Five things business owners need to know about the Coalition’s superannuation compromise

Yesterday Treasurer Scott Morrison revealed the Coalition had finally reached a solution on its suite of superannuation changes and would be able to move an amended package through parliament.

The $500,000 cap on non-concessional contributions is gone, while benefits for those working part time or on lower incomes look to stay. There are winners and losers, but experts say that small business owners should be starting their retirement planning now, whatever their age – because confusion and anxiety around super is only costing Australians money.

Here are five things you need to know about the revised package:

1. $500,000 cap is out, $100,000 annual limit is in

The key point of tension in the original superannuation reform measures, as outlined in the May budget, was the $500,000 lifetime limit on non-concessional super contributions and the government has confirmed it will not proceed with this measure. However, the $1.6 million cap on tax-free pension funds will stay.

Treasurer Morrison and Minister for Revenue and Financial Services, Kelly O’Dwyer said yesterday they would be replacing this $500,000 cap with a $100,000 per year limit on non-concessional contributions (for those with balances up to $1.6 million), at a cost of $400 million to the budget bottom line.

Chief executive of CPA Australia, Alex Malley, told SmartCompany the move indicates the government understands the community’s reaction to this proposal.

“It’s taken a while for the message to sink in, but it is nonetheless a positive first step,” he says.

Malley says this move could also help small business owners. “For many small business owners, the business is their super – and it will only be paid into a super fund when the business is ultimately disposed of,” Malley says.

And while business owners will now be limited to contributing $100,000 per year, they will not be blocked by the lifetime limit from adding proceeds of a business sale to their super.

2. Catch up contributions will start later

The ‘concessional catch up’ provision was designed for working mothers, as well as those changing careers or taking a break from the workforce, by allowing workers to roll over what they don’t use in concessional contributions over a five-year period, and contribute later. This would benefit parents who take a year out of work to care for children and who haven’t hit the $25,000 for contributing to super in one year, by allowing them to use the remaining balance to make a concessional contribution the next year.

This will go ahead, but will be delayed one year to commence on July 1, 2018. This adds a saving over the budget and forward estimates of $400 million, in one of the moves to make up for the costs of the $500,000 cap reversal.

Minister O’Dwyer says that the move is essential to create flexibility for these groups of workers.

“There can be a myriad of reasons why people can’t take full advantage of their concessional contribution cap and we say to them that we are backing them,” she said in yesterday’s press conference announcement of the new package.

3. Revisions to the work test have been reversed

One change to bite the dust is plans to remove the ‘work test’ for those aged 65-74 and wanting to contribute to their super. The coalition previously outlined plans to remove the test that required those in this age bracket to work 40 hours each month to contribute to super, meaning those looking to exit their small businesses and work fewer hours than this each month could contribute to make contributions. This plan was received positively by the SME community, many of whom leave planning for retirement late and need as much help as possible to add to their super balances.

However, Treasurer Morrison says these changes now cannot go through without a hit to the budget bottom line, and existing arrangements will continue for those aged between 64 and 75, which will save $180 million.

4. Millions of workers will benefit from a tax offset

The Low Income Superannuation Tax Offset (LISTO) will remain in the policy suite, meaning 3.1 million Australians on salaries of less than $37,000 will receive a tax offset to ensure their super balances are not eaten away by excessive taxation. This plan has been warmly embraced by experts, with recent studies into Australians’ readiness for retirement suggesting women are much more concerned about super balances than men.

5. The $25,000 concessional cap will stay

While the non-concessional cap is scrapped, the amount that Australians can contribute to super with a tax concession will be cut from $30,000 a year for those under 50 and $35,000 for those aged over 50, to a flat $25,000 limit. “That’s too low and needs to be revisited,” says Malley.

This means that Australians will lose the tax concession on between $5,000 and $10,000 each year. However, there is contention around how many people this will actually affect, with Grattan Institute chief executive John Daley writing in the Australian Financial Review yesterday that it’s “hard to find” many working Australians who would struggle with this change.