Superannuation experts are becoming more concerned over the suite of changes announced by the federal government on Friday, warning even people with a modest amount in their accounts could be caught by new taxes.
Experts have given a mixed reaction to the changes, which include placing a higher tax on earnings over $100,000. Although the government says these changes will only affect the highest income earners, experts say people with accounts as low as $500,000 could be affected.
Particularly, they say, if you sell assets which incur higher taxes, such as capital gains, which could cross the line of earning $100,000 in a year.
“This just shows when you start to tinker with the tax and superannuation system…it just leads to further complexity,” Tax Institute senior tax counsel Robert Jeremenko told SmartCompany this morning.
However, CPA Australia policy head Paul Drum told SmartCompany such an event is possible, but unlikely.
“I wouldn’t say it’s outside the realms of possibility, but that presupposes you’re getting a fantastic return on an investment. It’s unlikely.”
The changes have received a variety of responses. While some industry experts say some of the changes are welcome – such as easing up on some excess contributions penalties – others are more worrisome.
The Association of Superannuation Funds of Australia said it mostly welcomed the changes, although noted there is a lot of detail still to analyse.
“We will examine these proposed changes in detail to ensure they deliver the best outcomes for the sustainability of the system and a comfortable retirement for all Australians,” chief executive Pauline Vamos said.
The Institute of Public Accountants was more timid, saying the reforms were “mixed” and the concept of a “council of superannuation guardians” was not necessarily convincing.
The government said a council will be established to make sure any future reforms are consistent with a charter on superannuation stability.
“There have been a large number of reviews from systemic taxation reviews to comprehensive superannuation reviews; we are unsure as to how a ‘charter’ will impact on better retirement savings outcomes for Australians.”
Institute of Chartered Accountants head of superannuation, Liz Westover, also wrote while the changes ended speculation, they also aren’t guaranteed to pass Parliament, which could lead to more uncertainty.
While commentary has been mostly negative towards some changes, such as the 15% tax to be placed on earnings over $100,000, and the move to make deeming rules apply to super pensions, others have been welcomed.
These include an increase in the contributions cap to $35,000, and new reforms to excess contributions caps which will see people be allowed to withdraw the excess deposits made into their accounts.
This has been a particular problem for some, as they are taxed at more than 47% for the excess amount.
Jeremenko says this change is welcome and is an acknowledgement from the government “most people” try to do the right thing.
However, he says other changes are problematic.
“There are already questions about whether the 15% tax on earnings over $100,000 will affect certain people. It shows the government should be viewing changes to the super system in its entirety.”
Paul Drum says it’s important to keep the changes in context – they haven’t reached Parliament yet.
“When there is a change of government – and there will be, we just don’t know to what yet – that will reveal more.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
