The debate over Labor’s franking credits policy continues. Facets of the plan are proving unpopular to many retirees, but financial services consultancy firm Rice Warner believes it has an alternative that could work for everyone.
In a submission to a parliamentary inquiry examining Labor’s policy, the firm suggested three plans for collecting tax from those with large imputation credit refunds, including a $3.2 million limit on how much money can be put into super.
Under this proposal, only people with very large balances accumulated prior to the Coalition’s $1.6 total superannuation balance cap would be affected.
Under the Coalition’s laws, amounts over $1.6 million were transferred out of tax-free pension accounts into accumulation accounts, which are taxed at 15 per cent compared with the top marginal rate of 45 per cent.
Rice Warner’s plan is for super savers to transfer “excessive” amounts of money out of super when they reached a certain age, say 65, which would effectively limit those trying to use super as a wealth accumulation mechanism.
“We suggest a threshold of (say) $3.2 million for all accumulation and pension accounts combined. Amounts above this would be transferred tax-free out of the low-tax superannuation environment,” reads the submission.
Rice Warner also suggested taxing all earnings on super at 12 per cent – including money in pension accounts which are tax free at present. It also wants to cap franking credit refunds at $5000 per taxpayer.
A refund cap could effectively limit the damage to lower-income retirees’ income.
All three options are viable and should be considered, says Australian Shareholders Association policy manager Fiona Balzer, as Labor’s policy only seems concerned with increasing revenue. Some critics of the proposed law feel it unfairly targets self-funded retires.
“If the view is that some taxpayers shouldn’t be in the zero-tax bracket, with SMSFs in pension phase a particular target, the policy response should be to propose a change to their tax rate, being explicit about who is being taxed and why,” said Ms Balzer.
“What is currently proposed would see people of similar means being treated differently, which breaches principles of fairness.”
The changes would only be considered if Labor took government and implemented the proposal.
Read more at AFR
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