Superannuation, the ultimate government cash cow?

[medicowallet]

Yes. A policy that provides the greatest assistance to those who least need it, on top of making the pot of money at the end tax free with minimal consequences for gaining access to a publicly funded pension and the ability to spend it as fast as you like with minimal consequences.

How the current Govt can say axing the LISC is in any way good policy I don't know. We have a super system that costs an exorbitant amount and does little to reduce the cost of aged pension. How many more budget deficits before they're forced to review their policy stance???

Yes, shame on the people who earn $180000 trying to minimise their own taxation by sacrificing to super WHICH IS TAXED EVERY YEAR AT A COMPOUNDING RATE, also funding their retirement so as to not be a burden on the following generations, whilst paying for an awful lot of things along the way, and often sacrificing their time and ability to experience life events to achieve their financial goals.

And what they can sacrifice (as it is taxed) is STILL taxed much higher than the effective marginal tax rate of lower income earners after government assistance.

shame shame shame.


I have no problems paying tax to support those who are in need, but to be insulted as they make an assumption that I get an unfair tax benefit by sacrificing to super (which as before is capped) is plain annoying. It shows a poor understanding of where net income tax revenue (after govt assistance) comes from

MW

 

[Julia]

What seems to have gone without observation is the change to eligibility of the Commonwealth Seniors Health Card, which has provided cheaper PBS medicines etc to self funded retirees.

Previously income from super was not included in the income test for this card. From 1 January 2015 it will be included. This will cut many people out of any acknowledgment of their efforts in becoming self funded in retirement.

Once again, if you don't make the effort to provide for yourself in retirement, then you're entitled to full taxpayer support. But if you've exchanged holidays, designer clothes etc for savings and investment, then forget about any notion of this being rewarded.

Meantime, someone living in a $2 million house with less actual dollars invested is magically entitled to full taxpayer support.

 

[sptrawler]

The super system is a bit scary for people who have placed a lot of their own money into it. One hopes that common decency prevails and the tax free component stays that way.

I posted this link on another thread, it is probably more appropriate here. It's interesting reading.

http://www.voiceofthepeoplelobbygroup.com/2010/august/truth_about_pensions.htm

The more things change, the more they stay the same.

 

[sptrawler]

Here is an example of what seems to be misleading information, I always thought Pacoe knew his stuff.

http://www.smh.com.au/business/comm...-age-of-super-entitlement-20140516-38ece.html

This seems a bit eroneous.


While various bits of middle and lower class entitlement have had their indexing fiddled with, the good times keep rolling for those with the spare cash to whack in a tax haven.

From July 1, those over 49 will be able to contribute $35,000 at a concessional tax rate and $180,000 of after-tax money.

Using the pull-forward option, that means a couple with some spare cash could plonk more than $1 million in their super tax haven and never have to pay tax on what the money earns or what the super fund pays subsequently pays out to them

Well I would have thought if the couple in question were 50years old, the earnings on the funds would be taxed at 15% as it is still in the accumulation phase.
When the fund is converted to pension phase, if it is done at 55 years old the earning component is taxable and the initial deposit i.e the original $1million is tax free.
If it is accessed after 60 years old it is tax free.

Now let's look at the pension side, if the couple want an absolutely secure investment and chose a term deposit.

They get around 3.8%, which is $38,000/annum on $1million.
They could have spent the $1million, rather put it in super, and recieved $32,000 government pension plus all the perks.

Maybe Michael thinks it is unfair to get a tax free pension on money you've saved, but it's ok to get a tax free government pension if you spend it. Or maybe I'm missing something.

Craft, Junior or McLovin will be able to put me right.

 

[medicowallet]

Exactly

Still get taxed more than average joe on the $35k ish that you put in each year.

Govnuts still gets 15% on the income for however many years you have it going.


But people without enterprise see it as a 2/3 reduction in tax payable, because they need this extra tax to fund the lifestyle that high income earner tax has allowed them to think they can achieve by themselves (and by this I mostly mean middle class welfare, where most have newish cars, iphones, large TVs, large 4 bedroom houses for themselves and their 2 children etc etc)

I aint got the time to do a calculation to post, but the alternative is for me to NOT salary sacrifice into super, and then instead, go out and massively negatively gear property, which the government subsidises far more than the super, increases house prices for others etc.

Don't hear much about that though, because a lot of people have their money in this unproductive pie, and think that it drives prosperity, unfortunately the "middle class getting rich as the poor get poorer" is totally acceptable, and desirable in our society.

