13 Mar 2019
Retirement
Why is there a super cap of $1.6 Million?
By Emily Matthews | Financial Advisor at Future Key Financial

While your superannuation is in accumulation phase, the earnings on your superannuation capital is taxed at the concessional tax rate 15%. Once your superannuation commutes to pension phase, there is no tax payable on earnings.

By restricting additional contributions in excess of Employer Contribution for superannuation balances over $1.6 Million, you are forced to accumulate your wealth outside of super. This generally leaves you in a position of paying tax on your earnings at your marginal tax rate, which can be up to 47% (including Medicare Levy) should you earn over $180,000 per annum. A summary of marginal tax rates for the 2018/19 Financial Year below:

Income Marginal Tax Rate

(Excluding Medicare Levy)

Tax Payable
$0 – $18,200

0%

Nil
$18,201 – $37,000

19%

19 cents for each $1 over $18,200
$37,000 – $90,000

32.5%

$3,572 plus 32.5 cents for each dollar over $37,000
$90,001 – $180,000

37%

$20,797 plus 37 cents for each dollar over $90,000
$180,001 and above

45%

$54,097 plus 45 cents for each dollar over $180,000

 

That’s a huge difference in tax rates which provides significantly greater tax revenue for the government.

There are ways to get more money into super once your balance is over $1.6 Million – T&C’s apply. In addition, there are investment strategies available outside of super which have great tax advantages.

To find out more, contact us today.