Three alternatives to Labor’s unpopular ‘retiree tax’

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The debate over Labor’s franking credits policy continues. Facets of the plan are proving unpopular to many retirees, but financial services consultancy firm Rice Warner believes it has an alternative that could work for everyone.

In a submission to a parliamentary inquiry examining Labor’s policy, the firm suggested three plans for collecting tax from those with large imputation credit refunds, including a $3.2 million limit on how much money can be put into super.

Under this proposal, only people with very large balances accumulated prior to the Coalition’s $1.6 total superannuation balance cap would be affected.

Under the Coalition’s laws, amounts over $1.6 million were transferred out of tax-free pension accounts into accumulation accounts, which are taxed at 15 per cent compared with the top marginal rate of 45 per cent.

Rice Warner’s plan is for super savers to transfer “excessive” amounts of money out of super when they reached a certain age, say 65, which would effectively limit those trying to use super as a wealth accumulation mechanism.

“We suggest a threshold of (say) $3.2 million for all accumulation and pension accounts combined. Amounts above this would be transferred tax-free out of the low-tax superannuation environment,” reads the submission.

Rice Warner also suggested taxing all earnings on super at 12 per cent – including money in pension accounts which are tax free at present. It also wants to cap franking credit refunds at $5000 per taxpayer.

A refund cap could effectively limit the damage to lower-income retirees’ income.

All three options are viable and should be considered, says Australian Shareholders Association policy manager Fiona Balzer, as Labor’s policy only seems concerned with increasing revenue. Some critics of the proposed law feel it unfairly targets self-funded retires.

“If the view is that some taxpayers shouldn’t be in the zero-tax bracket, with SMSFs in pension phase a particular target, the policy response should be to propose a change to their tax rate, being explicit about who is being taxed and why,” said Ms Balzer.

“What is currently proposed would see people of similar means being treated differently, which breaches principles of fairness.”

The changes would only be considered if Labor took government and implemented the proposal.

Read more at AFR

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?

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146 Comments

Total Comments: 146
  1. 0
    0

    Yep – far better than the stupid labor policy as it stands now but then labor pollies aren’t very bright when it comes to finance, economics and tax

  2. 0
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    “a $3.2 million limit on how much money can be put into super.”

    The Trebor Scheme upper limit – or one proposed – some think along the same lines.

    ” cap franking credit refunds at $5000 per taxpayer.”
    $5000 would not be enough for someone whose return from shares is marginal… each case within, say, the lowest tax point of $38,000 (or so as amended) should be looked at, and should be viewed in relation to it being a single or a couple.

    • 0
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      make that ‘return from shares and total income’ – to cover those who have several strands of income.

      Perhaps the lower limit should be the equivalent of two single pensions, and an income ‘buffer zone’ above that, and anyone falling into that area should be fully reviewed. Or perhaps the level at which you would begin to pay tax at 30% on gross income (including dividend imputation as required by law). I’ve worked that one out for you before…

      As for the rich, well….. (wait for it… wait for it)…. it’s not as if they’re doing a wonderful job with their excess cash, is it?

    • 0
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      I was considering OGR, who has said times many that (their) gross income is slightly below pension – that sounds like DI is a serious issue for one on such a low level of return from dividends, and the question to my mind is – whether to top up via social security such persons, or allow them some or all DI return. One or the other, it still comes out of consolidated revenue at the end of the day – but somehow we need to develop genuine equity, by chopping over-fat at the top and improving the lot of those at the bottom…..

      This is about a fair retirement – not a fair amount of millions in retirement…

    • 0
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      Not for Labor, Trebor. For them, it’s about fair millions for the rich and neither comfort nor hope for the poor. They hate battlers who actually had a go and rose above the station they were born to. It’s not on in a communist society. We have rich and poor, and never the twain shall meet.

      Blue chip shares have traditionally been one of the very few accessible, relatively safe investment opportunities for those with limited capacity to invest. Their returns were enough to give the less advantaged genuine opportunity and hope. Labor plans to ensure they, like other investment opportunities, become the exclusive province of the privileged. Keep the battlers down – where they belong and can be controlled. Labor’s policy is not about economics. It’s about control. People who battle their way up to self-sufficiency are a threat to those who seek to exercise excessive control and achieve ends the populace don’t want. Suppression is required to perpetrate evil.

  3. 0
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    All strategies that reduce the capacity of high income earners to use superannuation as a wealth accumulation vehicle should be considered to ensure those people pay their proper tax liability on income and assets.

    Superannuation was intended to enable low and middle income people to save for their old age by making it compulsory, and an alternative to wages in the hand which were not being saved. Too many with short term interest and poor planning.

    John Howard and Peter Costello turned superannuation into a slush fund and tax avoidance mechanism for high income earners, and we now see the result.
    Retirement policy is now largely driven by the need to satisfy the finance sector who leech off the high income earners with superannuation slush funds (and, of course, the clients, to the detriment of the ordinary Australians whom superannuation was intended.

