The Albanese government’s first Federal Budget last month was a bit of a fizzer in that there wasn’t much in the way of changes that affected investors and superannuants.
However, subsequent murmurs by politicians’ hint at proposed changes that the government may be contemplating. In particular, I wanted to address these potential super changes and how they may impact you.
Higher super contribution taxes for higher earners
In 2011, the Gillard government introduced a higher rate of tax that applies to super contributions made by higher income earners post 1 July 2012. The aim of this new tax was to reduce the tax benefits that super afforded to higher income earners (i.e., higher income earners enjoy a much higher tax saving in dollar terms than lower income earners). This tax is called “Division 293 tax”.
Div. 293 applies to taxpayers that earn over a certain amount. The tax applies to all concessional (including employer) contributions at a flat rate of 30%, instead of the usual 15%. The Div. 293 income threshold is currently $250,000 based on adjustable taxable income. However, between 2012 and 2017 the threshold was higher at $300,000.
It would be an ‘easy win’ for the government to reduce the Div. 293 threshold to raise more tax revenue. Reducing it to say $200,000 would align it to the highest marginal tax rate threshold once the stage 3 tax cuts are implemented post 1 July 2024. It would still be beneficial for higher income earners to make contributions, as it would save 17% in tax (i.e., taxed at 30% of contributed into super or 47% if taken as cash salary).
Introduce a cap on super
Currently, there is no limit to the amount that you can have inside super. When you are retired (i.e., in pension phase), the first $1.7 million is tax free. That is, any income and capital gains generated by this balance is tax free. Any amount more than $1.7million continues to be taxed at the standard flat rate of 15% on income and 10% on capital gains – which is still pretty good.
But if you have over $5 million in super for example, why should you get the benefit of a 15% tax rate? The whole point of lower tax rates in super is that it increases the number of people that can fund their own retirement and
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