The tax breaks on super are becoming a matter of great political focus, with the Federal Budget under pressure. The AFR reports that almost 100,000 higher earners have been required to pay about $300 million extra tax under changes to superannuation rules introduced in the dying days of the Gillard government.
"Labor introduced the extra 15 per cent tax on people earning more than $300,000, which the Abbott government has retained.
The Tax Office told The Australian Financial Review that since January it had issued assessments to 96,952 people for $294 million in tax – which was just above initial budget expectations.
The tax, known as Division 293, applies to an individual’s income and pre-tax superannuation contributions from the 2012-13 financial year.
If these amounts total more than $300,000, the individual is liable to pay the extra 15 per cent tax. This is on top of the 15 per cent tax on super contributions – resulting in a 30 per cent tax on their super contributions.
When Labor first announced the 15 per cent tax for higher earners (it had at the time considered a higher rate of 30 per cent) it said would raise $946 million over four years and the policy would hit 128,000 people in 2012-13, or 1.2 per cent of people contributing to superannuation."
There are 8,000 super funds which have accounts of over $5 million. It is likely that the tax concessions on super and on dividend imputation, will be reviewed.
The Grattan Institute is arguing that the government should wind back superannuation tax breaks for the old and wealthy rather than asking young unemployed people to live on Newstart only six months in every 12. He said the best policy was to tax the income and capital earnings of super funds in pension phase at 15 per cent.
But the proponents of super are arguing that they should not be singled out:
"The $1.8 trillion superannuation industry has defended its generous tax breaks, saying it should not be used as a cash cow to rescue the budget deficit at the cost of healthy retirement savings.
While some industry funds supported taxing the biggest superannuation balances more, an alliance of self-managed funds said that the rich were just as entitled to benefits.
“We don’t see any problem with people using SMSFs to build their wealth and retirement incomes, because the [same] rules apply to super funds generally,” said SMSF Owners’ Alliance executive director Duncan Fairweather.
“People who work harder and save more are going to have larger superannuation balances – it doesn’t mean you’re rorting the system.”
David Murray’s Financial System Inquiry’s interim report notes the top 20 per cent of income earners take most – 57 per cent – of the super concessions.
In its response to the inquiry on Wednesday, the alliance counters that those same people are responsible for paying an even larger chunk – 64 per cent – of income tax.
It argues that there is no evidence to back the inquiry’s statement that the high number of big super balances suggests the superannuation system is being used for “purposes other than providing retirement income”.'
The top earners pay a quarter of the tax:
It would be hard politically to change the treatment of super in any substantial way and neither major party is likely to attempt it. What is certain
, however, is that the really big winners are those in financial services getting fees for managing super. Nice money if you can get it:
"Australian Super chief executive Ian Silk says too many people working in financial services are using the compulsory retirement savings system to enrich themselves, rather than look after members’ money.
As pressure grows on super funds to cut fees, Mr Silk on Tuesday warned there was a risk that savings from the funds becoming more efficient were not being passed on members.
“The biggest concern as the superannuation sector grows is that the financial benefits from the economies of scale are being captured by the agents and not ordinary Australians,” Mr Silk said. “Too many people are looking to clip the ticket here and clip the ticket there as the money washes through the industry rather than put the interests of members first.”
The comments from Mr Silk, who runs one of the country’s biggest super funds with $70 billion in assets, come as debate heats up over the cost of super. The financial system inquiry last month suggested Australians were paying too much in fees and flagged radical ways of bringing down the cost.
Financial advice is also under scrutiny after the inquiry’s interim report raised doubts about the quality of advice, following mis-selling scandals at the Commonwealth Bank and Macquarie Bank.
In the latest round of submissions to inquiry chair David Murray, not-for-profit funds such as Australian Super are highlighting the cost of so-called “ticket-clipping” created by the vertically-integrated model dominated by banks.
Against this, for-profit funds are arguing that the cost of super is indeed falling, and further benefits will come from deregulation."