A Yep they’re at it again… The former Coalition Government removed a lot of the complexity in Superannuation and Retirement policy, now the Labour Government appear hell bent on making things complicated again!
Leaks out of Treasury indicate that next Tuesdays budget announcements will include a doubling of the contributions tax on Concessional Superannuation contributions to 30% for individuals who earn at least $300,000 in income from the 1 July 2012. The definition of “income” will be broad and includes taxable income (Investment income, Salary and bonuses etc), Concessional Superannuation contributions (both Employer Superannuation Guarantee and salary sacrifice contributions), Fringe benefits and tax-free pensions.
Sounds simple and reasonable enough, tax high income earners on their Retirement contributions, unlikely the Government will get too much grief on that announcement. The devil however is in the detail and administration of the policy. There were cheers of celebration when the Coalition Government removed the Superannuation Surcharge for “high” income earners in May 2005. The Superannuation Surcharge was a complicated mess and took years to sort out. Now it looks like it is coming back in another form.
If the Government was serious about increasing tax revenue from high income earners, increase Income tax for those earning over $300,000. I doubt that would be popular but frankly this one is worse. There are already limits on how much individuals can put into Superannuation without paying penalty tax. Superannuation funds will now have to collect Contributions tax at 2 different rates; 15pc and 30pc. How will they identify which is to apply? This policy complicates Superannuation again and all Superannuation fund members will pay for that.
Not convinced yet on the complexity? Where the $300,000 limit has been breached because of the level of Concessional contributions, the 30% contribution tax rate will only be applied to the amount of the contribution which caused the breach. For example if an individual with $290,000 in taxable income has an additional $25,000 Concessional contribution, they would pay the 30% contribution tax only on $15,000. How on earth will a fund know to apply the tax and on what amount? “Taxable Income” will not be known until Tax returns are submitted which could be 10 months after the end of Financial Year assuming they are lodged on time.
The maximum additional tax the Government would receive for an individual who contributes at the Maximum Concessional Cap of $25,000, is $3,750. It will be interesting to see what Treasury estimate the revenue take on this will be. I doubt it will be anywhere near the cost of administering the system. Pretty sure those affected will also pursue alternative strategies to avoid the additional tax. Lets hope sanity prevails.