Taxing estate planning out of super
One of Australia's key superannuation industry bodies has backed closing out superannuation as an estate planning device for wealthier Australians by reducing non-concessional caps and applying a higher rate of tax to those with very high account balances.
The Association of Superannuation Funds of Australia (ASFA) has formalised its position around a differential tax approach for higher income earns in a submission to the Treasury responding to its tax discussion paper.
The submission, released by ASFA chief executive, Pauline Vamos, said the organisation considered that "the superannuation system should not be used for the purpose of estate planning, and that to fulfil the purpose of the system, account balances should be close to zero on death, taking into account normal longevity".
"In essence, this means that there should be a ceiling on where the system should stop providing taxpayer support for accumulating retirement savings or supporting incomes in retirement," it said.
In doing so, the ASFA submission argues that the ceiling today should be above $2.5 million and be open to being raised over time.
Underpinning its arguments, the ASFA submission said it was important to note "that the vast majority of members do and will use the system for its intended purpose".
"However, there is a small minority of people that can use the system for estate planning and unless the system design is changed slightly, then an even greater proportion will fall into this category in the future," it said.
"The main suggested changes to ensure equity in the longer term are to reduce the non-concessional caps and tax very high account balances differently."
The ASFA submission said it was recommending that a limit of $2.5 million be placed on the superannuation funds an individual could roll-over to commence an income stream in retirement, saying amounts above this ceiling had then to remain in the accumulation phase and continue to attract the nominal earnings tax of 15 per cent or be removed from superannuation.
It said non-concessional contributions should also be capped at $1 million over a lifetime to prevent very large balances from accruing in the future as an integrity measure to complement the $2.5 million capital cap.
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