The SMSF Association wants the tax regimes for superannuation contributions and earnings to remain unchanged, but is prepared to consider a “generous” tax-free threshold for retirement benefits, with a low personal tax rate applying above the threshold.
Association CEO/Managing Director Andrea Slattery says: “This is just one option to be considered to maintain equity and sustainability for superannuation, with three obvious qualifications – there must be adequate transitional provisions, the tax rate low and the threshold high.”
The mooted change, contained in the Association’s detailed submission to the Federal Government’s Tax White Paper process, says its preferred method of improving equity of superannuation is to implement a “light tax” on benefits paid to the taxpayer that exceed a “generous” tax-free threshold.
Slattery says: “We believe this proposal allows people to build adequate superannuation balances efficiently and is preferable to a more complex tax on earnings or high account balances, both of which are costly and inefficient.
“Increasing taxes on contributions and earnings are not only complex, but reduce the incentive to contribute to and maintain savings in superannuation, as well as reducing the compounding effect of investments over time, reducing superannuation balances.
“By contrast, our preferred option is relatively simple to implement and would claw back tax preferences that are excessive to achieve the key objective of superannuation – giving people the opportunity to save for a self-sufficient, dignified and secure retirement.
“We believe that this strikes the right balance between providing people with appropriate incentives to sacrifice their current income for long-term retirement savings and ensuring that superannuation is fair and sustainable.
“A light tax on benefits that exceed a generous tax-free threshold is the simplest and most efficient way to improve the equity and sustainability of the superannuation system.
“This approach taxes outside the super system and allows people to make their own decisions about how they manage their benefits in retirement.”
Slattery says that while the Association acknowledges that imposing a tax at each stage of superannuation (contributions, earnings and benefits till 60 years) is “out of step” internationally, our system provides tax concessions to some degree at all points in the system and is unique in how it taxes contributions and earnings up front.
The Association argues the existing tax settings for superannuation can be adjusted to improve outcomes, but any change must be carefully considered and have a long and appropriate transition period.
“We are emphatic that superannuation tax policy should not be used as an instrument to raise government revenue to meet fiscal shortfalls in the short to medium term.
“Superannuation was established to be Australia’s primary retirement savings vehicle, as well as a national pool of savings, and as such should not be considered a source of government revenue.
“In addition, the Association believes it is absolutely essential that superannuation taxes not be seen in isolation, but how they interact with the age pension, and other social security settings and tax payments.
“Coherent and coordinated policy settings across all aspects of the retirement income system are needed to encourage self-sufficiency and sustainable drawdowns on retirement savings for Australians now and into the future,” she says.
