Shift super caps from annual to lifetime

lifetime superannuation caps

Superannuation contribution caps should be shifted from an annual to lifetime basis to better recognise contribution patterns and reduce costs and complexity.

Chartered Accountants Australia and New Zealand (CAANZ) has called on the federal government to remove annual contribution caps for superannuation and replace them with a single lifetime cap, which would be simpler to administer.

CAANZ put forward the call to switch to single lifetime superannuation contribution caps as part of its pre-budget submission and stated the new cap system would operate in a similar manner to the current capital gains tax (CGT) small business concession under which CGT cap amount contributions have a lifetime contribution cap.

“Our suggested policy would merely extend this feature to everyone, not just eligible small business owners,” it stated in the submission.

“We note that under current rules, once a person’s total superannuation balance has exceeded the general transfer balance cap (currently $1.7 million), then a range of policies begin to operate.

“For example, no further non-concessional contributions are permitted, government co-contributions cease to be made and contributions made by a spouse are not eligible for the spouse tax offset.

“We acknowledge that when moving to lifetime contribution caps, the government would have to consider the continued application of the higher contributions tax applying to higher income earners.”

The accounting body noted that since July 2007, most superannuation contributions are tested against annual contribution caps and the process had become complicated and based on false assumptions about the rate of contributions.

“It incorrectly presupposes that every superannuation investor will make contributions at a constant rate throughout their working life,” it said.

“It has a particularly negative impact for people with broken work patterns, such as women who take a break from paid work to raise their family, although some recent policy adjustments ameliorate this problem to some extent.

“The reality is that most people can only make significant super contributions later in their working lives. Consequently, the concessional contribution cap should be set at a level that acknowledges this typical experience.”

It also pointed out annual contribution caps have not been consistent since 2007 and while efforts have been made to create more flexibility in the treatment of excess contributions, “even in this system, often anomalous, complex situations arise, and innocent mistakes are harshly and unfairly treated”.

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