This year’s big changes to superannuation may seem like they only affect the rich, but experts say working people will also benefit.
The Australian Institute of Superannuation Trustees (AIST), which represents all non-profit super funds, said the new system being introduced on July 1 is fairer.
“The super changes were needed to ensure tax concessions are more fairly balanced,” AIST chief executive Eva Scheerlink said.
“Few ordinary Australians will be adversely affected but there are a number of changes that average Australians should be aware of.”
The new system winds back the generosity of John Howard and Peter Costello, who made it easier for the well-off to stash money in super to minimise tax.
Three of the changes also help working people save for retirement – although several experts said more could have been done.
Cbus CEO David Atkin said “every little bit helps” but he urged the government to make a real difference by stamping out the problem of unpaid super, removing the $450 threshold, and speeding up the increase to the 9.5 per cent superannuation guarantee.
Up to $500 cash if you earn under $37,000
From July 1, Labor’s low income super contribution (LISC) will be replaced by the Coalition’s low income super tax offset (LISTO).
This measure is “the big one” for regular working people, according to the Association of Superannuation Funds of Australia (ASFA), which represents profit and non-profit funds.
“You’re looking at 3.1 million people, 63 per cent of that group women, who’ll be getting an average $260 contribution a year from the government,” ASFA research director Ross Clare said.
The Abbott government had planned to scrap the Labor measure that gave low-income workers earning $37,000 or less up to $500 extra a year into their super fund.
Under public pressure, the Turnbull government backflipped and kept the measure – but changed the name.
The details are the same. Workers earning less than $37,000 a year can expect a refund of 15 per cent of their yearly concessional (pre-tax) contributions, up to a maximum $500.
The Australian Taxation Office confirmed to The New Daily that this effectively means “most low-income earners will pay no tax on their superannuation contributions”.
Industry Super Australia, the lobby group for industry funds, welcomed the LISTO but said it should have been more generous.
“A better option would have been to boost the Low Income Super Contribution to ensure lower earners, particularly women in part-time work, get extra help,” ISA public affairs director Matthew Linden said.
ASFA agreed: “It cuts out at $37,000 a year, which is fairly low.”
Tax-reduced top-up at any time
Under the new system, most people under the age of 75 will be able to deposit extra money into their super fund at any time and pay only 15 per cent tax.
Currently, the only way to put in extra money without getting heavily slugged with tax is with salary sacrifice.
Setting up a salary sacrifice can be a hassle and some bosses outright refuse, according to ASFA’s Ross Clare.
“This way is a bit more flexible because it’s in the control of the employee,” he said.
“If you’re in control of it yourself you have a much better idea where you are and I think I’d personally find it an easier mechanism to use to achieve the same goal.”
Here’s how it works.
From July 1, most people under 75 will be allowed to make extra concessional contributions to their fund, up to $25,000 a year (a maximum that includes the 9.5 per cent of your wage contributed by your boss). Only the self-employed and unemployed were allowed that flexibility under the old system.
Come tax time, you claim a deduction on the tax you paid on that extra contribution, bringing the tax rate back to just 15 per cent.
“This is especially helpful for women who are more likely to have sporadic work patterns if they are also raising a family,” said Rose Kerlin, group executive for membership at AustralianSuper, the nation’s largest industry fund.
The ATO advised The New Daily‘s readers to download this form and send it to their fund in order to make flexible payments after July 1.
More working husbands will be able to top up the superannuation of their wives and claim a tax deduction of up to $540.
From July 1, the spouse income threshold for the spouse tax offset will increase from $10,800 to $37,000 (phasing out at $40,000).
The AIST’s Eva Scheerlinck said the measure would help reduce the gender pay gap.
“While relying on a partner to contribute to superannuation is not the solution to the super gender gap, this measure could help reduce the super gender gap in some couples where they have extra cash.”