AUSTRALIA - Low income workers will receive a boost to their superannuation savings from July 2012 by having their contributions tax refunded.
Currently, all Australians pay a 15% tax taken from gross superannuation contributions. But under a plan proposed by Assistant Treasurer and Minister for Financial Services and Superannuation Bill Shorten, all workers earning up to A$37,000 (US$39,118) will have that 15% tax on their contributions refunded into their superannuation accounts from the 2013/2014 financial year. The payment will be capped at AU$500.
Around 3.5 million Australians currently receive no tax benefit from contributing to superannuation, due to the 15% contribution tax being at or below their income tax rate. The tax refund for low-income workers comes in addition to the existing co-contribution scheme under which the government provides a contribution of up to A$1,000 to match eligible non concessional contributions made by lower income individuals. As a result, some individuals will receive the new government contribution payment as well as the existing co-contribution.
"The Gillard Government is committed to supporting low income Australians prepare for life after work now by building greater wealth and financial security through superannuation. We are particularly keen to see this tax refund implemented because it will significantly increase the superannuation savings for those working families and households across the country that most need some extra help with setting aside savings for their retirement," Shorten said.
This tax rebate came from a recommendation of the Australia's Future Tax System (AFTS) Report - better known as the Henry Review after the review's chairman, then-secretary of the Treasury - which said that superannuation tax concessions should be distributed more equitably.
Industry peak body the Association of Superannuation Funds of Australia (ASFA) said the majority of recipients will be women in part-time and casual jobs who have relatively low superannuation savings. The proposed rebate will provide them with a significant boost to their eventual retirement income, ASFA noted.
"The plan to redirect the 15% on contributions directly into the superannuation accounts of lower income earners, means their accounts will accrue more savings, earlier, subject to compound interest," added ASFA CEO Pauline Vamos. "This is especially so for younger people and we know that the more money people have in super, the greater their level of engagement."
The proposal is out for industry consultation, with all comment to be submitted by 15 July.
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