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New tax policy set to hit Australia’s wealthy

Wealthier individuals in Australia may have to pay higher taxes on their superannuation in the near future, with the government hinting that superannuation tax concessions will be reorganised to target those who are most at risk of relying on the age pension in retirement.

Industry groups are expected to be advised of the proposed changes this coming week.

Some industry observers believe that the government will tax super contributions at people’s marginal rates minus a discount to ensure everyone receives the same tax benefit on super contributions, regardless of their level of income.

At present, super contributions are taxed at 15 per cent. The presumed discount approach would reduce benefits for the country’s highest-income earners and provide larger tax breaks for low-income workers.

While setting the discount at 15 per cent would save the Australian government $5.8 billion a year, 9.5 million Australians would have to pay more in contributions tax than they do presently.

One alternative to the suspected tax changes would be to reduce the amount of money and individual can save in super. This practice would immediately decrease costs and lower the cost of tax breaks over earnings in the future because the amount of money covered when people retire would be lower.

Under current superannuation rules, people under the age of 50 can contribute up to $30,000 a year into their super accounts.

Posted on 23 February '16 by , under Tax.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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