Some wealthy boomers may face increasing scrutiny over their assets, especially superannuation, as the government eyes ways to get the budget back on track after years of COVID handouts.
According to the Australian Financial Review, almost $3 billion a year could be returned to the Federal Budget if Labour opts to rein in tax concessions for 80,000 Australians who have more money in superannuation than they can use in retirement.
Wealthy investors are building up their super funds to well in excess of what they could use in retirement and then use super’s minimal taxation rules to ‘shelter’ their money.
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Currently, the maximum that can be rolled into a super pension at retirement is $1.7 million, but there are benefits to amassing a much higher amount while still working because the maximum tax on contributions and earnings is 15 per cent.
That tax level is much lower than the highest top marginal tax rate, so wealthy earners are parking money in super accounts.
According to finance website smallcaps.com.au, a super balance of $5 million can earn the account holder about $70,000 a year.
For the total economy, think tank the Grattan Institute has estimated that tax concessions for balances of $2 million or more were worth about $2.8 billion in 2019–20.
And surprisingly, it’s the superannuation industry itself that is lobbying for reform.
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Retail funds management company Mercer wants superannuation balances to be capped at $5 million.
Mercer senior partner David Knox said anything more than that was “clearly in excess of the amount required for the vast majority of Australians to maintain their standard of living during retirement”.
“The taxation support for super is there to enable Australians to maintain their living standards in retirement up to a reasonable level,” Mr Knox said.
“It’s not there to support a flamboyant lifestyle or estate planning.”
Also pushing for a $5 million cap are the Australian Institute of Superannuation Trustees, the Association of Superannuation Funds of Australia, and the Super Consumers of Australia.
The SMSF Association’s position is that it would prefer the government to force people with excessively large super balances to withdraw some of their money or face higher tax rates but does not support a cap.
Independent economist Chris Richardson told the AFR that the number of concessions accruing to high-income earners was “an embarrassment”.
Read: No one-size-fits-all when it comes to retirement incomes
Mr Richardson has proposed a system where superannuation earnings are taxed at a discount of 15 cents to a person’s marginal tax rate.
Previous research by Mr Richardson found that such a system would net the Federal Budget $6 billion a year.
The federal government is planning to hand down a second 2022–23 Budget in October and is expected to announce changes to the system.
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