FAAA concerned about impact of super tax

In its first Treasury submission as a merged association, the Financial Advice Association Australia (FAAA) has signalled its “broad” support behind the Federal Government’s proposed superannuation tax concession changes, but flagged that it still has concerns.

The FAAA said it aims for the superannuation tax concessions available to Australians be made “fair, reasonable and equitable”, highlighting four areas of issues in its submission for the proposal to improve on.

The four areas were:

• Complexity – as the proposal is set to introduce new legislation to the pre-existing system that brings into effect a complex formula to calculate earnings subject to the additional tax rate and tax liability, the FAAA recommends the Government should align the new measures with the existing laws as much as possible.
• Threshold – the FAAA highlighted its desire for the proposed superannuation earnings concessional tax threshold to increase to align with wage increases and be indexed in line with CPI to “provide greater certainty for consumers over the long-term”.
• Tax rate – the association said it was concerned that the increase in tax rate is due to “the taxing of unrealised gains, the lack of access to the one third Capital Gains Tax discount that applies to super funds and the lack of access to the benefit of franking credits that would otherwise be available to super funds”, recommending a rate below 30 per cent “to avoid creating a significant disincentive for Australians to invest in their superannuation in their earlier years in the workforce”.
• Unrealised gains – the FAAA said it was uncertain about the prospective formula, which as it stands includes unrealised gains in the year’s earnings, “would result in Australians being required to keep their money invested in what might be a higher tax environment than is optimal, and losing the many benefits of deferred consumption that the superannuation system encourages”.

“We are open to the principle that those with very substantial superannuation balances would not have unlimited access to the tax concessions on superannuation earnings,” Sarah Abood, CEO of the FAAA, said.

“However, we have reservations about the impact of some of the proposals, and any unintended consequences.

“Priority should be given to identifying solutions to these issues, in order to improve the short and long-term certainty for consumers regarding proposed changes to the superannuation tax concessions.”