A super hit to the well-off
There has been much speculation on who would be hit by a higher tax on their superannuation contributions after the government said it would announce measures in the budget on Tuesday.
There has been much speculation on who would be hit by a higher tax on their superannuation contributions after the government said it would announce measures in the budget on Tuesday. Now we know it will be those earning more than $300,000 a year who will pay 30 per cent tax on their salary sacrifice and on their compulsory contributions instead of the 15 per cent that will continue to apply to everybody else.The impost on the very well off has produced a strong reaction from lobby groups representing the superannuation industry. It revives memories of Peter Costello's surcharge on super that was started in 1996. It was an extra 15 per cent in contributions tax for those earning more than $85,000 a year, though it started kicking in at incomes of $70,000. The former treasurer has conceded that it was a mistake because of the difficulty of its administration. The surcharge was dropped in 2005.We will have to see if the experience of the Howard government has not been lost on the Gillard government and the Tax Office will be better prepared to administer the surcharge this time.On incomes of $300,000 a year, this tax impost starts at a much higher income than the old surcharge and affects only the top 1.2 per cent of taxpayers, about 128,000 people.The truth is that many of the senior executives, senior professionals and successful small business people are well able to afford a very comfortable retirement without any tax incentives at all. The better off, naturally, make much more use of the super tax concessions than other taxpayers.The Rudd government brought in caps on how much can be salary sacrificed into super, which already goes a long way to addressing the equity problem - where taxpayers subsidise the retirements on the very well off.The cap currently on salary sacrifice into super is $25,000 for the under-50s and $50,000 for those 50-plus and that includes the 9 per cent compulsory super. But the $50,000 cap will drop to $25,000 from July 1 this year for the older group, except for those with less than $500,000 in super, pending the measures being passed by Parliament.The government could have more to say on the caps in its budget.