and sustainability of our superannuation system.”
The plan includes changes to the tax free status of earnings in pension phase, and a lowering of the Division 293 threshold.
“Labor will bring fairness back into the system by ensuring earnings over $75,000 are taxed at a concessional rate of 15 per cent in the retirement phase, instead of being tax free,” said Bill Shorten and Chris Bowen in a statement announcing the policy.
It appears that this means that income earnt in pension phase by a super fund will be taxed at 0% up to $75,000, and at 15% above this level. It is unclear if this will apply on a per-pension, per-fund or per-member basis. This decision will be a significant factor in the complexity of the scheme.
“This measure will affect approximately 60,000 account holders with superannuation balances in excess of $1.5 million and save around $9.2 billion over 10 years.”
However this $1.5 million level is just an estimate. All the examples of the policy are based on an assumption of superannuation funds earning a 5% investment return, which can be significantly less than actual returns.
Under the policy the Division 293 Tax threshold, which increases the contributions tax from 15% to 30% for high income earners, would be lowered from $300,000 to $250,000. The statement, which refers to the Div 293 tax as the ‘High Income Superannuation Charge’, says this will raise $5.1 billion over 10 years.
Also, “under the proposal, capital gains will be grandfathered.”
Bill Shorten and Chris Bowen, announcing the policy said, “if we are elected these are the final and the only changes Labor will make to the tax treatment of superannuation.”
They also made a point of saying “this measure will not impact pensioners or part pensioners.” However, this is because the income level at which the measure applies would likely prevent someone from claiming the pension.
“Labor will also remove the 10 per cent tax offset for defined benefit income above $75,000, estimated to effect approximately 9,500 account holders.”
If legislated, these policies would apply from 1 July 2017. The next federal election is due to be held on or before the 14th of January 2017.
This superannuation policy is very similar to the one announced in 2013, when Labor was in government and Bill Shorten was the Minister for Financial Services & Superannuation. The only difference appears to be a decrease in the income level from $100,000 to $75,000. That policy was scrapped as part of the ‘restoring integrity in the Australian tax system‘ program implemented by the new government following the last election. Joe Hockey said the “the complexity and compliance costs associated with this initiative are extreme and essentially undeliverable.”
This article has been updated since it was first published.
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