Government sets its sights on superannuation loopholes


Government sets its sights on superannuation loopholes


The super tax system has been in the spotlight recently with growing concerns over loopholes that provide generous tax breaks for the wealthy.  First the focus was on super tax concessions, and now the government has turned their attention to two other ‘loopholes’ – transition to retirement pensions and anti-detriment payments.



Treasurer Scott Morrison plans to crack down on transition to retirement pensions as a tool for wealth creation.  The transition to retirement pension was originally intended to allow those approaching retirement to reduce their hours at work without sacrificing their total income.


The pension allows people to access their superannuation benefits at a tax-free rate once they have reached the preservation age threshold.  Individuals past the threshold can then sacrifice up to $35,000 annually in super contributions at the 15 per cent concessional tax rate, at the same time as they are taking a tax-free income stream from their super.


Mr Morrison has said that any changes to the super tax system would focus on the accumulation phase rather than the retirement phase, and that such changes would not be retrospective.  The treasurer has not ruled out abolishing the transition to retirement pension altogether, while other industry groups have suggested limiting the option to peopled aged 60 and over.


Other options for reform focus on super contributions.  Mr Morrison has not rejected a proposal to base the contribution rate on the marginal tax rate less 15 per cent, instead of the current flat rate.  Labor has also proposed maintaining the flat rate of 15 per cent but increasing it to 30 per cent for those with incomes greater than $250,000.



Another target of the Government is the anti-detriment payment, introduced in the late 1980’s to compensate widows and children who lose a parent by way of a super tax refund.


The payment is essentially a refund of the 15 per cent super contributions tax and was introduced to ensure payouts from deceased estates to financial dependents remained tax free.  However the provision rules are complex and super funds are not legally obligated to make the payment, meaning many super fund members miss out on the refund without adequate structuring and planning.


The scheme is estimated to cost the federal budget roughly $100 million a year and is likely to form part of Mr Morrison’s ‘crackdown on superannuation loopholes’.


While Mr Morrison has spoken out against super concessions, Prime Minister Malcolm Turnbull has confirmed this month that increasing the GST is officially ‘on the table’.  In particular, the government is open to increasing the GST to 15 per cent, as well as broadening its base to include fresh food, education and health.


While there is a lot of speculation around potential tax reform, the government is set to release a tax green paper and white paper next year, which will reveal the official tax agenda.  Until then, we will keep you updated on the tax reform debate as it progresses.


Article by Edwina Ring