I recently completed a course in Superannuation at Curtin University Business School to up date my knowledge in the area.
Up-to-date knowledge in respect of superannuation generally and self managed superannuation funds in particular is an important component of legal advice with respect to estate planning, asset protection and tax planning.
Superannuation is concessionally taxed in order to encourage people to fund their own retirement without relying on Government pensions.
Currently money put into superannuation (up to $30,000 per year under the age of 50 years and $35,000 per year for those over the age of 50 years) is taxed at the rate of 15% in the fund and is effectively a tax deduction. There is considerable tax advantage in contributing to superannuation as anybody doing so is likely to be paying a higher marginal rate than 15%.
However, if a member’s “income” (as broadly defined in the Tax Act) is more than $300,000 per year, the concessional contributions to the extent of the excess over $300,000 will be taxed at 30% instead of 15%.
Whilst the fund is in accumulation phase it is taxed at 15%. However, once the retirement or drawing phase begins the income earned by the member is tax free. There has been much comment in the press over the last few months that it is unfair that people with many millions of dollars in superannuation do not, during their retirement, pay any income tax at all on the earnings of their fund.
Recently, the Federal opposition announced that if it comes to power, it will do the following two things in respect of superannuation (http://www.abc.net.au/news/2015-04-22/labor-proposing-tax-hikes-for-high-income-wealthy-australians/6410800):
(1) A member’s earnings in a superannuation fund during the pension phase will remain tax free only to the extent of $75,000 per year. Any amount above that will be taxed at 15%.
(2) The above high income superannuation charge for people earning more
than $300,000 annually will be lowered to apply to people earning above $250,000 annually.
Many commentators believe that the Coalition will eventually be forced to do something to increase the tax on superannuation funds as it is felt that the current position constitutes an unfair cost to the younger working taxpayers whose numbers relative to the over 65s are declining.
Governments of both persuasions wish to encourage people to fund their own retirement. I feel that superannuation will continue to be a very effective tax saving vehicle as even under the above Labor proposals (or any changes that the Coalition is likely to introduce), it will still offer a better tax outcome than any other structure.