It is a wrong to say the Turnbull government's proposal to put a $500,000 cap on superannuation contributions is retrospective, but a tax expert suggests it would be fairer to make it a $1 million limit.
Prime Minister Malcolm Turnbull is expected to face the heat from backbenchers at a meeting on Monday who are blaming what they see as retrospective super changes announced in the May 3 budget for turning traditional Liberal voters away at the July 2 election.
But Lance Cunningham, national tax director at consultants BDO, explains that a retrospective tax change is one that alters a taxpayer's tax position before the announcement of a change and increases the tax payable for previous years.
"While the proposed changes will affect some decisions made by taxpayers that were based on the current law, they only affect what happens after the announcement and therefore the proposed legislation is not retrospective," Mr Cunningham says.
He says any non-concessional contributions made before budget night are not affected by the lifetime cap and can stay in the super fund even if they breach the proposed limit.
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"It is only non-concessional contributions that are made after budget night 2016 that will be affected by the lifetime cap," he says.
Mr Cunningham believes it is reasonable to introduce a lifetime cap because the purpose of superannuation is to provide retirement income as an alternative to the aged pension.
"It was never intended to be a wealth creation mechanism," he says.
But he does question whether $500,000 is the right cap amount and whether there should be some sort of transitional concessions for people who have made decisions based on the present law.
He says the $500,000 lifetime cap is a dramatic reduction on the $450,000 every three years presently, and believes at least $1 million may be a more reasonable approach.
However, if the government wants to stick to $500,000, it could start off with a higher cap over the next year or two before reducing it in later years.
