The AFR’s Phillip Coorey has reported today that the Turnbull Government is planning to include significant ‘carve-outs’ to its $500,000 lifetime cap on non-concessional superannuation contributions:
Mr Morrison said, for example, that somebody who received a compensation payment as a result of an accident would be able to exceed the $500,000 cap under exemptions that are being drafted to try and take some of the political heat out of the super changes…
Other “life events” will include such windfalls as a divorce settlement, eligibility for a trust or a lottery win.
While I accept that there may be some isolated cases where exemptions should be granted – for example if contracts were signed just before the 3 May Budget. However, I fail to see why windfalls like inheritances and lottery wins should be exempted from the $500,000 cap.
If someone has already contributed up to the $500,000 cap and is fortunate enough to then receive, say, a significant lump-sum inheritance, then why should they be permitted to receive further taxpayer support via the tax-free environment provided to their savings?
Is it really too much to ask that someone in their fortunate financial situation be required to pay a measly 15% concessional tax rate on the amount of super that breaches the cap?
There is also the complexity issue. The more carve-outs that are included to the $500,000 cap, the more complex the administration will be – a point made last month by financial advisers:
Introducing exemptions for “life events”, such as divorce, inheritance or the receipt of a trust payment, would either create perverse incentives to behave dysfunctionally, or would require reams of regulations and red tape to ensure that the system remained robust and in line with its objectives. Or perhaps both.
Granting exemptions for inheritance would presumably favour the wealthy… Granting exemptions for divorce payments would provide a financial incentive for couples to split up in order to pump more money into super… Carving out farming families could lead to city-types who keep a few head of cattle or cultivate a few grapes on their hobby farm having an unfair advantage…
One irate adviser called the carve out suggestion “a total dog’s breakfast”, before later concluding it was “dumb, dumber and dumbest”.
Claire Mackay, of Quantum Financial, was more polite. “As a community I would like to think we are not encouraging divorce. But you can’t blame people looking at strategies to help them have a dignified retirement”…
As I keep arguing, there is little justification for watering-down the Coalition’s superannuation package, whose wealthy constituents will continue to receive a very good deal under these reforms.
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