Tuesday, 5 May 2015

Basic building blocks of the Australian superannuation rort

Superannuation is generally taxed more concessionally than some other forms of saving, such as bank deposits, in recognition of the fact that superannuation saving cannot be accessed until retirement.
 * Pre-tax contributions of up to $30,000 pa ($35,000 for those aged 50 or over) into superannuation funds are taxed at a flat rate of 15 per cent in the fund.
 * It is also possible to make post-tax contributions of up to $180,000 per annum.
 * Superannuation fund earnings in the accumulation phase are taxed at 15 per cent, while superannuation fund assets that support a retirement income stream are tax exempt.
 * Most superannuation benefits to those aged over 60 are tax exempt. [Intergenerational Report 2015]

The quote above lays out the basic outline of concessional arrangements attached to the national mandatory superannuation scheme.

How does it work in real life?

In the 2012-13 financial year 9.3 million employers contributed $54 billion to their employees' superannuation funds and 1.7 million employees contributed $27.8 billion to their superannuation funds.

Of these 1.7 million employees, 571,575 individuals earn less than $37,001 a year. Currently the federal government contributes an annual lump sum payment (equal to 15 per cent of an individual's annual superannuation contributions) to a low income employee's super fund. However, from 1 July 2017 the lump sum payment will cease and the annual superannuation contributions of these same employees will be taxed at the rate of 15 per cent.

In 2012-13 there were also 183,975 non-employee individuals (or individuals receiving only a small proportion of income from work as an employee), with income derived from a personal business/self-employment, investments, government pensions/allowances, super, partnership/trust distributions, and/or a foreign source, who made personal superannuation contributions totalling $2.9 billion. These super contributions could be claimed as tax deductions.

Of these ‘non-employees’, 26,980 had annual taxable incomes of over $180,000 and made personal superannuation contributions totalling $603.07 million. Which equates to income of $22,352 per person per annum on which little or no tax is paid.

When will the Abbott Government address the imbalance in the national superannuation scheme, where the working poor are penalised and wealthy rewarded for their participation?

Some of Australia's richer citizens in 2012-13, not content with legally rorting the superannuation scheme, took their sense of entitlement to levels undreamed of by ordinary workers, as this observation in The Sydney Morning Herald on 30 April 2015 demonstrates:

Fifty-five of Australia's highest earners paid no income tax at all during 2012-13, not even the Medicare levy.

All earning at least $1 million, they managed to write their taxable incomes down to below the $18,200 tax-free threshold, although for most the exercise was expensive.

Tax statistics released Wednesday reveal that 40 of them claimed an extraordinary $42.5 million for the "cost of managing tax affairs" meaning they each paid an average of $1 million to an adviser prepared to help to bring down their taxable income, which is itself a tax deduction.

Between them they reported earning $129.5 million, an average of $2.3 million. By the time their accountants had finished with them they reported losing a combined $12.8 million.
The implausibility of someone earning $2.3 million and paying half of it to a tax adviser suggests some may be understating​ their earnings.

A tax office spokeswoman said there were "legitimate reasons why a wealthy taxpayer might not pay tax in a particular financial year".

These included tax losses through poor business performance, tax losses in previous years which could be carried forward indefinitely and dividend imputation credits.

She said the majority of wealthy Australians paid the right amount of tax.

Most of the 55 were either ungenerous or modest when it came to giving, claiming nothing for gifts. However 10 of the 55 gave between them $10.4 million, also suggesting their incomes were higher than reported. The gifts may not have all gone to charities. The Tax Office also allows deductions for gifts to political parties.

Fifteen were unsuccessful in business, losing $2.7 million between them. They carried over previous losses of $22.5 million.

They were more successful when it came to investing, receiving $8.8 million between them in so-called 'franked' dividends, and only $839,000 in unfranked dividends. Franked dividends allow the recipients to cut their taxable incomes to take account of company tax already paid.

They were also surprisingly successful landlords. Whereas 1.3 million Australian landlords claimed between them losses of $12 billion, the 15 of the 55 millionaires who rented out properties made a combined $1.6 million dollars……

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