At the end of February, the federal government announced that it would make changes to the tax concessions for superannuation balances over $3 million.
Currently, earnings from superannuation in the accumulation phase are taxed at a concessional rate of up to 15 per cent, with the Treasurer confirming that this will continue for all super accounts with balances below $3 million.
“The modest adjustment we announce today means 99.5 per cent of Australians with superannuation accounts will continue to receive the same generous tax breaks, and the 0.5 per cent of people with balances above $3 million will receive less generous tax breaks,” the Treasurer said at the time.
“From 2025–26, the concessional tax rate applied to future earnings for balances above $3 million will be 30 per cent.”
The Treasury released a consultation paper on the changes at the end of March. In its response, the FAAA said that while it broadly supported the intent to ensure the superannuation tax concessions available to all Australians are fair, reasonable and equitable, it had concerns about the impact of some of the proposals.
FAAA chief executive Sarah Abood said: “We are open to the principle that those with very substantial superannuation balances would not have unlimited access to the tax concessions on superannuation earnings.
“However, we have reservations about the impact of some of the proposals, and any unintended consequences.”
Among the FAAA’s concerns is that the proposal will introduce a new separate set of laws to the system with a new complex formula for calculating an individual’s earnings that will be subject to the additional tax rate and tax liability.
The association said that consideration should be given to aligning the new measure to existing superannuation and taxation laws as much as possible.
The FAAA also proposed that the superannuation earnings concessional tax threshold be indexed to ensure the equity of the system is maintained over time. In order to keep pace with wage increases, the FAAA recommended the threshold be higher than $3 million and indexed in line with increases in the consumer price index (CPI) to provide greater certainty for consumers over the long-term.
It also expressed concern that the impact of the proposed increase in the tax rate would be substantially more due to a number of factors, including “the taxing of unrealised gains, the lack of access to the one-third capital gains tax discount that applies to super funds and the lack of access to the benefit of franking credits that would otherwise be available to super funds”.
As a way to avoid these issues, the FAAA recommended that the increased tax rate be reduced to a level “materially below 30 per cent”, which it said would avoid creating a disincentive for Australians to invest in their superannuation in their earlier years in the workforce.
Finally, the FAAA said it is concerned that the proposed formula, which includes unrealised gains in the year’s earnings, would result in Australians being required to keep their money invested in what might be a higher than optimal tax environment, which could lead them to lose the benefits of deferred consumption that the superannuation system encourages.
“Priority should be given to identifying solutions to these issues, in order to improve the short and long-term certainty for consumers regarding proposed changes to the superannuation tax concessions,” Ms Abood said.
