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Taxation of Superannuation Hazel Bateman Centre for Pensions and Superannuation UNSW

Taxation of Superannuation Hazel Bateman Centre for Pensions and Superannuation UNSW February 2009. 1. Alternative tax regimes for retirement savings Tax points – contributions (T), fund earnings (T), benefits (T) Alternative tax regimes Comprehensive income tax – TTE, ETT

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Taxation of Superannuation Hazel Bateman Centre for Pensions and Superannuation UNSW

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  1. Taxation of Superannuation Hazel Bateman Centre for Pensions and Superannuation UNSW February 2009

  2. 1. Alternative tax regimes for retirement savings • Tax points – contributions (T), fund earnings (T), benefits (T) • Alternative tax regimes • Comprehensive income tax – TTE, ETT • Expenditure tax – EET, TEE • Hybrid – TTT • Personal income tax OR specific super taxes

  3. 2. How we tax super? Different tax treatment by: • Employee • Employer/salary sacrifice • Self employed • Govt co-contribution • Spouse, child • Contribution caps • Deductible contributions (15%) • Interest (15%) • Dividends (15%), imputation credits • Overseas income (15%), FTCS • Capital gains (10%) • In retirement - earnings on underlying assets, tax • exempt for – broadly defined - income streams satisfying min standards • Taxation depends on: • Tax status of super fund • Age – benefits tax free if 60+

  4. 3. How did we get here?

  5. 4. What does the rest of the world do?

  6. 5. Issues arising from current super tax arrangements • Flat rate super tax on contributions and fund earnings (15%), separate from income tax • Regressive (increasingly so over time) • Tax concessions skewed to high income earners • Complexity in seeking equity (contributions taxes, caps, rebates, co-contributions etc…) • Tax free benefits from 60+  huge concessions to high income retirees, difficult to design drawdown incentives (but has reduced EMTRs in retirement) • Tax on savings in super (fund earnings) differs from other savings, and by age (< or> age 60) • Future tax revenue?

  7. 6. Complications • Cannot consider super taxes in isolation • Super is one part of total retirement income • Mandatory and voluntary super • Tax concessions and adequacy • Integration with age pension – adequacy, means tests, EMTRs • Alignment with taxes on labour and other h/hold savings • Health and aged care expenses

  8. 7. Where to? • Abolish super tax regime, align with personal income tax – TEE/EET • For example, EET • Reintroduces progressivity => equity • Simple • Improve efficiency • Flexibility to provide incentives for super income streams • Equiv for taxed and non taxed funds • Enables risk sharing • Encourages voluntary contributions • Future tax revenue

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