In an article for the Business Day section of the Sydney Morning Herald, Nassim Khadem talks about the tax incentives that the Abbott Government has so generously offered to the rich retirees. Khadem also examines the possible consequences of the move and the way it may hurt the treasury. There is not a sizeable difference in the number of funds claiming tax breaks. What has changed instead is the amount of tax break being claimed by each and this is likely to hit government revenue where it hurts.
Franking credits
Funds which fetch dividends from listed companies do not have to pay tax under the present structure of franking credits ($2.68 billion). On top of this, funds paying for their pension income are being exempt from taxes. Of the total $25.8 billion that can be generated in gross taxable income, $16.8 billion is exempt from taxes and this, the article contests, can cost the Abbott government big.
White Paper review
These superannuation concessions will definitely be on the radar of the White Paper review when it looks to change the tax structure. The problem cited with franking credits is that while the firm you have invested in has already taken care of its tax liability, it has done so at a rate below the personal marginal tax rate (corporate tax rate being 30%).
Biased tax system
Experts are of the opinion that the whole tax system is biased towards the wealthy retirees and may do nothing to absolve the impasse in the lives of an average Australian. To add to the woes, it is not helping the treasury one bit.
You can read the original article here.
Dividend imputation won’t work
I think complete imputation of dividends cannot work in a long run. There will be a time and it is not far when the government will have to come out of its mindset of earning brownie points and impose the top personal marginal tax rate on income from Super.
15% tax should apply in the pension phase
And rather than exempting people nearing 65 from taxes, a 15% tax should apply in the pension phase. There is no denying that people in this age group deserve special concessions but complete routing of taxes may be a ‘selfish concession’ they are seeking or feeling they have a right to.
