SMSFs to ‘get pulled in’ to tax reform debate

SMSFs to ‘get pulled in’ to tax reform debate

The government’s tax discussion paper has confirmed super tax concessions will be on the national tax reform’s agenda, as industry stakeholders continue to push for a review of the benefits afforded to high-income earners.

The government released its tax discussion paper yesterday after several months’ delay. A green paper will be released later this year, and the final white paper is anticipated to be released before the next federal election.

As generally expected, the discussion paper has called for consultation on the fairness and complexity of tax arrangements for superannuation and questioned how these arrangements could be improved.

“The flat rate of tax on superannuation contributions means that most high income people receive a larger tax concession, relative to their marginal tax rate, than low income people,” the paper noted.

“The same is true during the accumulation phase and even more so during the retirement phase when there is no tax on earnings.”

Speaking to SMSF Adviser, AMP SMSF’s Peter Burgess said while it is still early days in the tax reform process, there is “no doubt” the SMSF sector will be pulled into the discussion.

However, he reiterated that a “logical first step” is to identify the true cost of superannuation tax concessions, given that Treasury has publicly acknowledged the limitations in its estimates.

Any tax reform debate involving super concessions should appropriately consider factors such as the savings the government makes on the age pension with these concessions in place, Mr Burgess said.

Treasury has not given sufficient weight to the positive “externalities” of superannuation, Taxpayers Australia added, such as superannuation savings that mean Australia has a domestic source of savings that would be unaffected by a withdrawal of foreign funding should there be another global financial crisis.

While super tax reform seems firmly on the government’s agenda, The SMSF Association’s Graeme Colley was surprised the paper did not urge the industry to consult on more specific super-related issues.

The Financial System Inquiry’s interim report, by comparison, targeted specific issues such as limited recourse borrowing arrangements and SMSF advice standards.

“We welcome the broadness of the question,” Mr Colley told SMSF Adviser. “The Tax Discussion Paper provides a good starting point for a sensible discussion of an across the board approach to tax reform including the tax settings for superannuation and retirement benefits.”

Mr Colley also echoed the sentiments of the paper, saying there is “no doubt” the equity issues associated with super need to be considered.

“Examination of the appropriateness of tax arrangements for superannuation in terms of fairness and complexity needs to be understood. Any reform that results in a simple and easy to use system that instils confidence in the retirement planning of Australians is the way forward,” he added.

Others such as the Association of Superannuation Funds of Australia (ASFA), while acknowledging the “good reasons” for super to receive concessional tax treatment, have directly called for a review of tax concessions for those with large balances.

“ASFA has long acknowledged that a review of the tax concessions in superannuation, particularly for those with large balances, is needed so that they can be better targeted to those who most need the concessions to achieve a comfortable retirement, while minimising the draw on the age pension," said ASFA chief executive Pauline Vamos.

SMSFs to ‘get pulled in’ to tax reform debate
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