Significant, even historic, changes to the superannuation tax structure. This dramatic step has opened up spirited debate in both the public and private spheres. Approximately 70 percent of superannuation assets are managed by funds that are regulated by the APRA. At the same time, one quarter of these assets are invested through self-managed super funds (SMSFs). The proposed tax change, announced following the re-election of the Albanese government, aims to improve the equity and sustainability of Australia’s retirement income system, which consists of a government-funded age pension and private superannuation.
As it stands now, the proposed legislation would increase the concessional tax rate on superannuation account earnings in the accumulation phase from 15% to 30%. In particular, the tax rate is set to increase from 15 percent to 30 percent for accounts above $3 million. The negative effect of this change will be felt by an estimated 80,000 accrued superannuation account holders. Yet people with balances below $3 million can continue to benefit from the higher concessional tax rate.
Treasurer Jim Chalmers emphasized that the motivation behind this proposed tax change is two-fold: to enhance fairness in the tax system and to address the growing burden on the federal budget. At present, super tax concessions are worth roughly $50 billion a year in foregone revenue to the federal government.
Under the current framework, employer contributions to super are taxed at a concessional rate of 15 percent. Personal contributions, which are limited, receive this very advantageous tax rate. That’s because income earned by a superannuation fund is taxed at this rate when in the accumulation phase. The proposed changes will introduce a more progressive tax structure that seeks to address what critics describe as highly regressive current superannuation tax concessions.
To address this, the proposal increases the time taxpayers have to pay their tax liabilities to 84 days. This is a huge jump from the typical 21-day period. This important change allows people additional time to manage their financial burdens. It takes on the goals made difficult by the new tax structure.
The government’s Retirement Income Review outlined the need for reforms to “deliver adequate standards of living in retirement in an equitable, sustainable and cohesive way.” This proclamation is in line with the government’s desire to have a flexible, sustainable retirement income framework that works well for all Australians.
