Change in the way superannuation is taxed is undoubtedly on the horizon – especially on super accounts with a very high balance.
Support for change from Australia’s leading superannuation industry body, the Federal Opposition and a recent Tax Discussion Paper suggest if the issue doesn’t pop up in this Budget, reform may still occur in the near future.
The Self Managed Superannuation Fund Association recently said: “The tax treatment of very high account balances should be the starting point for discussions around adjustments to superannuation tax concessions, rather than blanket changes that impact on all members”.
It’s analysis of very high superannuation account balances found that 24,000 SMSF members in the pension phase with balances in excess of $2m received around $5.2bn in tax-free income stream payments, OR an average of around $216,000.
The Labor Party also recently supported changes to how super is taxed recommending that earnings of more than $75,000 during the retirement phase are taxed at a concessional rate of 15% instead of being tax-free.
And, the recent Tax Discussion Paper also stated that the Government should equalise the way savings and investments are taxed including superannuation.
In effect, the Government has the support of the leading professional body and the Labor party to change the way superannuation is taxed, particularly if change is targeted at high income earners.
From a policy perspective, it’s hard to argue that high income earners should access tax concessions on superannuation beyond the need to have certainty about superannuation policy.
If the way super is taxed is not altered in this budget, it’s highly likely it will be reformed in the near future – most likely as part of the Government’s response to the Tax Discussion Paper.
Contributing to super – what you need to know
Topping up your superannuation just got a little less dangerous with new rules that allow excess non-concessional contributions to be refunded.
Before the change, a huge number of people were penalised by excess concessional contributions tax because they contributed over the allowable level of contributions.
It was not uncommon to see $70,000 tax bills from what was a relatively small over-contribution.
And, there was very little you could do about it even if the contribution was not deliberate.
The new rules mean that members can have the excess contributions refunded to them PLUS 85% of the associated earnings on those amounts.
The full earnings will then be included in your assessable income and taxed at your marginal tax rate.
You will then be entitled to a non-refundable tax offset equal to 15% of the associated earnings.
Maybe not but it’s a lot easier to understand than a $70,000 tax bill for going even $1 above your contributions limit.
These new rules apply to excess non-concessional contributions made from the 2013/14 financial year onwards.
So, if you were affected by excess contributions tax, something can be done about it so feel free to call us and discuss.