Archive for May, 2011

Super tax savings

May 13th, 2011 2 comments

Four Corners
GPO Box 9994
Sydney 2001
12,th May 2011
Dear Sir/Madam.
I sent a letter on the 10’th April 2011 in regards to compulsory super and the means testing of the age-pension, but so far have had no response to it.
I,am enclosing the last letter, that I wrote to Mr.Shorten, for which I,am still waiting for a reply.
The Australian government provides everybody of pension age a safety net in the form of the basic pension, so why should the government give such huge tax concession to the self funded retirees?
If a retirees income falls below $41,719.60 he/she can apply for a part-pension, and for a couple it is $63,824.80, which are very generous limits, particularly as most of the self-funded retirees pay little, or no tax if their incomes come from taxed super funds.
Consider the part-pensioners at the lower end: as soon as a single person income reaches $3,796.00 his/her pension is reduced by $0.50 for every dollar extra, and for couple it is $6,656.00, hardly a very generous standard of living.
Currently the Australian government pays some $25 billion in age pension, but at the same time allows some $25 billion in tax concessions. As the compulsory super starts maturing, the tax concessions will by far exceed the cost of the age pension, although at least 70% of the retirees will be still dependent on a part age-pension, but where is the government get the tax revenue to sustain such expenditure?
As the self funded retirees are enjoying extreme wealth, paying little or no taxes, they will travel a lot more overseas, which will again strain the Australian budget and affect the local business, because more money will be spent outside Australia. This will widen the gap between the have’s and have not’s enormously, particularly among the retirees, as the 20-30% with incomes above the age-pension, but always the assurance of a part-pension, should their incomes fall, and the 70% on a full or part-pension, who will be prevented to a large degree by the means test of the basic pension, to a decent standard of living.
Australia is the only country among the OECD countries which means tests the basic age-pension, and allows such generous tax concessions for super, which benefits mainly the upper 30% of the population, and as a result the average Australian retirees are the second poorest after Ireland.
The means test for the basic age-pension should be abolished, but so should all the tax concessions for super, and the compulsory super should be scrapped.
Australia also spends a larger percentage of the GDP on military, more than most European countries, to go fighting in other countries, to establish Democracy, yet Australia is not a Democracy but a Plutocracy. I probably will not see it in my life time, but if Australia does not become more egalitarian and democratic, it will have similar riots that other countries experience now.
This are the tax savings for a person who can use the maximum super contributions if under 50 Years of age.
Concessional contribution at 30.June 2010
$25,000 *0.465=$11,625
$25,000*0.15=3,750 Tax saving= $11,625-$3,750=$7,875
$450,000 in super fund
$450,000*.06=$27,000 Interest
$27,000*0.15=$4,050 Tax saving $12,555-$4050=$8,505
Total tax saved = $8505+$7875=$16,380 for this year.

If the person is over 50 contribution is as follow.
$50,000*0.15=$7,500 Tax saved= $23,250-$7,500=$15,750
Total Tax saved==$15,750+$8505=$24,255 This is well above the age pension

As the persons super balance can exceed the $500,000 limit for the over 50’s the contribution drops to $25,000, but the person contributes $450,000 non concessional into the fund so that the fund now holds $900,000

Tax= $54,000*0.465=$25110
Tax= $54,000*0.15=$8100 Tax saved= $25110-$8,100=$17,010
Total tax saved=$17,010+$7875=$24,885

The tax savings for a person in this position will only increase further as the balance in their fund increases and therefore the income which is taxed at 15%. And when the person reaches the age of 60 and starts drawing down the super, there will be no tax obligation at all. Assume a fund balance of $2million*6% =$120,000 income completely tax-free and this is a very conservative approach by having super balance in a term deposit.

Yet Mr.Shorten is talking about a “sustainable social system” yet he has been challenged by the Australian Taxation Office for breaches of the contribution limit.
As the media always is bleating about the unfairness of the contributions limits, and people like myself are prevented from bringing this unfairness to the attention of the average people, it would be very appropriate to air this matter on your widely watched “four corner program”

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