    Most of those people wouldn’t vote Labor in a pink fit, but I would never-the-less like Labor to ensure that the legislation they pass is the best fit possible for ordinary superannuants, as well as the public purse.

    • 0
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      But Travellersjoy, the people Labor is hurting are NOT HIGH INCOME EARNERS. The high income earners are keeping their benefit. Labor is attacking LOW AND MIDDLE INCOME EARNERS.

      And no, superannuation was not intended to enable low and middle income people to save for old age. If it were, the tax rebate wouldn’t give high income earners a 30%+ benefit and low income earners nothing, or actually tax them MORE on their super contributions and income.

      The whole game is about feeding the rich. And Labor is ensuring the rich continue to party and the lower and middle class are further deprived.

      Labor has no interest in the public purse either. If it did, it wouldn’t be openly telling people how to dodge contributing more. This is political, not economic.

  4. 0
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    Why tax all pension funds at any level. Surely those who are living off their super pension shouldn’t have to pay any more tax again! Will those who have to pay this tax be able to claim costs against it as most companies do now and get away with paying minimum tax?
    I don’t have a great problem with people putting whatever they can into super. They earned the money(in whatever way). If I could put millions into my super I would love to do it.
    The whole issue is one of the gov. seeing money that they want to get their hands onto. They would be better curbing their stupid spending then maybe we would have a chance of having a decent economy. And who the hell is this Rice Warner mob anyway. Who funds them , I wonder? Another politically biased think tank no doubt!

    • 0
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      Hence The Trebor Plan, Pedro – you get the pension and than you can afford to pay that tax. As usual, unlike my good self and a few others (**preens**) this educated group has developed a half-baked solution, that continues to impact on those with least.

      Can’t go half-way across a yawning chasm and call it quits and set up camp right there…. and a yawning chasm is what superannuation/retirement packaging has become….

      Needs to be brought under proper control immediately – no more half-baked measures.

    • 0
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      Yes TREBOR there needs to be some sort of equity returned so all are treated the same way.

      Regardless of any changes including franking credit tax it never effects the very wealthy ever.

      All these changes seem to be geared at the middle to make them pay up.

  5. 0
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    Get rid of the no tax payable on super pensions after 60 as this is a rich man’s loop hole.

    • 0
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      Rubbish idea, as Super is meant as a Saving tool encouraged by all Govts, and is a good tool for that purpose. A cap on it is far more sensible – say $1 Million. Your idea is solely based on your lack of sensible investment in Super. Self-centred as always!

    • 0
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      No the no tax after 60 has no affect on those with modest super balances as they can offset 15% tax already paid. It is those with big super balances that benefit in by this unfair policy.

    • 0
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      Hence a cap on it (say $ 1 Million in Super with no tax) is far more sensible, with all investments above that taxed on marginal rates – to continue Super being a sensible saving tool for all people.

    • 0
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      No tax after 60 on super only benefits those with big super balances. People with smaller super balances get a 15% rebate for the tax they have already paid which is more than enough to pay any tax owing.

    • 0
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      Yes, George – with a reasonable cap….. up to $3.2m sounds good invested in a fund, but I haven’t done the figures… like to see their workings and go through it myself.

      $3.2 is surely enough to salt away for anyone, and would return, at 8%, $256,000… not bad biccies for anyone really, except the very greedy who’ve grown used to their luxurious taxpayer-funded lifestyle.

      If you can’t live on a quarter mill tax free, when you cannot owe anything if you had the wherewithal to salt that away – you’re just plain greedy.

      Pay your taxes you loafing dole bludgers.

    • 0
      0

      Well, all right – 12% tax on $256,000 =$30,700 tax.

      256,000 – 30,700 = $225,300…

      My heart truly bleeds for those forced to live on that pitiful amount while firmly ensconced in their already luxury lifestyle….

      Pay your taxes you loafing dole bludgers.. no more lolly-gagging in the warm sun trying to get a suntan….

    • 0
      0

      Trebor but they have $35,700 in franking credits so are $5000 better off.

    • 0
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      Not when the Trebor Government abolishes franked credits…

      Vote 1 – Trebor Party – We ARE The People!

      (the above public comment brought to you by The Trebor Party Inc – a Party of one… jus’ business.. honest olive oil importer…)

    • 0
      0

      The AFR printed the effect of Labor’s franking credit tax and it doesn’t effect the wealthy at all.

  6. 0
    0

    Let Shorten keep his unfair policy as he won’t get a cent from it when all those who get refunds invest elsewhere so the only people with franking credits are those who use them to pay less tax. Then self funded retirees wont have enough to live on so they will be on the old age pension costing him money instead of raising revenue.

    So now it $40 billion in franking credits give back to the wealth as tax offsets and nil from the low income earners as they wont have any excess franking credits.

    • 0
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      It is going to be harder to generate income and most won’t manage it without a lot of risk.

      It will force the selling down of assets as designed.

      All savers into Superannuation have been well and truly scammed since Keating started this rot.

