Editorial - Glaring anomalies under Simpler Super

Now that the dust has settled on the Simpler Super reforms which came into operation on 1 July 2007, it’s an opportune time to look at some of the glaring anomalies which still have not been addressed.

The first of these anomalies relates to the inability of some taxpayers to salary sacrifice superannuation contributions. There still remains a significant number of employers who do not allow their employees to salary sacrifice additional super contributions in excess of the 9% Superannuation Guarantee Contribution (SGC) amount. This is despite the introduction of choice of superfunds two years ago, allowing employees the ability to nominate the fund receiving their superannuation contributions.

Given that we now have one universal cap on the amount of deductible super that can be claimed each year from all sources, it seems odd that employees who cannot salary sacrifice additional super are left out in the cold. The tax concessional cap is $50,000 for anyone under 50 and $100,000 for those over 50 years of age. These caps include SGC contributions made by employers.

If the Government is serious about encouraging taxpayers to contribute more into super it should immediately look at addressing this nonsensical restriction. Allowing employees to claim a personal tax deduction for additional super contributions (up to the annual cap) through their individual tax returns would rectify the situation in cases where employees are restricted from doing so.

Where employees are permitted to salary sacrifice additional super, the law allows employers to offset these amounts against the compulsory 9% SGC. Whilst most ethical employers would not offset any additional super contributions against their compulsory super guarantee contributions the opportunity does exist. The law currently allows for this offset which should be removed in the interest of fairness and equity. The employer’s SGC obligations are based on the employee’s salary, excluding super payments.

The other significant anomaly relates to the 10% rule for the deductibility of super contributions by those who are substantially ‘self-employed’. Persons who are employed can still avail themselves of deductions for super contributions if they satisfy the 10% rule. This rule requires that their employment income is less than 10% of their total income. Given we have new superannuation rules with an annual cap on the amount of deductible super contributions that can be claimed by the self employed, there appears to be no logical reason why we should continue to have the 10% rule. It may have been relevant in the past but it should be abolished under the new regime as its use-by date has passed.

Again, extending the tax deductibility to personal contributions up to the contribution limit, regardless of employment status, would address this issue and simplify the unnecessary current rules by eliminating the complexity of the 10% rule. All superannuants would then be treated equally with respect to access to the concessional cap.

We would like to think that some of these anomalies will be addressed in the May 2008 Federal Budget. These superannuation recommendations did form part of Taxpayers Australia Inc’s pre-budget submission and we are optimistic that the new government will address some of these glaring anomalies and make Simpler Super even simpler.