If you’re reading this, it probably means that you, or somebody close to you, is…
Tony’s tax tinkering – the new government’s plan for the tax system
The new government is finally getting down to business, and the sad circus of parliament has resumed, meaning that tax rules are bound to change.
Here are some of the changes that are expected. None of the changes are law, at time of writing, by the way.
Low income super contribution to be scrapped.
The low income super contribution is a payment of up to $500 to people who earn less than $37,000 per year.
When your employer puts money into superannuation, you pay a contributions tax currently 15%. For most people, this is less than they pay on income in their own name. The whole idea of super is that the tax is low to compensate you for the fact that it’s locked away until you’re retired.
If your income is under $20,542 you don’t pay any tax on earnings in your own name. So super is actually taxed higher than your usual income, which doesn’t fit with the rest of the system. If you earn up to $37,000 you’re paying 20.5% tax which is not far different to super.
Fair argument, I have to admit. However, on the other hand, if low income earners want a boost to their super then they can take advantage of the co-contribution which only applies to people who make an effort to contribute to their own super.
Either way, it’s gone.
Extra medicare levy
The ALP’s proposed medicare levy increase to 2% will go ahead from 1 July 2014, to pay for the future disability care scheme (NDIS).
The carbon tax is going. But, ridiculously, the carbon tax compo (the so-called “household assistance package”) will stay. Because our debt isn’t big enough, apparently.
High income super fund tax
Super funds don’t pay tax on their earnings if the members of the fund are receiving pensions. The previous government threatened to limit this so that an individual could only get $100,000 tax free. To earn this, you’d need around $1.5 to $2 million in your super, which is a burden not many of us have.
The latest from the current government is that they won’t go ahead with this (accounced on November 6).
Superannuation guarantee increase delayed
The rate that employers must contribute to super went from 9% to 9.25% this year. Further increases were planned. But this has now been put on hold for 2 years.
This is good new for most people as it would mean a reduction in take home pay.
Most private sector employees work on a “remuneration package” basis. That means, your pay is not $50,000 plus $4,500 super, it’s $54,500 including super. So an increase to the super rate would mean the package became $49,886 plus $4,614 super = $54,500.
Not a big difference now, but the impact on your take home pay would get worse and worse as the rate got to 12% (or higher).
On top of that, many of you know my thoughts about the super system. It’s like a legalised organised crime ring that makes Tony Soprano look like a petty thief. Make the whole system voluntary, I say. But that’s a rant for another time.