There is some speculation that the Turnbull government will consider some tax reform for superannuation. Whilst we wait to see what super changes actually occur in the coming months or years, it is important to remain confident in the tax advantages of investing your wealth in the superannuation environment.
Helping our clients plan for the future every day, we are the last ones who want to see the government changing the rules for superannuation. However, it is worthwhile to look closely at the proposed changes from Labor and consider the ramifications if the Turnbull government adopted their position entirely, as a worst case.
Labor has proposed imposing a 15% tax on the earnings over $75,000 within a super fund in pension phase, which is currently 100% tax free no matter what the earnings are. Assuming a return of 6% per annum net for a super fund, an individual member balance would have to be over $1.25mil before any tax on earnings would be paid.
Labor has also proposed a 30% tax rate on contributions applicable to individuals with an income over $250,000 down from the current threshold of $300,000. For these individuals, it would mean that salary sacrifice would still save them 19% compared to taking the money after tax at their marginal tax rate of 49%. Making contributions to superannuation is still the far more favourable option for these individuals.
The people affected by these proposed changes would be a very small proportion of the population; individuals salary sacrificing who earn more than $250,000, or retirees with individual superannuation balances greater than $1.25mil. These individuals would be likely to continue to use their financial resources to maximise their wealth and fund their own retirement. The argument that the proposed changes would discourage people from saving for their own retirement does not bear up.
In the meantime, whilst it is natural to be concerned about the prospect of governments changing superannuation, it remains an appealing investment environment and we remain cautiously calm about the future.
Brendon is an Authorised Representative of Hillross Financial Services Limited (AR Number 411666).