The Greens said with the baby boomers beginning to transition to retirement, the public money foregone to superannuation concessions will surge from $32 billion to $50 billion a year by 2018.
“Compulsory super will no longer be achieving one of its main objectives, and may in fact cost more than providing the public pension for everyone,” said the political party.
The Greens argued that the current flat tax rate should be replaced with a “progressive system based closely on the individual employee’s marginal tax rate”.
Greens leader Christine Milne said the super system is “being rorted by the mega rich, who can drastically reduce their tax by funnelling money into super that would normally be taxed at the highest marginal rate”.
“The super wealthy in Australia are avoiding hundreds of thousands in tax using these superannuation loopholes – its people on lower incomes that shoulder the burden,” said Ms Milne.
“Everyone deserves a comfortable retirement; the superannuation system should look after people on low and middle incomes too, not just the wealthy.”
Ms Milne said policy changes to super taxation well help all Australians achieve their own comfortable retirement and ensure the aged pension is preserved for those who need it most.
Ralph
What Manoj is suggesting is to make a personal concessional contribution to super for $197K (and not $215K) and the tax is payable about two years later – with a decent investment of 7.5% PA or with imputation credit, in the fund or with Super Gearing (depreciation component) it is possible to reduce this tax to NIL and at the same time benefit from the tax rebate when the Excess CC amount of $162K is added at personal individual level.
ECC charge is a very small amount in scheme of things. Also remember that the member can withdraw from super to pay the tax on amended assessment or pay for the tax from next year’s dividends.
I hope the above helps.
Do the numbers Manoj – You would be better off contributing the $180K as a non-concessional contribution. (I suspect you forgot that the personal tax payable on the excess contribution is subject to the ECC charge).
You might get a bigger refund personally, but the fund pays tax on the entire amount of $215K so it pays an extra $27K in tax.
You end up with a higher net tax payment and less in super so I am not sure what the benefit of your scheme is.
You might actually be better salary sacrificing through the company rather than taking in out as a dividend.
Ralph
You are about 2 years behind everyone else – law changed on 1st July 2013.
wake up!
Manoj – how can you get $197K per person into super as a concessional contribution when the cap is $35,000?
You will be paying tax at the top marginal rate on the excess. I can think of better things to do with lots of franking credits than give them straight back to the ATO as excess contributions tax!
Ralph
I am suggesting from the FF dividends of $215K – $197K is put into super as concessional contributions – I am aware that $150K cash will be available from the dividend payment – but then the directors can pay themselves dividend for the current year or dip into home loans to make the extra cash required – then pay it back after receiving the tax refund
This strategy is only for business clients with high income – i know at least 1,000 such families – this is usually a family where parents are about 50 years old and teenage or university going kids – their problem usually is
– paying salary to Directors – i am suggesting paying dividends (this can be done to Mum & Dad – whilst kids can get deductible salaries from the company)
– not able to contribute more to super – i suggest pay $197K
Don’t worry about the racist comments – we live with it[.]
Alfred – you and Manoj do not understand the tax laws. And engaging in insults and racist insinuations doesn’t make you correct.
Lets assume that Manoj’s situation is correct, although the number of family businesses making $1mill is not great. Lets use his dividend strategy and make a contribution to super. (Ignoring the fact that this leaves each member with no income to live on). After putting $30K into super as a concess cont. the $180K is taxable in the members hands, so there is tax refund of $7,000 which is a fair way short of 50% of $64,500 worth of franking credits.
BTW how are you going to put $215,000 into super when the cash available is only $150K after the company pays tax? You will not get the balance as the ATO will take it to pay your tax liability.
Perhaps you and Manoj need to go to tax school!
There is merit in Manoj’s statements….and Ralph and Elaine are incorrect.
I have done calculations on Manoj’s strategy and they are not only legal but also right, a lot upstream then many of us would like, I must admit.
A non-Caucasian name or an immigrant does not always mean that they are wrong and we can hide behind our veil (without our full names) and slug them. Maybe Joe, you should try and understand Manoj’s strategy and once you have done that, perhaps implement it for some of your clients.
Is this the same Manoj Abichandani who has a website about becoming a millionaire and getting out of paying tax? I quote “This series of articles will guide you in taking the right steps and will warn you of the steps to avoid, so that you can become a millionaire in this adopted country in a legal way….pay reduced amount of tax, as we will see below.”
Hypocritical much?
Elaine: There is no limit to concessional contributions – I can contribute whatever I want, however I agree any amount above the cap amount will be included in my personal income tax return.
Ralph: Many SMSF members are in business and their business makes $1M profit each year (suggestion is not to take directors salary but to take dividends) – which results in $300K Imputation credit – enough for a family of 4 members to take dividends of $215K each, Which means that each person will get back 50% of the tax paid by the company or in other words, as a group, pay only 15% tax on company’s profits.
2. Read above
3. The tax in SMSF can be reduced to nil by imputation credit or by super gearing or the tax can be paid from income from this contribution as you can get up to 23 months to pay the 15% tax.
I think you two should consider going back to SMSF-School and drag a wild cat with you.
The trouble with all of these statements that politicians come out with, is they are never specific. For example, I’d really like to know just how many fall into this category of the “uber” rich that are deriving such an unfair advantage from the system. How much tax is being forgone as a result of these strategies and would will be the overall cost to Australia to deal with the situation.
