‘Retrograde’ Labor policy cops heat from ex-ATO exec
Labor’s plans to reintroduce the 10 per cent test, which essentially restricts the ability for individuals to claim tax deductions for personal contributions, has been criticised as a policy step “in the wrong direction”.
Speaking to SMSF Adviser, SuperConcepts non-executive director Stuart Forsyth said that while many SMSF trustees are concerned about Labor’s plans for franking credits, one of the other policies that worries him is its plan to reinstate the 10 per cent rule.
The 10 per cent test, which has been scrapped since 1 July 2017, meant that individuals were only eligible to claim a tax deduction for personal super contributions if less than 10 per cent of their income was earned from employment.
Mr Forsyth said that the removal of the 10 per cent test was very much welcomed by the ATO and everybody else because it essentially put everybody in the same position in terms of being able to make a concessional contribution provided you’ve got assessable income.
“I think it’s a policy that would be a retrograde step. I don’t see why it matters whether assessable income is from salary or wages or from other sources. It doesn’t seem to be material and it seems to be a decision to be motivated by the desire to reduce the cost of the concession,” Mr Forsyth said.
“It basically means that some people will miss out and be unable to make a concessional contribution, and to me, that never seemed fair.”
He also noted that the 10 per cent test was difficult for the ATO to administer and that many people were inadvertently caught by the test.
“People would think they were under the 10 per cent but would just tip over, which meant that amounts that were put into super weren’t deductible which can have a big effect,” he said.
He expected that reintroducing the 10 per cent test now would be especially problematic given the total superannuation balance rules.
It could lead to situations, he explained, where a member is forced to take an amount out of super because they don’t have a concessional cap, and because they’ve gone over the 10 per cent, it’s no longer a concessional contribution.
“It worries me because, from a policy point of view, it’s step in the wrong direction,” he said.
“Why does it matter? If my employer allows me to salary sacrifice, I can make the $25,000 in concessional contributions; if my employer doesn’t, then I may be confined to making only $5,000. It doesn’t seem fair.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.