While the laws surrounding excess superannuation contributions caps remain a problem for middle-class Australians, investors must look at alternatives in order to have adequate retirement savings, according to an industry expert.
Argyle Lawyers principal Peter Bobbin told a Macquarie briefing yesterday that people want the tax effectiveness and asset protection associated with super, but investors are continually being penalised for excess contributions.
“When is a tax not a tax? Well maybe when it’s a penalty. When you’ve got an excess contributions tax that can take 93 per cent of your earnings … that suggests to me it’s a penalty because you’re putting too much money into super,” he said.
“My anecdotal evidence is that the people who are being affected by excess contributions tax are middle-class Australians.”
“Sadly I think I won’t succeed in saying it’s unconstitutional, but it should be,” he said.
Bobbin cited margin lending products as one-tax effective alternative for clients to earn money outside of super when their caps had been exceeded.
“It’s going back to your plain old interest deduction: borrowing to make an investment for the purpose of producing an assessable income — as boring as it is — means you can claim a tax deduction for the interest,” he said.
Although he cautioned that it is important that these products have a product ruling to avoid tax complications in the future, as tax deductibility of interest is the most litigated issue in tax law.
“Product rulings give the investor certainty that even if the law expressed is later found to be wrong, you will not pay more tax than what the ruling indicates you would have been liable to pay,” he said.