MW

 

[Judd]

What seems to have gone without observation is the change to eligibility of the Commonwealth Seniors Health Card, which has provided cheaper PBS medicines etc to self funded retirees.

Previously income from super was not included in the income test for this card. From 1 January 2015 it will be included. This will cut many people out of any acknowledgment of their efforts in becoming self funded in retirement.

Once again, if you don't make the effort to provide for yourself in retirement, then you're entitled to full taxpayer support. But if you've exchanged holidays, designer clothes etc for savings and investment, then forget about any notion of this being rewarded.

Meantime, someone living in a $2 million house with less actual dollars invested is magically entitled to full taxpayer support.

I have read elsewhere that it will also apply to the Seniors Card which I understand provides various discounts for those 60 yo and over.

I assume the argument used in all of this is that the tax-free status of account-based pensions for those over 60 is sufficient recognition in itself.

We shall see. Still has to be passed into legislation.

 

[sptrawler]

Yes Medic, it makes me laugh when they say high income earners get a bigger tax break on their super contributions.

A taxpayer on $180,000 pays $54,000 tax

A taxpayer on $50,000 effectively pays no tax.

How can you give the taxpayer on $50k more of a tax break? weird economics.

The taxpayer on $180,000 up untill this year could put $25,000 in his super, thereby paying how much less tax?

Ball park $7 - 8k wow, for locking away $35k of their money that will no doubt stop them getting the pension.
Which the low income earner will get.
Yes let's take all the high income earners, all the fifo's out the back and give them a good flogging. How dare they aspire to earn high incomes, it should be stopped, tax them till they bleed.lol

 

[Judd]

Simply a link to a viewpoint on viewpoints on relative incomes.

http://mattcowgill.wordpress.com/2013/05/13/what-is-the-typical-australians-income-in-2013/

 

[sptrawler]

Simply a link to a viewpoint on viewpoints on relative incomes.

http://mattcowgill.wordpress.com/2013/05/13/what-is-the-typical-australians-income-in-2013/

That's an interesting read Judd, bit outdated but a good write up.

I guess what it shows is the majority of taxpayers are on less than approx $100,000, and a very small amount of taxpayers are on more than $180,000.
That is what makes it difficult for governments, it is easier to take $1 of 10million people, than $10million of 100 people.
When you add the welfare recipients to the low to middle income earners, it becomes a lopsided equation.
I certainly wouldn't like the job of balancing it out, while keeping the economy and consumer confidence stable.

 

[Julia]

I have read elsewhere that it will also apply to the Seniors Card which I understand provides various discounts for those 60 yo and over.

I've looked into it fairly thoroughly, Judd, and found no suggestion anywhere that the Seniors Card is affected.
It has never been means tested and is purely age related. It's also State based and the benefits offered vary State to State. What is possible, I suppose, is if the States and the Feds don't sort out their grievances over schools and hospitals funding and the States are required to find more money themselves for this, such privileges as the Seniors Card might then have to go. There would be a massive outcry, however, because everyone I know over, I think, 55 has one.

We shall see. Still has to be passed into legislation.

I wouldn't foresee any problems with all other parties agreeing to tighten up the criteria for what they suggest are wealthy/privileged/etc retirees.

 

[craft]

Here is an example of what seems to be misleading information, I always thought Pacoe knew his stuff.

http://www.smh.com.au/business/comm...-age-of-super-entitlement-20140516-38ece.html

This seems a bit eroneous.

I would assume he’s talking about dropping the funds in the day before your 60th birthday.

A couple could each utilise the pull forward of 3 x $180K non-concessional cap resulting in $1,080,000 instantly becoming tax free for future earnings on those funds. Do a bit of planning and you can drop in another $180k each on 30th June prior to turning 60.

Additionally there is also the 35K Concessional cap if you have a business or working. If circumstances are right then a couple can get in over $1.5M utilising the financial year just prior to the 60th birthday.

Given the tax differential and the fact you are not tying your money up for long you would be crazy to not utilise super planning around your 60th birthday if you have the cash available – even if your super fund is already huge. It’s a free kick in front of the goal.

My only comment on the right or wrong of it is that Super is a tax favoured structure for retirement. I think the Balance that can be held in there should be limited to a reasonable (whatever reasonable is) amount to fund retirement and not be an unlimited wealth shelter. If you had a max balance in place then you could forget about the stupid caps because they are not very efficient and are always being messed around with.

edit

But there is no use in closing down just super as a wealth shelter if you don't close down all the others as well. Negative gearing, primary residence exemption, corporate structures/family trusts and on and on. To fix a leaky bucket you have to plug all the holes.

