Controversial super changes stir debate

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Who will benefit from the new super changes, what are the perceived flaws, and has the Government got it right? Here, the main players have their say about last week’s announcement.

  1. Increased concessional contribution caps

The move to increase the contribution caps for those aged over 60 (or 50 from July 1st 2014), has been largely welcomed by major associations, but not everyone is convinced.

The FPA, AFA, SPAA and Deloitte have all welcomed the increase in contribution caps from $25,000 to $35,000. The cap has not been limited to balances below $500,000 as initially proposed, and Deloitte’s national superannuation leader Russell Mason, says “this will encourage additional savings, especially from middle-income earners who see retirement on the horizon and are in ‘catch up’ mode”. Small Independent Superannuation Funds Association (SISFA) has also encouraged the change, but said “it is a pity that the Government did not simplify things and make the $35,000 cap available to all over 50s from July 1st 2013”.

The Australian Institute doesn’t hold the same view. “Put simply, the wealthy can now get generous tax concessions on ‘voluntary contributions’ that are larger than the full-time minimum wage,” said the Institute’s executive director Dr Richard Denniss. The Institute of Public Accountants has welcomed the change, but says greater caps are still needed.

  1. Earnings tax on superannuation income greater than $100,000

The new earnings tax has caused concern around the complexity and increased administrative demands it will bring. It will affect few Australians, and SISFA believes it will generate a comparatively small amount of revenue ($350 million) over the next four years. “You have to wonder whether introducing this level of complication into what is already a complicated system can have any beneficial, long-term effects.”

Deloitte has asked how this tax will be collected and expressed concern about the reporting expenses that will be borne by all members of super funds, not just those with high balances.

The reform will trigger tax consequences for asset transactions such as property sales, said SISFA. Assets purchased before April 5th 2013 will have until July 1st 2024 to ‘transition’. Apart from adding to administration costs, the changes will impact investment decisions of SMSF retirees; “the management of income and capital gains and when to crystalise gains will become much more complex with three different sets of rules to manage depending on when a fund acquired an asset.”

  1. Excess contributions tax

Clients will be able to withdraw excess concessional contributions from super and be taxed at marginal rates with an interest rate penalty. SPAA CEO Andrea Slattery has welcomed the change, but added a note of caution: “We believe a similar refunding option should apply to excess non-concessional contributions as it is [these] breaches that usually attract significant excess contributions tax and the current options available to members who breach their non-concessional cap are grossly inadequate.”

SISFA said the approach will assist lower income earners but increase the tax take for top tax rate payers. Despite no change to the interaction with non-concessional contribution caps, SISFA predicts that the potential double-tax position for excess concessional contributions will be removed.

More stories:

Government announces tax changes

Clients lose faith, SMSFs in trouble

Superannuation Council: Will it do the job?

  • Paul levy CFP JP on 11/04/2013 10:14:28 AM

    Pat of vourse I sm referring to the two thirds taxable component of a capital gain which will be added to income for tax calculation purposes.
    It is an indisputable fact that when a taxable capital gain pushes the taxable income over the sited $100,000 threshold, a tax of 15% on any excess over $100,000 will be payable.
    It is therefore obvious that many more than the suggested 16,000 Australians will be affected.
    This is undisclosed in any reading that I have seen and therefore well hidden.

  • Pat on 9/04/2013 9:25:34 AM

    Umm, Paul, a simple reading of the announcement would see that:

    1. Capital gains are dealt with via differing treatment depending on the date of acquisition - i.e. pre 5/4/13, pre 1/7/14 and post 30/6/14.
    2. Assuming your asset was held for 12 months or more, only $60k is added to your $50k and therefore the tax is likely to only be $1,500.
    3. Any logical person would see that the provisions were to capture capital gains.

    This doesn't make it necessarily appropriate, but nothing is being hidden here.

  • PAUL LEVY CFP® JP on 8/04/2013 5:07:00 PM

    PROPOSED SUPER CHANGES – OMMISSION OR JUST SIMPLY DEVIOUS?

    On its face, some of the proposed new Super tax grab seems reasonable. After all, why shouldn’t the “fabulously wealthy” pay a little more than the rest of us?

