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Public Sector Informant : PSI
44 THE PUBLIC SECTOR INFORMANT [MAY 2010] Myers-Briggs Certification Canberra 11 -- 14 May Myers-Briggs Type Indicator® (MBTI®) certification is the 'must have' credential for every HR professional, providing the expertise to drive success. Applications: Leadership development, team building, communication, conflict management, career development and change management. CPP Asia Pacific, the Australasian distributor of the Myers-Briggs® suite of instruments, offers certification programs throughout Australia. For further details about public and in-house programs and how MBTI® certification can transform your organisation, please contact us: t: 03 9342 1300 e: firstname.lastname@example.org w: www.cppasiapacific.com ® Myers-Briggs Type Indicator, Myers-Briggs, MBTI, and the MBTI logo are registered trademarks of the MBTI Trust, Inc. CPP Asia Pacific and the CPP Asia Pacific logo is a registered trademark of CPP Asia Pacific Pty Ltd. ® dney | Melbourne | Brisbane | Perth Minter Ellison: Delivering on Sensitive Complex Projects www.minterellison.com.au [SUPERANNUATION:DARYL DIXON] Tax whack that discriminates against Canberrans A flawed rebate Retired federal public servants face higher superannuation taxes than their state counterparts The 2007 tax rebate provided limited benefits to funded super pensioners aged 60 or more whose only retirement income was their pension The past two issues of the Informant showed how federal budgetary practices have increased the govern- ment's unfunded superannuation debts by billions of dollars as well as the tax liabilities of retired public servants. One retiree has now given the Informant a detailed summary of the nature and extent of the tax discrimination against federal gov- ernment pensioners. This reader calculated that a retiree in the latter part of 1988 with an inflation-indexed $20,000 annual pension paid $60,000 more income tax than a comparable pension recipi- ent from a funded scheme (e.g. a state government scheme). The Inform- ant's research confirms this figure is in the right ball park. It could be even higher if the retiree has other taxable income (e.g. investment income or even a part-pension entitlement). The 15 per cent tax on employer contributions and fund earnings was introduced in July 1, 1988, as part of a strategy to allow super funds to access the imputation credits attached to fully franked dividends. To offset the adverse effect on retirement income, the changes also included a 15 per cent tax rebate on taxable- pension income paid after that date. This rebate was intended to ensure that the change had a neutral overall effect on retirees taking their retire- ment income as a pension. In 2007, the federal government simplified the system by making funded pensions that were received after the age of 60 tax-free. It thereby freed these pensions from being included as assessable income in tax returns. For all but the highest- income retirees, this change had no or minimal effect on their tax obliga- tions, as seen by the following example of tax liabilities on retirees aged 55-60 who receive taxable funded superannuation pensions as their only source of income. These taxpayers now pay no tax until their taxable pension income reaches $48,000 a year. Even for annual pensions as high as $85,000 or $100,000, the tax liability is only $8275 and $11,950, or 9.7 per cent and 12 per cent of their taxable income respectively. In effect, the 2007 tax changes provided no or limited tax benefits for funded superannuation pension reci- pients aged 60 or more whose sole source of retirement income was their pension. The benefits, however, have been substantial where retirees have other sources of income, such as work and property income. Because funded pensions are ex- empted from tax after the age of 60, retirees are generally taxed at low marginal rates on their other income. But before that age, even though no tax may be payable on pension income, that income is included in assessable income. This results in any extra taxable income from work or investments being taxed at higher marginal rates than those which apply after the age of 60. Despite the reduction in tax pay- able by unfunded pension recipients aged over 60 as a result of the tax offset introduced in 2007, retired federal public servants' pension income is still included in assessable income. This arrangement results in heavier tax burdens on their non- superannuation income compared with recipients of funded pensions of the same age. Understandably, this is of great concern for former federal em- ployees. Had it wanted to do so, the Commonwealth could have followed the same administrative practices as the state governments and paid its promised super benefits as funded pensions. In effect, what the Com- monwealth has done is increase tax liabilities on its former employees compared with their state and private sector counterparts. After reaching age-pension entitle- ment age, federal government retirees are further penalised. Centrelink in- cludes unfunded superannuation pen- sion income in the income test used to determine eligibility for Common- wealth seniors health cards, even though it excludes from consideration any funded super income. This arrangement bars many retired fede- ral employees from accessing this valuable benefit. The Henry tax review was publi- shed on the weekend, before the Informant's deadline. Federal public servants will no doubt scrutinise it closely to see what, if any, changes are proposed to super and related tax arrangements to address the discrimi- nation against retired federal em- ployees. The Informant will analyse the Henry review next month. Daryl Dixon is executive chairman of Dixon Advisory and Superannuation Services. email@example.com
PSI - September