 

[sptrawler]

I would assume he’s talking about dropping the funds in the day before your 60th birthday.

A couple could each utilise the pull forward of 3 x $180K non-concessional cap resulting in $1,080,000 instantly becoming tax free for future earnings on those funds. Do a bit of planning and you can drop in another $180k each on 30th June prior to turning 60.

Additionally there is also the 35K Concessional cap if you have a business or working. If circumstances are right then a couple can get in over $1.5M utilising the financial year just prior to the 60th birthday.

Given the tax differential and the fact you are not tying your money up for long you would be crazy to not utilise super planning around your 60th birthday if you have the cash available – even if your super fund is already huge. It’s a free kick in front of the goal.

My only comment on the right or wrong of it is that Super is a tax favoured structure for retirement. I think the Balance that can be held in there should be limited to a reasonable (whatever reasonable is) amount to fund retirement and not be an unlimited wealth shelter. If you had a max balance in place then you could forget about the stupid caps because they are not very efficient and are always being messed around with.

edit

But there is no use in closing down just super as a wealth shelter if you don't close down all the others as well. Negative gearing, primary residence exemption, corporate structures/family trusts and on and on. To fix a leaky bucket you have to plug all the holes.

Thanks Craft, I thought by his statement he was talking about a couple turning 50 not 60.
I think your idea of a max is probably right.
Cheers.

 

[medicowallet]

But there is no use in closing down just super as a wealth shelter if you don't close down all the others as well. Negative gearing, primary residence exemption, corporate structures/family trusts and on and on. To fix a leaky bucket you have to plug all the holes.

And this is the part that the uneducated dont understand. The "lucky rich" can just stop putting the cash into super which is guaranteed 15 percent tax ongoing and neg gear into property which costs the government money.

But that doesnt make sense to people because they dont understand that the "tax concessions" given to the greedy "rich" just result in the $30k being taxed less than it sould otherwise have been but still more than they pay... talk about a handout society

Mw

 

[sptrawler]

And this is the part that the uneducated dont understand. The "lucky rich" can just stop putting the cash into super which is guaranteed 15 percent tax ongoing and neg gear into property which costs the government money.

But that doesnt make sense to people because they dont understand that the "tax concessions" given to the greedy "rich" just result in the $30k being taxed less than it sould otherwise have been but still more than they pay... talk about a handout society

Mw

That goes hand in hand with what I said on the budget thread, changing taxing has a bigger and more random outcome, than reducing spending.
It also requires handling in a much more comprehensive and hollistic manner, which the up comming white paper should give.

 

[sptrawler]

I would assume he’s talking about dropping the funds in the day before your 60th birthday.

.

On re reading the article Craft, I would rather have you as my financial adviser, than him.
I don't think a senior financial reporter for Fairfax, should write something that is financialy so misleading.
He is probably licenced to give financial advice, to put that in print is probably illegal.

 

[k.smith]

Yes Medic, it makes me laugh when they say high income earners get a bigger tax break on their super contributions.

A taxpayer on $180,000 pays $54,000 tax

A taxpayer on $50,000 effectively pays no tax.

How can you give the taxpayer on $50k more of a tax break? weird economics.

The taxpayer on $180,000 up untill this year could put $25,000 in his super, thereby paying how much less tax?

Ball park $7 - 8k wow, for locking away $35k of their money that will no doubt stop them getting the pension.
Which the low income earner will get.
Yes let's take all the high income earners, all the fifo's out the back and give them a good flogging. How dare they aspire to earn high incomes, it should be stopped, tax them till they bleed.lol

A taxpayer on $50k pays around $7,797

According to these rates....
https://www.ato.gov.au/Rates/Individual-income-tax-rates/


and the proposed new $35k
http://www.firststatesuper.com.au/FederalBudget2014

Taxpayer A on $180k who places $35k into super could reduce his taxable income from $180k to $145k, and his tax from around $54.5k to around $41.5k. Add another $5,250 for the 15% contributions tax in his superfund, he saves around $7,700.

Taxpayer B on $50k who places $35k into super could reduce his taxable income from $50k to $15k, and his tax from $7,797 to zero. Add $5,250 for the 15% contributions tax in his superfund, and he saves around $2772.


The national objective of Superannuation was designed to provide security for the population in their retirement years, and this objective is supported by all taxpayers collectively.

Should A gain a greater financial advantage to B when they have both placed the same amount into a national program which we all support to improve security in retirement ?
How great an advantage?

