THE debate about the government’s proposed new superannuation rules has focused on the negative and retrospective impacts, and rightly so.
However, there are some major positives in the proposals too.
The first is that anyone, working or not, employee or self-employed, will be able to make personal super contributions and claim a tax deduction. This will greatly increase many people’s tax saving options. In June each year many people who need a tax deduction will be able to get one.
Anyone who has had an unusually good income year, such as from capital gains on the sale of shares or property, will be able to make last-minute super contributions and reduce their tax bill, provided they haven’t already reached their contribution limit.
Secondly this will be available to anyone up to age 75. Currently people aged 65 to 74 must be working to be able to contribute.
It will be possible to reduce the tax on capital gains. Anyone who has received a pay bonus will be able to cut their tax bill. People who have retired or been retrenched and received payment of their unused holiday and long service leave will be able to reduce their tax bill.
Unfortunately the limit on non-concessional (tax-deductible) contributions will be cut to $25,000, down from $30,000, or $35,000 for those aged over 50. However people will be able to carry forward unused limit amounts for up to five years.
For example, a worker on average income who has not been making salary sacrifice or voluntary contributions and who sells a property for a large capital gain will be able to put more than $100,000 into super and claim a tax deduction for it. This will greatly reduce their capital gains tax bill.
This means in the future it will become very important for each person to keep a running tally of all their super contributions, year by year, both tax-deductible and not. This will allow them to benefit when their circumstances permit.
The $500,000 lifetime limit on non-concessional (non-tax-deductible) contributions is not unreasonable in itself, but starting the tally from 2007 is a serious retrospective impact and hopefully will be overturned.
It will be important to work out how much each person has put into super without a tax deduction since 2007 and keep track of that into the future. People may not be able to use the limits to advantage now but in the future they may.
If they receive inheritances, retirement payouts, or other lump sums knowing how much unused super contribution limits they have available may be very beneficial.
The earnings within pre-retirement pension accounts will be taxed 15 per cent. It seems unreasonable to tax pensions already in place. Usually grandfathering applies. This will change the calculations as to whether the ‘transition-to-retirement’ strategy is advantageous for each person.
For some it may no longer be. However the impact of the change is likely to be modest for most people. The major benefit of the strategy is to move income from higher marginal rates to only 15 per cent. So in most cases the strategy is likely to still be worthwhile.
The proposed $1.6 million limit on retirement pension accounts won’t affect many people but applying it to existing accounts and forcing those already over the limit to take the excess out is retrospective and unfair.
However, even if a person has $3 million in a pension account they will still pay only around $10,000 in tax, or 0.3 per cent of the balance. Therefore this change should not be a serious problem.
Also if they have a spouse who is under age 75 and has not exceeded their limit they may be able to transfer some to their spouse’s pension account and reduce their tax.