A few weeks ago Peter Cramer, Kerry Schultz & I were speakers at a Superannuation Seminar we ran for approximately 100 clients. One topic of discussion was the Government’s attitude to superannuation taxes.
Currently there is mass confusion being generated in the superannuation arena by our politicians due to the dire predicament of the nation’s finances. In short, there is a massive amount of money in superannuation, the Government has no money (and is losing it by the day) so it is obvious that superannuation could be an easy target for tax reform.
There have been all sorts of ideas quoted in the financial media over the last 3 months about how superannuation may be attacked. They include the following:
- Taxing all withdrawals from superannuation regardless of age of the member;
- Taxing earnings in superannuation even if members are withdrawing a pension;
- Increasing the tax rate on contributions, based on a personal assets or income test;
- Only allowing $100,000 of tax-free income per member to be generated in the Fund
Our advice for superannuation investors is to take a deep breath and deal with the TRUTH! The TRUTH is as follows:
- None of the “proposals” that have been reported in the media are LAW! Some of these proposals are generated by the media and some are proposals by the Labor Government. The media often write articles because it is “good copy” and it tends to scare readers into thinking the end of the world is nigh. There is also an election in September so any policies the Labor Government announces may not see the light of day if they lose the election;
- Superannuation taxes on earnings are still 15%. Superannuation taxes on investments used to pay pensions are still 0%. Even if drastic changes to superannuation are made there are significant potential savings available by using superannuation due to the difference between the maximum individual tax rate (46.5%) and the maximum superannuation tax rate (15%). Remember the Government still has to strike a balance between generating tax revenue and preserving faith in the superannuation system.
- If a superannuation tax-free income limit of $100,000 per person per year is legislated, this still gives a couple up to $236,400 per annum in income they can earn tax free ($200,000 in a superannuation fund) and $18,200 each in their own name!
- Legislation has recently been tabled in Parliament to lift the annual concessional contribution limit from 1 July 2013 to $35,000 for taxpayers over 60. From 1 July 2014 this will apply for taxpayers over 50 – this is EXCELLENT news!
- Anything announced in the May Budget by the Federal Government is only a proposal – it is not LAW and may never become LAW! There are still announcements from the 2012 Budget which haven’t been passed through the Senate, which will give you an idea of how long it takes to get laws in place.
So what should you do? – DON’T PANIC! If you are reading the papers and something concerns you –ring us and hopefully we can clarify what the situation. Superannuation will feature strongly in the media over the next few months as there will be a budget announcement soon, a budget response from the opposition and then the “fun” of a September election and the associated policy announcements.
Green Taylor Partners will keep you updated along the way as well as looking to highlight to you any planning opportunities which may be available.