A loophole which allowed some superannuants to reduce taxation obligations on their superannuation income stream by electing to treat income as a series of lump sum payments has been closed by the Federal Government.
The closure, announced on 3 May 2016 as part of the 2016/17 Federal Budget, came into effect from 1 July 2017 and is expected to improve the Budget's underlying cash balance by $470 million.
"The Productivity Commission has recently found that transition to retirement income streams have increasingly been used by people for tax minimisation purposes without any reduction in work hours," Budget papers stated.
"To ensure access to transition to retirement income streams is primarily for the purpose of substituting work income rather than tax minimisation, the tax exempt status of income from assets supporting transition to retirement income streams will be removed."
But Shadow Minister for Small Business and Financial Services Katy Gallagher criticised the government's policy saying that Labor is increasingly concerned of reports that the removal of the loophole will "advisedly impact a number of veterans."
"It is clear [the Government has] not taken into consideration how this change would impact those veterans' who have since elected for this tax treatment and the financial circumstances which they now find themselves facing," Gallagher said in a statement.
"It is incumbent on the Government to address these issues and provide clarity and transparency on this issue."
In a release issued on Friday, Federal Minister for Revenue and Financial Services Kelly O'Dwyer dismissed Labor's fears noting that only 390 out of 11,800 (3%) of military invalidity pension recipients had elected to make use of the loophole.
Additionally, before the May 2016 announcement, no military invalidity pensioners or military personnel made use of the loophole.
O'Dwyer was quick to reassure that none of the individuals who elected to access the loophole will be subject to any back payment of tax.
The Government has offered a briefing on the matter to Labor who have agreed to take up the offer.
