Many Australians earning higher incomes can end up paying up to $37c on the dollar in income tax. But few Australians are aware of how extra contributions into your super can minimise this tax (if not wipe it) for the wealthy. The tax benefits for the wealthy who leverage this tactic has been obvious for years, yet regulators have looked the other way.
How it works
Australians are allowed to make extra contributions into their super every year. This is on top of whatever contribution (generally 10%) your employer will make. Now keep in mind, the tax reduces to only 15% for any contribution into superannuation.
And there is a fairly generous cap on how much you can contribute to your super in your lifetime. From 1 July 2021, the general concessional contributions cap is $27,500 for all individuals regardless of age. Those eligible individuals have the ability to carry their annual quota of what they can add to their super. They can then utilize it later in the year.
And to no surprise, the wealthy have benefitted most from this. With an aging population, Australia’s tax revenue is extremely stretched and it is forecasted to only get worse. It’s critical that the country is more efficient at taxation – appropriately taxing all income groups without prejudice. But thanks to corrupt lawmakers, the system isn’t designed to work that way.
Given the cohort with over $5m in super has a greater capacity to support themselves in retirement, it becomes an inequitable situation. As well as an unsustainable one as the population of Australia ages.
Thus, the Australian Institute of Superannuation Trustees has called for a $5 million cap to these extra contributions.
Why we need the $5m in super cap?
For starters, the proposal to change would only affect only 11,000 extremely wealthy individuals but benefit almost 240,000 individuals. According to an analysis conducted by Mercer, tax concessions celebrated by any single $10 million super funds could fund up to 3.1 full age pensions. This means the tax benefits carelessly handed out to all SMSFs with balances exceeding $10 million could fund up to 240,000 full age pensions every year.
Additionally, the almost $42 billion annual costs of superannuation tax concession end up largely benefiting the wealthy. This occurs at the expense of the aging population. The Federal Government’s retirement income review suggests the wealthy should instead tap into their assets and equity of their property to fund their retirement.
And for once it looks as if Labor agrees with the decisions. Many support the decision to not push for increments or changes in the super system. In a statement by Labor MP, the future of super funds seems to be geared towards bringing stability and security to the sector. Getting the Liberals to see this through is another story.
