Treasurer Scott Morrison to offer exemptions in Super backdown on lifetime cap

TREASURER Scott Morrison is preparing a super backdown that will offer big exemptions to a $500,000 lifetime super cap to allow divorced couples, farming families and people who inherit from deceased states to stash more cash.

It may mean a major slide in federal savings but Treasurer Scott Morrison is set to introduce several exemptions to the $500,000 lifetime super cap.

TREASURER Scott Morrison is preparing a super backdown that will offer big exemptions to a $500,000 lifetime super cap to allow divorced couples, farming families and people who inherit from deceased states to stash more cash.

The big exemptions under consideration to avert a Liberal Party revolt will allow the Treasurer to save face because the $500,000 cap on non-concessional contributions that was taken to the election will remain in place.

However, the exemptions will be so big that anywhere from half to 90 per cent of the $550 million in savings will be wiped out.

The exemptions are expected to wipe out up to 90 per cent of the savings the super plan intended to make.

For example, women who got divorced would be able to breach the $500,000 lifetime cap if putting their divorce payout into super, family members who inherited from a deceased estate may also be able to breach the lifetime cap. Another example might be the sale of farming assets.

While the Turnbull government remains tight-lipped about the compromise deal, Coalition sources have confirmed that it is preparing to offer an olive branch to angry conservatives over the lifetime cap. A spokesman for the Treasurer last night declined to comment on the compromise options.

Coalition MPs remain furious about the lifetime cap because it was effectively retrospective, applying to voluntary after tax contributions since 2007.

After tax contributions are not those made by employers or extra voluntary contributions made voluntarily by workers from their pre-tax contributions.

The lifetime cap proposed would instead only apply to voluntary after tax contributions limiting super investors to a lifetime cap of $500,000.

Plans to ban workers from stashing more than $25,000 a year in super from pre-tax contributions will proceed. The current super contributions cap is $30,000.

Mr Morrison was under pressure from Liberal colleagues over the matter.

Some MPs say the policy enraged the Liberal Party base and was raised by big donors.

The measure was designed to stop wealthy families using super for estate planning.

However, in reality the exemptions being discussed would mean that the cap would rarely affect investors.

The May budget unveiled a super crackdown the would limit non-concessional or after tax contributions made by workers to $500,000. Workers contributions made by employers and individual top ups are known as concessional contributions because they are taken out of your salary before tax and a 15 per cent tax rate is applied.

This approach delivers big tax savings to high income earners when they make extra contributions to super from pre-tax earnings. But workers are currently limited to only making $30,000-a-year in concessional contributions.

But the backdown will slash the savings Mr Morrison hoped to reap from super reform to repair the budget.

It is estimated that the exemption plan could slash the value of the $550 million savings measures by between by between $250-$500 million over the forward estimates. The worst case scenario is that the compromise will effectively wipe out the planned savings.

However, the biggest measure in the May budget is the plan to reduce the pre-tax contributions cap for workers from $30,000 back down to $25,000. This will remain untouched.