Treasurer Joe Hockey has started the Tax White Paper process with the release of the “Re:Think” Tax Discussion Paper.
We want to have an open and constructive conversation with the community on how we can create a better tax system that delivers taxes that are lower, simpler, fairer.
In more than 200 pages the Tax Discussion Paper raises 66 questions, asking for comments rather than making recommendations at this stage.
Tax Discussion Paper: Superannuation
The Tax Discussion Paper asks the question:
22. How appropriate are the tax arrangements for superannuation in terms of their fairness and complexity? How could they be improved?
Several issues with the taxation of superannuation are raised in the discussion paper. The different tax rates applying to accumulation and pension phase increase the cost of the superannuation system. “They also give rise to tax planning opportunities that are usually more accessible to high income earners,” such as delaying the sale of assets until they are in pension phase and so don’t result in CGT. This tax structure “may also complicate the development of retirement income products.”
The Tax Discussion Paper says an aging population moving from accumulation to pension phase will “put pressure on the long-term sustainability of the superannuation tax arrangements.”
The issue of the flat tax on superannuation contributions is also raised, as this means “most high income people receive a larger tax concession, relative to their marginal tax rate, than low income people.”
“The same is true during the accumulation phase and even more so during the retirement phase when there is no tax on earnings. ”
The Tax Discussion Paper refers to the ‘observations’ of the Financial System Inquiry (FSI). While not recommending general taxation changes the inquiry was allowed to make observations to inform the Tax White Paper. The FSI final report said:
In reviewing the taxation of contributions and investment earnings in superannuation, the Tax White Paper should consider:
- Aligning the earnings tax rate across the accumulation and retirement phases.
- Options to better target superannuation tax concessions to the objectives of the superannuation system.
Tax White Paper process
The Tax Discussion Paper is really only the start of the process. Submissions are being accepted until the 1st of June 2015, leaving a little over two months for comments on the issues raised. The Government will then release a tax green paper in “mid to late” 2015. The Tax White Paper will be released before the next federal election, which is due to be held no later than 14 January 2017.
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