    I have a question to pose to Mr Shorten relating to who is really likely to be captured?

    WHO IS REALLY LIKELY TO BE CAPTURED?

    Mr Shorten has stated that “only about 16,000 Australians with over $2,000,000 in assets earning 5% will be affected by the new tax on income within a Pension”.

    The implication is that a Pension fund with $2,000,000 earning a yield of 5% will produce an income of $100,000 and any earnings above this figure will attract tax at 15%.

    Sounds like it will not affect most Australians but, is that really true?

    Think about it like this….Take an SMSF supporting a pension where the asset value is say, $1,000,000 (only half the amount suggested by Mr Shorten) earning say 5% or income of $50,000.00. This fund, we are led to believe, would not attract any tax and based on Mr Shorten’s statement, the above sample fund would not be called upon to pay any tax.

    However, this sample fund owns and sells an asset that produces a capital gain of say $90,000 where the capital gain of $90,000 will be added to the income of $50,000 resulting in taxable income of $140,000 and BLAM---- this fund suddenly exceeds the $100,000 earned income cap and will be called upon to pay tax of 15% on all income above $100,000 ie $6,000 (15% of $40,000).

    I understand that asset sales can be staggered over different tax years but, this is not that easy with lumpy assets like property.

    Is this an unintended consequence or a well thought out strategy to fool those of us with less than $2,000,000 in Super at the introduction of this new rule and zap us down the track when we sell an asset that generates a capital gain sufficient enough to throw us over the $100,000 cap? Hmmmmmmm!

  • Innocent Observer on 8/04/2013 3:53:45 PM

    In answer to your question Agast; Yes.

    And I wasn't for one second discounting the value of advice. I was pointing our that a good part of which is educating/advising clients on policy and strategy.

    If my views are perceived as imbalanced (and arguable quasi-socialist) it may be because I'm considering the social and economic cost of a retirement (and taxation) system that is ill-equipped to cope with the costs of a rapidly ageing population. It's called planning ahead (a concept most advisers get).

    Sure, there are other ways of funding the deficit, but none of them are going to involve sticking our head in the sand and hoping the issues disappear. Sadly it's going to be the taxpayer picking up the tab. Small changes now are better than big/desperate changes in 15, 30 years

  • Agast on 8/04/2013 11:55:39 AM

    I question "innocent observer's" solution to create a "sustainable" system. Are you seriously suggesting a tax on super contributions, a tax on super earnings, then marginal rates of tax on withdrawals??? Sustainable for whom???

    Also, the clients should only thank the government for the concessions when they are granted and achieved without the need for advice from advisers. In the meantime, there is real value from this type of advice (just ask a real client).

    I seriously doubt that you are actually an adviser, you clearly struggle with balanced analysis of issues.

  • Innocent Observer on 8/04/2013 10:52:34 AM

    If the reason for changes to the system is to create a "sustainable" system, then the proposals haven't gone far enough. The administration required (by the regulators) to "police" makes me question how effective these changes will be in clawing back some tax revenue. Surely a fairer (and simpler) system would be to apply a flat-rate of tax on earnings (whether pension or super phase), with withdrawals taxed at the individual's marginal tax rate.

    We (advisors) shouldn't kid ourselves: the strategies we use to save us (and our clients) tens of thousands of dollars a year in tax say more about the way the system is structured than our brilliance as advisers! (as I remind clients: Mr Client, it's not me saving saving your $XX,000 per year in tax, it's the government).

    Incidentally many of these clients, saving tens of thousands in tax through a bit of tweaking, agree that the system is clearly flawed. I'd be interested to know (honestly) how many other advisers' clients share the same view.

  • Clued on 8/04/2013 10:26:11 AM

    The proposed taxation of super earnings would have many negative consequences, not least added complexity. Better to tax withdrawals from super, income and lump sum combined, by implementing a ceiling, fixed or percent of super account balance per annum, above which any drawdowns will be taxed, say minimum 15% or at the marginal rate. This should encourage preservation of super balances and ease the pressure on the Age Pension.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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