 

[sptrawler]

A taxpayer on $50k pays around $7,797

According to these rates....
https://www.ato.gov.au/Rates/Individual-income-tax-rates/?

What about low income tax breaks that those on $50k qualify for and those on $180k don't. What about medicare levy ect. I'm only going of something I read that stated there is no effective tax paid untill approx $50k, I would have to locate the article.

and the proposed new $35k
http://www.firststatesuper.com.au/FederalBudget2014

Taxpayer A on $180k who places $35k into super could reduce his taxable income from $180k to $145k, and his tax from around $54.5k to around $41.5k. Add another $5,250 for the 15% contributions tax in his superfund, he saves around $7,700.

Taxpayer B on $50k who places $35k into super could reduce his taxable income from $50k to $15k, and his tax from $7,797 to zero. Add $5,250 for the 15% contributions tax in his superfund, and he saves around $2772.


The national objective of Superannuation was designed to provide security for the population in their retirement years, and this objective is supported by all taxpayers collectively.

Should A gain a greater financial advantage to B when they have both placed the same amount into a national program which we all support to improve security in retirement ?
How great an advantage?

Should those that chose to put no money in super gain a greater financial advantage by getting a tax free pension?

The $35k is above and beyond the compulsory 9%, therefore it is out of the individuals own pocket, why should it be taxed at different rates? Because they can?

What if the contribution is from an individual on $180k, as opposed to married couple on $90k each?
The couple on $90k each pay combined tax of $42,494, the individual pays $54,000 tax that's $12,000 more than the couple why should they get a tax gain.

Why does A only pay 6.4c/$1 net in tax when B pays 33c/$1 net, why not have a flat tax rate?
It's very easy to pick something in isolation, however it should be looked upon as a contribution out of the individuals pocket.
By the way I'm not on $180k lol, just to put the record straight.

 

[medicowallet]

Taxpayer A on $180k who places $35k into super could reduce his taxable income from $180k to $145k, and his tax from around $54.5k to around $41.5k. Add another $5,250 for the 15% contributions tax in his superfund, he saves around $7,700.

Taxpayer B on $50k who places $35k into super could reduce his taxable income from $50k to $15k, and his tax from $7,797 to zero. Add $5,250 for the 15% contributions tax in his superfund, and he saves around $2772.


The national objective of Superannuation was designed to provide security for the population in their retirement years, and this objective is supported by all taxpayers collectively.

Should A gain a greater financial advantage to B when they have both placed the same amount into a national program which we all support to improve security in retirement ?
How great an advantage?

Let us say they both have 2 kids.

Taxpayer B gets full FT A. FT B, rent assistance, low income offset, healthcare care etc etc etc


A more realistic appraisal is that a $50000 person pays $0 net tax.

The $180k person who sacrifices the amount into super pays total of $47000 tax ( yes FORTY SEVEN THOUSAND per year)

PLUS the trailing 15% guaranteed on the sacrificed component's earnings until retirement...... NOT a bad income stream for the government.

So much for a fair taxation system where the people who work smarter and harder pay obscene amounts more tax than those who whine the most about the system.

MW

 

[Judd]

I am devastated completely devastated I tell you for those who have to pay the deficit tax:

http://www.brisbanetimes.com.au/fed...ring-an-age-of-inequality-20140516-38fc9.html

'What's so striking about how the budget affects people is that so much of the impact is felt by low and middle-income people, particularly families with kids,'' says Ben Phillips from the National Centre for Social and Economic Modelling (NATSEM). ''The heavy lifting to claw back the surplus is being done by the people in the most precarious position.''

While those families in the bottom quintile (or 20 per cent) of income earners see an average 5 per cent reduction in disposable incomes, those in the top quintile barely register a decline, down just 0.3 per cent.

Phillips, one of the country's leading modellers, did the analysis at the request of Labor but says his conclusions were reached independently. He says single-income families with two kids and earning between $50,000 and $100,000 could lose more than $6000 a year, once all the changes - and the abolition of the schoolkids bonus - are factored in. Sole parents working part-time or on benefits, stand to lose more than $3000 per year. For a young unemployed person who loses the Newstart allowance for six months, the forgone benefits are more than $7000. During that time, they will have no income and will have to rely on the charity of others.

 

[sptrawler]

I am devastated completely devastated I tell you for those who have to pay the deficit tax:

http://www.brisbanetimes.com.au/fed...ring-an-age-of-inequality-20140516-38fc9.html

I haven't heard anyone complain about the increased tax levy and medicare levy on those earning $180k.

This thread is about superannuation.