Super tax proposals discriminate against single income families

Last week's public service informant highlighted the extreme complexity of administering the additional 15 per cent surcharge on the superannuation contributions of taxpayers earning above $300,000 annually. While not as complex to administer, the government has also foreshadowed the introduction of a 15 per cent tax on the earnings of individual pension fund accounts above $100,000 a year.

In both cases the proposals focus on the income accruing to an individual taxpayer even though in many parts of the tax and social security system, the combined income of a couple is used for assessment purposes. In the case of superannuation savings, as is currently the situation in the age pension system, there are sound if not overwhelming reasons for using the couple or family unit for determining eligibility for assistance.

For the new superannuation surcharge, for example, it is difficult to justify why a taxpayer earning $400,000 a year with a non-income earning partner is subjected to the additional 15 per cent superannuation contributions tax while a couple both earning $200,000 a year ($400,000 in total)is exempt.

The system already discriminates against the family with a non-working or low income member because the maximum limit for concessional superannuation contributions is currently $25,000 per person.

With both partners working and earning reasonable incomes, the current arrangements allow a total of $50,000 annually to be set aside in concessionally taxed superannuation. Moreover, at the time of retirement, the superannuation account balances will be more equally split within the family than in situations where only one partner is able to contribute to superannuation.

This harsher treatment of single income families was less of a problem when the individual concessional contributions cap was set at $50,000 annually for taxpayers aged 50 or more. This provided greater scope to boost individual retirement savings. Now unless the government takes a more enlightened approach, there will be further discrimination against couples where one partner has a much larger superannuation account balance than the other.

The proposal to tax the annual income earned in a pension fund above $100,000 at the rate of 15 per cent will provide a large advantage to couples where account balances are equally split. It would be much fairer if the new tax were to be assessed on the basis of combined annual pension income.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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