Australians who are earning less than $37,000 a year do not receive any additional tax benefits from their superannuation contributions – but new government laws could change that.
The much-debated legislation relating to Minerals Resource Rent Tax (MRRT) and related Bills passed through the Senate this month.
While it seems that in itself the mining tax will have little effect on the Filipino-Australian community, it does have a direct impact on two fronts: how it affects their retirement savings and how much tax they pay.
For a start, the ‘related Bills’ that the government announcement pertains to is the so-called Superannuation Guarantee increasing from 9 per cent of your salary to 12 per cent over a period of time.
This incremental raise can, in plain English, mean the difference between being able to retire comfortably or live entirely dependent on Age Pension.
For example, a non-profit Australian organisation called ASFA (www.superannuation.asn.au) did some number-crunching and concluded that someone earning $60k a year will retire with an estimated $29k a year if SG or compulsory super stayed at 9 per cent (over 35 years of contributions).
But with SG at 12 per cent, however, the retirement income would be a much higher $33,500 a year.
What’s even more important for low-income earners is that the passage of the mining tax also paves the way for the so-called ‘low-income earners super tax rebate’.
In plain-speak, it means the government will change the law around taxation of superannuation contributions if you are earning $37k a year.
Under current rules, anyone earning $37k a year don’t get any additional benefits when putting more money into super because they will still be taxed at the flat rate of 15 per cent. This is in stark contrast to high-income earners who can ‘avoid’ paying personal tax rates that can be as high as 40 per cent by redirecting their funds into superannuation, where they get taxed at a lower 15 per cent.
But under the new rules that come into effect 1 July, their 15 per cent tax on contributions will be redirected back into their super accounts, helping them build their savings quicker.
ASFA estimates this is a ‘plus’ for 3.5 million Australians, majority of whom are women in casual and part-time work.
To find out more about the future costs of your retirement, visit http://www.superannuation.asn.au/resources/retirement-standard/