ASFA pushes for higher taxes in super for high-income earners

ASFA stated that given that tax on concessional contributions and on investment earnings is generally levied on the superannuation fund at a flat rate of 15 per cent, those members on higher marginal tax rates or with very high superannuation balances “enjoy a greater tax concession than those members on lower marginal tax rates or who have relatively modest superannuation balances”.

In its submission, ASFA identified three areas for adjusting current tax settings for superannuation, including an adjustment to the threshold for the Division 293 tax on concessional contributions.

“ASFA is proposing that the threshold be linked to the threshold for the top personal marginal income tax rate plus an additional amount to take into account compulsory superannuation contributions,” it stated.

“For financial year 2022-23 it is proposed that the threshold for the Division 293 tax be $200,000, that is the threshold for the top personal tax rate of $180,000 with a further $20,000 allowance for compulsory superannuation contributions.”

In later years, the submission suggested that the threshold for Division 293 could be adjusted in line with any changes to the threshold for the top personal tax rate and for changes in the rate of compulsory superannuation.

“Linking the Division 293 threshold in this way would mean that no further indexation arrangements would be required,” it said.

The submission also expressed ASFA’s concerns about tax concessions in relation to investment earnings for high-income earners.

“This tax concession can be substantial for large accounts. There are at least 11,000 superannuation fund members with balances within superannuation of over $5 million according to the Retirement Income Review report,” it stated.

“While the current caps on superannuation contributions limit the ability for members to build up excessive balances in the future there is a real question regarding the appropriate treatment of high balances that were achieved in the context of more generous contribution caps in the past.”

The submission noted that while the transfer balance cap regime limits the amount a member may take into pension phase, “excessive balances” may still be present in accumulation accounts and therefore subject to a tax concession of up to 30 per cent of the tax on earnings, that is, 45 per cent personal tax rate less 15 per cent tax on fund earnings.

It proposed that members aged 65 years or older with a total superannuation balance as at 1 July 2023 in excess of $5 million, whether in accumulation, pension phase or a combination, should be required to withdraw the excess out of superannuation.

“A balance of $5 million in concessionally taxed superannuation cannot reasonably be justified as necessary to support a comfortable lifestyle in retirement,” it stated.

The submission also called for future indexation of the transfer balance cap to be removed to reduce complexity and to maintain equity in the system.

“The indexation adjustment means that there is no single TBC across the community, every individual will have their own personal TBC depending on their circumstances. With each indexation adjustment the range of transfer balance caps increases and the number of individual specific TBCs also increases,” the submission explained.

“Given the complexity of having multiple TBCs and to ensure the system remains equitable, future indexation of the cap should be removed.”