On Thursday 25 January 2018, the Tax Institute’s Senior Tax Counsel: Mr Bob Deutsch proposed a remedy to the unutterable complexity of Australia’s superannuation system. This was in the Institute’s weekly ‘Tax Vine’ publication #2, 25 January 2018.

He proposes, what he calls a “15%, 15%, 0%” system for, respectively, contributions tax, earnings tax and employee tax on benefits. And he outlines, what he has in mind with a list of ‘basic simple underpinnings’, which appear at the foot of this article.

I’ve edited this list to add my own perspective, but broadly its faithful to Bob’s ‘really good list’.

  1. Funding retirement should be the sole aim of superannuation, so  there should only be accumulation funds [no defined benefits funds (probably achieved by using the ‘fiat’ of tax treatment, but it could also be done via the SIS Act regime).
  2. Accordingly, there would be no arrangements for first home buyers to access super, and no arrangements to allow additional contributions for aged ‘downsizers’. Extraneous policy objectives should be achieved otherwise.
  3. Contributions need to be capped tightly.
    1. Deductible contributions (by employers or members) would be capped at $25k pa (as currently).
    2. Non-deductible contributions would be capped at $50k pa.
    3. To administer these caps (simply), across multiple contributors, the member would have to have only one fund and any excess given back (on a LIFO basis), with a reversal of tax effects for the contributor. (Alternatively, all contributions could be made to a single point, and then balances swept out to funds which the member choses.)
    4. Contributions could be made for members (both deductible and non-deductible) within the above limits, up to the age of 75, though this might be a bit ‘age-ist’. Perhaps mandated contributions could continue, as currently, for those who keep working beyond 75.
    5. Those contributions could be made irrespective of whether the person is working or sitting idly all day sipping coffee. This could help those outside the workforce get some super (though probably no deductible contributions).
  4. Deductible contributions would be mandated in a similar SGC basis (extended to the self employed) for want of something better. But employees need enforceable rights to enforce relevant employer contributions.
  5. The deductible contributions would attract 15% flat tax in the fund (as currently done).
  6. Earnings will be similarly taxed at 15% in the fund e.g. interest, rent, dividends (as currently).
  7. Imputation credits would stop being refundable for super funds (ie. no refund to the extent that the credits exceed the fund’s tax).
  8. We should return to a total ban on Super Funds borrowing, thereby eliminating the exception for ‘limited recourse borrowing arrangements’ (LRBA’s) – which are primarily about getting more assets into the fund (after the cap on reasonable benefits was removed).
  9. Benefits would be taken in the following way.
    1. Benefits could taken from age 65, but prior to that there would be tax at the maximum marginal rate (and there might have to be a SIS prohibition on benefits being paid before then, in any event.
    2. All benefits would be by way of pension (that is, an account based pension so that payment is spread and not taken out in a lump-sum and frittered away).
    3. The pension amount should be between a range (as now) up to 10% of the balance held at the beginning of the year (a ‘diminishing balance method’ if you like).
    4. Those pension payments would be tax free, to the recipient (so they’ve only born 15% tax, in the fund).
    5. Upon reaching the age of 85, the balance, that is then in the fund, could be freely dealt with – that is, taken by way of lump sum or pension outside the limits set out above – still tax free, to the recipient.
    6. Death benefits would have to be paid to the deceased estate, but would not bear any tax.

I agree with Bob, that such a system would be radically simpler and better.

To get there, however, all the layers of grandfathering, of various older systems, would have to be swept away.


27 January 2017

[Tax Vine, 2 – 25/1/18; FJM; Tax Month January 2018]

Study questions (answers below*)

  1. Were these ideas from the Tax Institute’s Bob Detusch?
  2. Would defined benefit funds would cease to exist, under this proposal?
  3. Would ‘home savers’ concessions remain?
  4. Would the cap on deductible contributions remain the same?
  5. Would the cap on non-deductible contributions remain the same?
  6. Could contributions be made for those outside the workforce?
  7. Could mandating self-employed contributions be done by extending SGC?
  8. Would imputations credits, for funds, remain the same?
  9. Would the tax rate in the fund remain unchanged?
  10. Would LRBA’s continue?
  11. For 65 year olds, would lump sum benefits continue?





Bob Deutsch’s original list of ‘underpinnings’ for a simpler and better superannuation system

  1. All super should be about accumulating funds for retirement – funds should be accumulation funds only;
  2. Mandatory deductible contributions must be made for each employee at 15% of salary per person per year capped at $25,000 per year per person. Non-employees must contribute at the same rate based on “occupational income”;
  3. A further contribution should be allowed for each and every individual of $50,000 per person on a non-deductible basis;
  4. The deductible contributions would be taxed upon receipt by the fund at a 15% flat rate with no refunds for excess imputation credits. Non-deductible contributions would not be taxed in the fund;
  5. All earnings within the fund e.g. interest, rent, dividends, would be taxed at 15% flat rate with no refunds for excess imputation credits;
  6. From age 65, funds can be withdrawn tax free each year from superannuation by way of a pension up to 10% of the balance held at the beginning of the year. That pension payment would be tax free to the recipient;
  7. Upon reaching the age of 85, the balance that is then in the fund can be freely dealt with;
  8. Contributions, both deductible and non-deductible, can be made within the limits specified above up to the age of 75, irrespective of whether the person is working or sitting idly all day sipping coffee;
  9. Subject to the next point, any withdrawal from super prior to the age of 65 would be taxed at the top marginal rate. Between the age of 65 and 85, any withdrawal in excess of the pension amount specified above would be taxed at the top marginal rate;
  10. Special circumstances of hardship would be considered so as to allow for withdrawals either before the age of 65, or withdrawals above the allowed pension amount where aged between 65 and 85;
  11. Limited recourse borrowing arrangements would be expressly prohibited. There would be no arrangements for first home buyers to access super, and no arrangements to allow additional contributions for aged ‘downsizers’. I am very firmly of the view that superannuation is for the purposes of superannuation –  that is providing retirement incomes for Australians. This should not be tinkered with, in any way. If there is concern about access to the housing market, this should be addressed by methods that do not tinker with what is otherwise available within the constructs of superannuation.


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