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Superannuation should be primary focus in federal budget: BDO

Super

In its pre-budget recommendations report, BDO provided the federal government with two substantial recommendations with regard to superannuation.

Sponsored by Kyle Robbins 9 minute read

Recommendation 8 of the report calls for the government to increase the contribution caps, as the current cap limits “do not appropriately incentivize Australians to save for their own retirement”.

“Therefore, the capping of superannuation contributions should be reviewed with the benefit of research into the effect of such capping on superannuation income stream adequacy for the current population of workers and not based on any disproportionate advantage that some current retirees may have been able to obtain from previous policy defects of the superannuation regime,” BDO said.

BDO cites taxpayer concerns that current contribution caps limit their ability to save for their retirement during their later working years when saving is easier due to the absence of “rent and mortgages, raising and educating children [which takes] almost all of most taxpayers funds during their early and middle-income producing years.”

The report recommended that the government consider the replacement of the annual contribution caps with a lifetime contribution cap. This alteration to the current system will aid workers who are only able to make additional contributions later in their working life, thus allowing for themselves and their family to become self-sufficient once said workers enter retirement.

In addition to the recommendations relating to the alteration or increase to the superannuation contribution caps, BDO also recommends the “review and amendment of the new non-arm’s length income (NALI) rules.”

“The amendment of the NALI rules in section 295-550 and the release of Law Companion Ruling (LCR) 2021/2 by the ATO have raised significant concerns that the rules could apply to a much broader range of circumstances resulting in greater tax payable than expected. Unless the Government amends the NALI rules, they have the potential to expose the entirety of a super fund’s income to a punitive tax rate due to a nominal or insignificant discount on a dealing,” BDO said.

“[T]he combination of section 295-550 and the ATO’s view of the rules in LCR 2021/22 has highlighted how unfair the change of the rules can be. For example, a builder who renovates a kitchen for an investment property owned by their SMSF for no cost could result in all future rental income and capital gains from the property being subject to the punitive 45% tax rate. In other cases, if an auditor provides their services free of charge for their SMSF, all the fund’s future income may be tainted and charged a punitive tax.”

Find the full submissions report from BDO, here.

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Kyle Robbins

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