SMSF trustees may have breathed a sigh of relief on Tuesday when the Government announced that it was rejecting a recommendation from David Murray’s Financial System Inquiry that would prohibit super funds borrowing money to invest in property. The Government said (quite correctly) that there was insufficient data to substantiate any policy concerns about limited recourse borrowing arrangements, and asked the ATO to monitor it and report back to Government after a further 3 years.

A small victory for SMSFs – a loss for the industry and retail funds that had lobbied so hard to make this an issue.

However, while there won’t be changes to the borrowing arrangements for super funds, other changes to the super system are on their way. There has been a subtle, but important change of rhetoric from the new Turnbull Government.

The Prime Minister opens the door

Whereas the Abbott Government had been steadfast in its approach to super - a blanket “no changes” policy; no consideration of superannuation taxation changes proposed by the ALP; and limited support for a retirement incomes policy review  - the new Turnbull Government is taking a different tact. In Question Time the other week, Prime Minister Turnbull said this in response to a question from Opposition Leader Bill Shorten:

“I have noted the opposition’s proposals (about superannuation) and we are, clearly, going to consider these proposals and any other proposals that are made as we review the situation.

He went on to say that: “Any changes proposed for superannuation that would affect the superannuation system are changes that we would take to an election.

The next day, Treasurer Scott Morrison said that while the Government will be looking at issues in relation to superannuation, it wouldn’t be focusing on the retirement phase – implying that any changes may be directed more at the accumulation phase.

What is clear is that change to the super system is back on the agenda. With all the pressure from the industry lobby groups, the Australian Council of Social Service (ACOSS), Treasury and others that argue, often from a position of self-interest, that super is inequitable or that there is too much tax leakage, it is very hard for a Government with budgetary challenges to resist tinkering with the system. While the changes won’t be effective until after the next election, that’s not too far away.

The ALP’s proposals

Before looking at some of the actions you can take to minimise the effects, a brief re-cap on some possible changes. Let’s start with what the ALP has said it would do.

Their first proposal is to extend the higher tax rate on super contributions made by the “rich”, by lowering the income threshold from $300,000 to $250,000. Known as Division 293 tax, higher income earners currently pay tax on concessional super contributions at an effective tax rate of 30%, rather than the general 15% tax rate.

Shadow Treasurer Chris Bowen estimates that lowering the threshold to $250,000 will raise $5.1bn over 10 years.

A second proposal is to tax the investment earnings of assets supporting the payment of a super pension. Currently taxed at 0%, Labor would apply a tax rate of 15% on each dollar of income over $75,000.

Allegedly set to raise $9.2bn over 10 years, Bowen says that this will impact around 60,000 account holders with superannuation balances of $1.5 million or more. The $1.5 million comes from assuming investment earnings at a pretty conservative rate of just 5.0% pa – at a rate of 7.5% pa, this would impact retirees with super balance as low as $1.0 million.

The tax would start from 1 July 2017. Capital gains on existing assets (pre July 2017) would be exempt – however gains on new assets would potentially be subject to CGT.

As I have discussed before (see, this tax is almost impossible to administer and is unlikely to ever see the light of day (you may recall that they tried to introduce a similar tax when in Government). The idea, however, is not the only proposal aimed at making super less attractive to “wealthier” Australians. BT Financial Group CEO Brad Cooper’s call for a $2.5m cap on the amount of money you could have in super was supported by groups as diverse as Industry Super Australia, ACOSS and The Institute of Actuaries.

My 'helpful' ideas

And on the subject of change, here are my 3 'helpful' ideas.

Firstly, get the super preservation age back in sync with the pension age. The Gillard Government moved the pension age from 65 to 67, while the Abbott Government talked about going to 70.  However, no one has done anything about the age which super can first be accessed (the preservation age) – so this gap has gone from 5 years to 7 years, and maybe even longer, if the Turnbull Government refloats the 70 age for pensions.

Move the preservation age to 62 or even 65. At the same time, change the age brackets on lump sum withdrawals and super pensions so that the effective 0% tax rate also only applies from age 62.

Next, scrap transition to retirement pensions. Prospectively, not retrospectively.

While the transition to retirement pension, an idea of the Howard Government, was well intentioned, the reality today is that it is largely used just to reduce tax. As any financial adviser knows, if you have turned 56 and haven’t considered taking a transition to retirement pension, you have rocks in your head.

Finally, take the ALP’s idea about tax on super contributions by higher income Australians and extend it further. Reduce the income threshold to $180,000 (rather than the proposed $250,000) for the Division 293 tax. This will mean that most taxpayers are enjoying a tax benefit of around 20% - probably the amount that is needed to encourage people to make additional contributions to super and accept the trade-off that they will be locking their money away for up to 40 years.  

As the following table shows, persons earning more than $300,000 get a tax benefit of 19.0% by making extra contributions into super. However, persons earning between $180,000 and $300,000 currently get a tax benefit of 34.0%.


Normal Tax Rate (incl Medicare)

Effective Tax Rate on Super Contributions

Tax Benefit

$0 to $18,200




$18,200 to $37,000*




$37,000 to $80,000




$80,001 to $180,000




$180,001 to $300,000




$300,000 +




* With Low Income Superannuation Contribution

With changes in the wind, what can you do?

Here are 3 things you can do to reduce the impact of any potential changes.

Firstly, split your super with your spouse to even up your super balances. You can do this by splitting your concessional contributions (if in the accumulation phase), when you make additional non concessional contributions by allocating them to the spouse with the lower balance, of if retired and under 65, through strategies such as the withdrawal and re-contribution strategy.

While the new Treasurer has said that he won’t be focusing on the retirement phase, it is inevitable that some government will either cap your super balance, or attempt to introduce a differential tax on money coming out.

On the contribution side, continue to make those concessional contributions up the cap, particularly if your adjusted income is between $180,000 and $300,000. The general cap is $30,000 - if you are turning 50 this year or are older, the cap is $35,000.

And if you are 56 or over and not retired, and haven’t commenced a transition to retirement pension, talk to your financial adviser or accountant today.