After months of uncertainty following the Federal Budget in May, we welcome the superannuation announcements this week by the Treasurer, Scott Morrison, which will provide much needed certainty to the superannuation tax system while still improving the tax equity and sustainability of the system.
Whilst the concept of a lifetime non-concessional cap was well founded in principle, it proved to be too significant a change politically from the current policy setting. The reduction in the current annual non-concessional cap from $180,000 to $100,000, a compromise between competing views, does still improve the integrity of the superannuation system from a tax equity perspective. Importantly, the introduction of a provision to limit the ability to make further non-concessional contributions once a member’s balance has reached $1.6M achieves what the lifetime cap was attempting to achieve albeit via an alternative mechanism. Such a provision is consistent with the proposed objective of superannuation.
In relation to the other measure proposed, the deferral in the ability to catch up on concessional contribution, whilst disappointing, was another political reality within the current budgetary constraints.
In our view, the most contentious aspect of the $500,000 lifetime non-concessional contributions cap measure was not the counting of contributions since 2007 - but the fact that, together with the $25,000 concessional cap, an older member with limited super to date was impeded to too great an extent from building his or her balance, even if he or she had the financial resources to do so.
Tax measures should always be viewed through the lens of the objective of superannuation, which is intended to enable reasonable supplements to the amount necessary to merely replace the age pension. Viewed through this lens, the Treasurer’s announcements show that the Government has been listening to industry concerns, and appear to provide an appropriate balance between enabling the accumulation of balances that can provide this reasonable supplement, and limiting accumulations that would appear directed only at wealth creation or estate planning.