Any responsible government must offer tax advantages to individuals operating either an SMSF, or contributing to a superannuation fund, to encourage them to accumulate sufficient savings to obviate a later need to pay them an aged pension. As Australia ages, there will be less workers paying tax to fund pensions, so incentivizing governments to reduce their budgetary pressures by allowing retirees to become self sufficient.
Not even the power of compound interest can convert a worker’s savings into self sufficiency over his/her working life when these savings are unduly taxed during accumulation.
Presently, both an smsf tax return and superannuation tax return attract a 15% levy on earnings, and 10% on capital gains until retirement, at which time earnings derived from the first $1.6 million of accumulated capital are tax free, enabling an individual to earn S80,000-00 a year tax free when drawing this capital down at the rate of 5% per annum after turning 60 years of age, or a couple to jointly earn $160,000-00 tax free per annum.
Where retirees have invested in shares, and also receive their income tax-free, they are refunded all their funds’ franking credits by the ATO after their respective smsf tax return or superannuation tax return is processed.
Even during the accumulation stage, an smsf tax return or superannuation tax return (post processing) is refunded half of all franking credits, where company tax has been paid at the rate of 30%.
In summation, a proficiently operated smsf is one of the few vehicles that affords compound interest the chance to attain enough capital to afford a reasonable retirement, without punitive tax rates punishing the saver.