  7. 0
    0

    If you have to pay 12% on super in the pension phase and a cap of only $5000 on franking credit refunds why have super as for most people it will cost more to have super than not have super?

  8. 0
    0

    Banking will now cost everyone more under Labor too. Labor wants to impose a tax on banking to pay for domestic violence.

    We simply can’t afford a Labor government.

    • 0
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      We definitely can’t afford to keep the LNP in power. They have shown to spend so much more & are so untrustworthy over the last 6 years, just look at all the rats jumping ship

    • 0
      0

      Ha ha atleast they wont be taxing us so much we can’t turn around.

    • 0
      0

      Why does Labor blame the banks for domestic violence? Wouldn’t it be better to fine the abusers to pay the victims?

    • 0
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      Labor just wants to grab tax where ever it thinks it can without regard to who it will affect.

    • 0
      0

      Wouldn’t it be far better to resolve the very real problems with the current handling of relationship issues?

    • 0
      0

      Trebor that’s not the Labor way of doing things.

    • 0
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      I know OG – was just discussing sledgehammers on another forum over tax free millionaires … Labor loves the sledgehammer approach to kill a gnat, and the shotgun approach to any social issue…. kill ’em all – let god sort ’em out… just eggs broken in making a superb omelette… (BS > BS > BS)…. all grist for the mill for the Great Socialist Revolution.. sorry ’bout the casualties ….

    • 0
      0

      Trebor the rich have choices and they didn’t get rich by not using those choices.

    • 0
      0

      .. the shattered homes, the destroyed dreams, the men under the bridges, the runaway benefits for those ‘in the know and at the top’ who wield absolute power over all they survey, the lost children with no soul, the growing unbalance in incomes to suit preferred groups, the looming catastrophe in retirement packaging……

      Wherever evil grows, there you will find Trebor, standing tall and in opposition… a man without fear or favour (but actually very shy by nature) and filled with the light of humanity and kindness to all but the grossest evil-doers…

      **aw, shucks**

    • 0
      0

      No equal opportunity then, OG? Thought not….. I expect better for my grandchildren than to stand behind leeches and liars and cheats…..

    • 0
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      Very little is equal anymore TREBOR. It’s see your savings and see how to get at them by Government of both sides. They stuffed up with all that Nazi Privatisation policy and now have no revenue to play with so are coming after retirees pots of saving as it’s easy grifting.

  9. 0
    0

    Some sensible suggestions from Rice Warner, although some tweaks are needed, e.g.
    a. No tax on Pension account (up to $1.6 Million) must continue – this has been an incentive to Save and must not be deleted. Maybe reduce that to $1 Million (the Tag Team Labor might just do that!).
    b. Tax all other Super income above that on normal Marginal rates – ($3.2 Million limit is too high, the taxpayer doesn’t need to subsidise to that level).
    c. Franking Credits Cap is absolutely the better option than Labor’s STUPID policy which protects the rich, although the Cap could be slightly higher (say $10K) to help the less well-off SFRs.

    Another serious option (not mentioned here), which Labor (if they want to support real Labour) must consider for the sake of fairness, is to impose Minimum Taxes on all Large Companies and the Rich, with only very Limited Deductions for local, reasonable costs only, to stop the massive tax rorts leading to Nil or Negligible taxes being paid currently. That should rake in Billions of currently foregone taxes, and indeed make Universal Age Pension funding a cakewalk!

    • 0
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      Only those with big super balances benefit from the no tax after 60 as those with lower super balances get a 15% tax credit that is more than enough to pay their tax owing. Those with higher super balances benefit from it as they pay more than 15% in tax.

    • 0
      0

      I agree GeorgeM, good points but I would leave the $1.6M cap.

      OG super in pension mode is tax free at present and should remain so (with a cap) as tax has already been paid going into the fund, and while in the fund. There has to be some incentive to wholly, or partly self fund retirement via super

    • 0
      0

      Sundays you obviously don’t understand the tax free income from pension after 60. There is a 15% tax rebate on your income from super which most people wouldn’t have enough income to use. So nothing changes for them.

      The tax free income from pension after 60 only helps those with big super balances and income outside super as they wold pay more tax without it.

      If you have millions in super I can understand your concerns.

    • 0
      0

      OG, I fully understand that if you make any withdrawal from a taxed super fund aged 60 or more, it is tax free. That’s a tax free lump sum, or a tax free allocated pension. It does not appear on your tax return. It does not matter whether you have a small or balance up to $1.6m. I think it is you who is confused as to the current rules which have been in place since 2007

    • 0
      0

      No I’m certainly not confused at all. I know how it all works and I was better off with my super pension taxed than I was after it came in. I could use the excess 15% tax paid to pay no tax at all. Now I have to pay tax on my earnings outside super.

    • 0
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      And so you should!

    • 0
      0

      Why should I pay more tax than I should?

    • 0
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      .. because you’re not doing much of a job with it?

  10. 0
    0

    If Labor just wants revenue then give only 90% of franking credits back to everyone. No one invested in franked shares can dodge it.

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