Australian Taxation Office (ATO) figures detailing the extraordinary extent to which wealthy Australians are taking advantage of superannuation tax loopholes has led to some experts calling for significant changes to the rules.
Last week The Australian Financial Review (AFR) published ATO figures that showed 27 of Australia’s biggest self-managed super funds (SMSFs) held more than $100 million each in concessionally taxed savings in the 2019 financial year.
The figures, obtained by the AFR under Freedom of Information laws, also showed that one of those SMSFs was holding a staggering $544 million in retirement savings.
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The fact that the number of SMSFs with savings over $100 million had grown to 27, from just five a year earlier, has prompted calls for Treasurer Josh Frydenberg to close the tax loopholes available to some of Australia’s wealthiest people.
The current tax concessions being exploited by the mega-wealthy include earnings being taxed at a low rate of just 15 per cent in accumulation and for all savings in excess of the $1.7 million cap for individuals or $3.4 million for couples.
This system allows the super wealthy to avoid paying what should be a 45 per cent tax rate on their income and allows them to accumulate more money in their super than they would need for their retirement.
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Actuary Michael Rice told the AFR that raising taxes on richer retirees would go some way to addressing the fact that wealthy Australians are receiving too much money in tax concessions.
He has suggested taxing super in both the accumulation and pension phase at 10.5 per cent to lower taxes on younger people and raise them on richer retirees.
An alternate suggestion from Mr Rice includes taxing the whole super system at 15 per cent, which would increase government revenue by more than 40 per cent.
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“The extra revenue would come in handy as we try and pay off the national debt,” Mr Rice said.
“We have suggested both options in the past, but the government has not been interested.”
Mr Rice has also proposed a third solution that would limit the money allowed in the tax-concessional system at the current tax-free limit of $1.7 million per person.
“Anything above that should be taken out – the people keep their wealth, but it is shifted out of a tax-privileged environment,” Mr Rice explained.
The government’s Intergenerational Report, released last month, found that the super concessions in their current format would surpass the cost of the Age Pension by 2040.
Brendan Coates from the Grattan Institute told the AFR that half of these concessions would flow to the wealthiest 20 per cent of households.
“This shows how the system is being used as a tax planning vehicle and probably a taxpayer-funded inheritance scheme,” Mr Coates said.
“The government should be looking at capping the amount you can have in the system or look at the introduction of higher rates of tax applied to bigger balances.”
The government’s Retirement Income Review, which was released last year, was also critical of the super tax concessions available to wealthy Australians.
It said the tax concessions on large superannuation balances were “not required for retirement income purposes as they are unlikely to encourage additional saving”.
“Large balances are held in the superannuation system mainly as a tax minimisation strategy, separate to any retirement income goals,” it continued.
Do you think super tax concessions for Australia’s wealthiest people should be scrapped? Why or why not? Why not share your thoughts in the comments section below?
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