New super tax proposal gathers momentum

Written by Katarina Taurian Friday, 15 January 2016

The Financial Services Council has joined calls for a super tax rebate to be introduced, as a former Association of Financial Advisers president makes headway with government.

In December last year, principal at Paramount Wealth Management, Wayne Leggett, said that instead of concessional contributions being tax-deductible, they should be subject to a tax rebate.

This week, the FSC said superannuation contributions should be taxed at an individual’s marginal tax rate with a 20 per cent rebate.

The FSC released modelling by PwC on Wednesday showing that a 20 per cent rebate on the marginal tax rates for super contributions would be budget-neutral.

However, the budget-neutral status of the proposal is dependent upon the superannuation guarantee following current legislation and rising to 12 per cent by 1 July 2021.

If the superannuation guarantee were instead frozen at its current rate of 9.5 per cent, there would be a decrease in tax receipts of less than $1 billion to $4 billion, according to the PwC modelling.

The change would see those on the highest marginal tax rate (45 per cent) paying 25 per cent on their super contributions, whereas those earning less than $37,000 a year would pay no tax.

Currently, all super contributions (up to the concessional contributions cap) are taxed at 15 per cent, with the exception of individuals who earn over $300,000 and who are taxed at 30 per cent.

Speaking to SMSF Adviser, Mr Leggett said he recently met with Western Australia’s federal member for Swan, Steve Irons, to discuss the proposal.

Mr Leggett said Mr Irons, who is in “close contact” with Assistant Treasurer Kelly O’Dwyer, will be discussing the idea with government.

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+2 #5 Dr Terry Dwyer, Dwyer Lawyers 2016-01-15 11:22
Why is it that exploded ideas come back like weeds? The only correct tax treatment for super is deductible contributions, exempt earnings and taxable annuity or pension at end.

A rebate system has no logic behind it other than satisfaction of social envy.

But I should not complain. It will increase demand for tax advice on other structures which even now can give better returns than non-concessiona l contributions.
+1 #4 Mark 2016-01-15 10:35
Dumb idea - Majority of my clients would be worse off ie marginal tax rate of at least 39% (incl medicare levy) and would have to pay the extra tax each year of at least 19% out of after tax income and then wait years before getting access to the super pension and who knows what tax rules will apply then. In the meantime they are penalised as they would not have the same ability to save to the same degree outside of super.
+3 #3 Kca 2016-01-15 10:03
Now let's look at the behavioural aspects. The people sub $37k may well now have nil contributions tax but who seriously believes these people who barely have enough money to pay rent will suddenly lift their super contribution they can't access for decades?
On flip side hard enough to get younger higher earners to put money into super now on the current supposedly high incentive tax savings amounts . Go and boost up contributions tax so net overall tax saving to member is even less and gee I wonder what that will do to contributions.
Congratulations FSC and PWC you've come up with a way to smash Australia's already too low savings rate. Even more people with inadequate super for their retirement. People who currently are on track to be self reliant won't be. Sheer genius. One marvels at how someone could put forward a proposal that greatly reduces the incentive to save and thinks it will have no behavioural effect.
+4 #2 Kca 2016-01-15 09:53
What an admin. nightmare. Every taxpayer in Australia will have a different contributions tax calculation. If they amend a tax return and move through a bracket up or down then fund will need to amend contributions tax also. Fund will have to recalculate earnings attributable to member over that period and new fund balance.
Huge numbers of taxpayers don't lodge until May 15 following year. Funds won't be able to work out contributions tax until those taxpayers advise their taxable incomes and hence tax brackets. Currently just need to advise concessional or not, no need to wait for actual taxable income number. Did I mention this is an admin nightmare!
0 #1 Cam 2016-01-15 09:09
Sounds equitable. Do we know how it would work in practice? If I put #35k into super today and request it immediately be commenced as a pension, what's the starting balance of the pension, so I know the minimum to receive before 30 June?
Also, does modelling consider the current 15% extra tax on super contributions for those earning over $300k?

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