The Government has issued a new discussion paper on changes to excess superannuation contribution rules, allowing individuals who have breached their concession caps by up to $10,000 to receive refunds.
But some experts have said while the change is welcome, it ignores the structural problems inherent within the super system and will add further complexities to an already burdened system.
Assistant Treasurer Bill Shorten announced yesterday that individuals who have breached their caps by up to $10,000 can receive refunds, in a new development for the debate that has lasted for several months. Proponents for change say penalty rates for exceeding contribution caps are excessive, a view shared by the Assistant Treasurer himself.
Taxes charged for exceeding the contributions cap can sometimes reach up to 93%, experts have warned for some time.
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“The Gillard Government believes these changes will make the superannuation system fairer by giving individuals the option to take excess concessional contributions out of their superannuation fund and have them assessed at their marginal rate of tax, rather than incurring a potentially higher rate of excess contributions tax,” Shorten said.
Shorten uses the example of someone earning $60,000 a year who makes an excess concessional contribution of $10,000. If he were to take the new refund option, he would pay $3,400 in tax as opposed to $4,650.
Shorten says the administration of this refund system will mostly be handled by the Australian Taxation Office. But Dan Butler from DBA Lawyers says not only will the new system contribute new burdens for the system, it doesn’t address the problem at hand.
“This is good news, and a welcome development, and it could alleviate the case where people are charged excessive tax for going over caps. But this is still far from being fair.”
“There is a lot of complexity to this system. It will be complex to administer, and there will be a lot of costs associated with all of this. And through all of it, they’re not dealing with the nut of the issue.”
Butler says the Government needs to address the total issue of excess contributions and not just make a reactionary repair, and also says the entire release “has quite a bit of self-interest”.
“Bill Shorten got hit with a higher tax, and now he’s fixing one of the areas where he got hit. That’s unfair, and is a knee-jerk reaction.”
“I don’t think this fixes a lot of the bigger problems.”
Liz Westover head of superannuation at Institute at Chartered Accountants agrees and says the paper is merely “a band aid on something needs surgery”.
“It is a fix, and it will assist some people. But realistically we’d need to see the abolition of excess contributions tax. And when those excessive contributions are made, the entire amount can be refunded.”