As you may have heard or read in the news, the government is planning to increase tax on superannuation which will be announced in this year’s federal budget on 14 May 2013. It is not clear which area the government is planning to impose additional tax on as superannuation is taxed in stages.
Currently, superannuation is taxed in three stages – 15% tax on contributions your employer makes on your behalf, up to 15% tax on investment earnings (interest) you receive from your superannuation and lastly tax on exit when you retire at various rates depending on benefit components and your age etc. Please note no tax applies after you turn 60.
The government has said that their focus is on making superannuation system “sustainable for the long-term future” and any tax increase would only impact 1% or 2% of the workers. It has been reported that tax on investment earnings may be increased from 15% to 30% for people earning over $180,000pa or $300,000pa. Currently everyone regardless of their income is paying 15% tax on interest their earnings from superannuation. It is possible the government may make high income earners 30% tax which is still attractive compared to tax on earnings outside of superannuation which is 46.5%.
In last year’s budget, the government announced the increase in tax on contributions from 15% to 30% for anyone earning above $300,000pa from 1 July 2013, though the legislation has not been passed. It wouldn’t be surprised if the government increased investment earnings tax to 30% for people earning $300,000 or more. Alternatively, the government may lower these thresholds to $180,000 with the 30% tax rate on earnings and on contributions.
While the opposition leader Tony Abbot said he would not be making any unexpected changes to superannuation; however, we all know that he is planning to abolish the Low-Income Superannuation Contribution (LISC) tax refund. This new initiative was only introduced by the Labor government from 1 July 2012 to help low income earners increase their superannuation savings. The LISC allows people earning less than $37,000pa to receive a tax offset of up to $500 a year from the Australian Taxation Office which is basically a refund of the contributions tax on the 9% SG.
We will have to wait and see what the government do to superannuation on the 2013 budget night.