From July next year, taxes on returns generated by super accounts of $3 million or more will double under proposed government changes and the Association of Superannuation Funds of Australia (ASFA) wants the funds raised to be used to help low-income workers.
Under the changes, an additional 15 per cent tax will be placed on returns from funds with $3 million or more, adding to the existing 15 per cent tax, for a total 30 per cent tax rate. The new rate will also apply to those earning more than $250,000 per year, regardless of their super balance.
When announcing the changes late last year, treasurer Jim Chalmers said the changes would affect just 0.5 per cent of super accounts and would raise more than $2 billion annually.
AFSA is back the plan and is proposing a few of what it calls “reasonable measures”, aimed at sharing some of that money with low-income workers, in the form of funding increases to the Low-Income Superannuation Tax Offset (LISTO).
ASFA CEO Mary Delahunty says the move will address inequality in superannuation and the wider economy.
“By increasing support for low-income earners and ensuring fair tax contributions from those with substantial superannuation balances, we can foster a more balanced and equitable retirement system,” she says.
“[The proposals] aren’t just measures aimed at removing tax concessions for those with high super balances – it’s an opportunity to make society fairer and provide low-income workers with a more dignified and secure retirement.
“This is about fairness – enhancing LISTO offers a powerful widespread impact for people’s retirement outcomes,”
ASFA wants $750 million of the revenue generated from the extra tax to be set aside in order to increase the LISTO threshold for those earning $37,000 to the same as those earning $45,000, alongside boosting the maximum payment from $500 to $700.
Ms Delahunty says the change would benefit an additional 1.2 million Australians, mainly women, younger people and workers from non-English speaking backgrounds.
But despite affecting relatively few people, the changes have still attracted controversy, mainly due to the way the tax will be calculated. Analysis from The New Daily shows part of a super fund’s income will be determined by measuring unrealised gains on assets.
Because the gains are unrealised (not actually received) then there could potentially be a situation where someone needs to sell an asset to cover the tax bill.
AFSA acknowledges this is a possibility, but says it would not affect anybody over 60 as they would be able to access tax-free super pension income to cover the debt. AFSA says this would cover around 85 per cent of people affected by the change.
“Those affected are relatively old, with 85 per cent aged over 60 and 46 per cent aged over 70,” the AFSA report reads.
“As such many of the group would be receiving tax free income from superannuation and currently tax-free investment earnings on their superannuation balance.
“However, not all are retired, with around 30 per cent receiving wage and salary income, and with around five per cent having wage and salary income over $200,000 a year.”
Or in short, these are the people who can most afford it. But is that a fair enough reason to do so?
Do you agree with the proposed changes to super tax? What should that extra money be used for? Let us know in the comments section below.
Also read: Super funds still not doing enough for your retirement – APRA
It may affect just 0.5% of super accounts now but Labor loves a tax. By not indexing the threshold more and more will be pulled into this tax every year. Even if inflation returns to target range, those with super balances of $2.4 million today will be paying this tax in 10 years time. Why not index it like the transfer balance cap?
An afterthought to my above comment. Forget inflation. If super returns on a balanced fund manage the same 6% annual return over the next 10 years, those with $1.7 million today will be paying this tax.
Of course, eventually, Super will be taxed more than it is now. Since I have retired they keep on changing the rules on Super, the Aged Pension and Aged Care virtually every year. Sadly, those who save their life time will see it disappear into Govt Coffers because ‘they are rich’ and all Sup will do is reduce your benefits thdt others will recieve because they haven’t saved for their retirement. For many, Super will be like Fools Gold. Just wait till you retire and you will then see the true cost of saving in Super more than the Minimum Amount that will start to reduce your Aged Pension entitlements. Don’t forget, Super is not an Inheritance Scheme so the Govt will look forward to taking as much from you as they can … and more Tax on Super is to be expected.
All people regardless of how much they earn should pay their fair share of tax. Nothing sent to tax havens.
Not much incentive to save more than the minimum. Pay off your house, do your maths so you can get a part pension and work a bit on the side for pocket money. Grow vegies and fruit, keep hens. Be resourceful.