ASFA highlighted various inconsistencies within the structure of tax incentives, particularly between different income brackets. Individuals earning between $37,000 and $45,000 receive minor concessions, compared to those subject to the highest tax rates who reap significantly larger benefits.
"Those with relatively large superannuation balances also receive tax concessions through investment earnings being taxed at the rate of 15 percent during the accumulation phase and at a zero rate in the pension phase," ASFA stated.
Although reforms like the Transfer Balance Cap have been instituted to limit these concessions, ASFA noted that further reductions could target individuals benefiting disproportionately from the current system. Under the Transfer Balance Cap rules, the amount of superannuation considered for zero tax rate investment returns is capped, alongside limits on contributions from those with substantial balances.
Conversely, the system also provides flexibility for those with minimal super balances to exceed conventional contribution limits annually, a focused measure to support low-income earners.
ASFA's submission underscored, "There is a strong case for both further limiting the superannuation tax concessions for those with high balances and/or high incomes and assisting further those on low incomes with generally low balances."
A critical aspect of ongoing discussions is the contentious Division 296 taxation, aimed at individuals with extraordinarily high superannuation balances. Notably, there is debate about the inclusion of unrealised capital gains in calculating Division 296 liabilities.
ASFA addressed this issue by expressing reluctance to embrace this methodology within its existing taxation principles, emphasizing the disparity in administrative and compliance costs versus potential revenue gains if such measures were implemented.
"ASFA in its past submissions on the proposed Division 296 tax has stated that this is an unorthodox approach in the context of Australian taxation arrangements, and one that should not set a precedent for the taxation of superannuation or personal income tax more broadly," it clarified.
However, ASFA also acknowledged the rationality behind employing a simplified proxy calculation to mitigate the financial and administrative burden. This flexibility could alleviate impacts on fund members, circumventing the necessity for complex calculations of individual earnings for Division 296 purposes.
It is essential to note that this advocacy comes from ASFA as it challenges assumptions discussed within the original piece on superannuation tax reform. As discussions on tax frameworks continue, ASFA’s insights provide a considerable perspective on reshaping how these frameworks interact with the superannuation sector.
