ACOSS, the Australian Council of Social Service, has recommended the 2017/18 Budget include a tax on the pension phase earnings of superannuation funds.
As noted in the pre-Budget submission, a 15% tax rate applies to the income of superannuation funds in accumulation phase with 0% tax applying for pension phase.
ACOSS recommends that the 15% tax should be extended to the pension phase, increasing by 3% each year from July 2017. Though there would be a 15% rebate for taxpayers whose income was below the tax free threshold.
“This would greatly improve the integrity of the income tax system for older people. It would also greatly simplify superannuation because there would no longer be any need to operate separate ‘accumulation’ and ‘pension’ accounts.”
ACOSS says the revenue raised from this change would help meet the growing expenditure on health and aged care services from an aging population.
One of the legislated changes from the 2016/17 Budget, applying from 1 July 2017, is to tax super fund income relating to a Transition to Retirement Income Stream at 15%.
ACOSS also calls for the superannuation preservation age to be progressively raised to 67 by 2032. Though the preservation age of 60 would remain for people unable to continue paid work due to “disabilities, poor health or caring roles”. The preservation age has been increasing from 55 to 60. A preservation age of 60 applies for people born on or after 1 July 1964 – so the earliest someone born after this date can reach their preservation age is 1 July 2024.
Another recommendation in the pre-Budget submission is for the current contributions tax system to be replaced with a “simpler system in which contributions are taxed at the employee’s marginal tax rate and an annual superannuation rebate is paid into superannuation accounts”.
“The rebate would be structured according to a ‘100-20-20’ formula: 100% rebate up to a low level of annual contributions, plus a 20% rebate up to an annual concessional contributions cap of $15,000. The purpose of the 100% (dollar for dollar) component of the proposed rebate is to boost superannuation savings for people on very low incomes, especially women in low paid part time jobs.”