Home is where the tax break is

Last week's mini-summit has increased the odds of further changes to superannuation tax arrangements. What's not yet clear is whether any changes will be part of a suite of measures addressing all the major tax shelters including the family home, negative gearing and trust structures.

Without also limiting access to the other tax shelters, reducing the superannuation tax concessions will encourage investors to direct their voluntary contributions and accessible superannuation assets elsewhere.

Already, via the 15 per cent contributions and earnings tax, superannuation is more heavily taxed than negative gearing (unlimited tax-deductibility of losses and concessional capital gains tax) and the owner-occupied home (totally tax-free and pension asset- test exempt).

Currently, pension funds enjoy the same tax-free status as the family home, putting non-home owners in the same privileged tax situation as home owners and allowing them to continue to rent accommodation for as long as they choose.

Taxing pension super fund income without any allowance for whether or not the taxpayer owns a home would change this situation and add to the pressure already provided by the age pension assets test exemption to own a family home.

Providing recognition of the additional living costs of renters would encourage the efficient use of the housing stock and encourage downsizing where people are able to deposit the net proceeds of selling the family home in superannuation.

Apart from penalising non-home owners, the proposals aired publicly to tax pension fund income in excess of a designated annual amount take no account of whether another person shares that income. Unless the superannuation rules are changed to allow couples to split their combined balances equally between them, the proposals aired publicly to date would penalise couples where one partner has much less super than the other.

Also, in setting the threshold for the pension income tax to cut in, no mention has been made so far of the fact that a considerable number of retirees already receive public sector-indexed pensions from their employers. In many cases these pensions are sufficient to provide a comfortable standard of living. This raises the question whether these people should be eligible for the same tax-free private pension income threshold as those relying solely on their own savings.

The alternative option of limiting the total amount that all taxpayers can invest in super and pension funds could help achieve the desired objective and avoid tax changes. Determining the maximum limits on superannuation account balances would still be a difficult exercise. But a manageable first step would be to preclude any new contributions when total account balances exceed specified levels.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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