When I hear a politician come up with such a statement, then I’ll happily take notice; but until then I will just continue to ignore them as it seems like it’s just a ploy to grab a headline.
Manoj, I think you should revisit your strategy. There are contribution limits and Excess Contributions Tax.
[quote name=”Manoj Abichandani”]Wildcat: if you get FF dividends of say $215k, you can contribute $197K in super, your taxable income is $18K= no tax
When $162K is added back with 15% rebate you pay only $30K tax from $65K refund with net refund of $35K = so you may pay tax at company level but get a refund at individual level
SMSF pays only 15% tax which can be Nil due to timing diff or by other methods[/quote]
You have a worrying understanding of the tax laws.
1. To get $215K of dividends you would need approx $5Million of shares. Not many people have that.
2. You cannot contribute $197K to super and reduce your taxable income to $18K – the cap is $35K
3.However, I think the ability of a fund to claim back all the franking credits once a fund is in pension mode is a flaw in the system. It basically means that a shareholder is getting tax free profits if the shares are held in a fund. IMO that is unsustainable
Wildcat: if you get FF dividends of say $215k, you can contribute $197K in super, your taxable income is $18K= no tax
When $162K is added back with 15% rebate you pay only $30K tax from $65K refund with net refund of $35K = so you may pay tax at company level but get a refund at individual level
SMSF pays only 15% tax which can be Nil due to timing diff or by other methods
Someone on $60,000 pa pays approx. $12,150 in tax.
Someone on $300,000 pa pays $117,000 in tax.
So the ‘rich’ person earns 5 times as much but pays 10 times as much tax.
What’s wrong with wanting to contribute a few dollars into super to reduce overall tax impost.
As it is, depending on the employer, someone earning $300,000 would almost use up their cap of $30K simply by getting the 9.5% SGC on their full income.
Manoj, not sure what kind of strategy you are running but if you are using franking credits to reduce tax then 30% tax has already been paid!
The client only pays 15% you say????
The greens can’t even make sense of decent environment policy – every step forward for the country is a resounding NO from them.
Maybe money does grow on trees, I might become a green then!!
Given that 50% of the budget is health and welfare, sticking to the VERY FEW that have a major advantage will fix absolutely nothing.
Ms Milne is like a Labrador chasing a sprinkler, thinking she’s doing something valuable but really ends up looking like an idiot.
Re #13 John – does that even make sense in your mind, let alone in English? Or am I right in guessing English isn’t your first language?
The last sentence is hardly intelligible, come on boy, spit it out, what are you trying to say…
I can read the backlash from everyone – but there are some super rich super funds who have borrowed at market rate from related parties and earning 8% to 12% income on those investments – if you look at this differential of 5%, it can translate to some obscene levels of 6 digit positive income in the fund, which is being taxed at only 15% (and some times lower due to other issues).
And it is very easy to pump $210K as new concessional contributions and still pay only 15% – when you have franking dividends at individual levels – which means that you pay no more than 15% outside super.
So what the greens are saying, hold on – this flat rate has a problem – and i seem to agree with them.
I know if I do nothing i get $20K age pension for 20 years – so if the rich get $400K concessions – so what is the big deal – but when it gets to $400K every year, then it becomes a big deal and needs to be fixed.
Hang on! Is it not the self funded retiree who contributes to their own retirement?
Better idea; apply tax at 15% to the deemed earnings of the unfunded Federal public service & Federal politician’s super with corresponding reduction in the end benefit!
Current unfunded balance? Unknown but some estimates put it at $2 billion +
Age Care Pension enhanced by Superannuation was designed as a safety net for the Aged needy, not as Tax avoidance Scheme for the younger over remunerated greedy.
When will it be accepted that the Tax Concessions given to these wealthy greedy far outweigh that than if they were given the Age care Pension.
Mindless ranting by those who are suppose to be our leaders. What they are suggesting is a recipe for disaster.
I must be missing something as is it not in the best interests to have as many retiree’s not reliant on a pension in retirement?
Typical governments ruling for today and not the future. Contributing to super within the laws set by the government is not a loophole rather smart individuals following a system being placed in front of them by the govt.
The fact not all chose to do so is not the fault of the individual choosing that / your system to follow.
Maybe current politician in government follow the same rules as us mere mortals in relation to super contributions without your over inflated indexed linked pensions that you and your mates currently afforded yourselves?
Maybe then just maybe you would rethink you super rules (an understand them as Ms Milne you have no idea) as you have to actually live it, live off it, and actually plan for it rather than just be handed tax payer funded handouts!
Typical winging balderdash. For the mega rich a tax deduction for a “pissant” $30,000 a year is simply nothing. Even the maximum non-concessional contributions of $180,000 per year would require mega rich to first pay around $170,000 out of $350,000 income at top marginal rate before contributing.
Unfortunately this is typical short-sightedness from the Greens. It reminds me of how many people scream about our major banks making too much profit. They were the same people who during the global crisis were proudly telling everyone how strong our banking system is! You cannot have banks making poor profits and have the banking system strong. Likewise, you cannot take benefits away from the superannuation system and expect it to remain strong. Wealthy people have the resources to create and manage their wealth outside the superannuation system and will do so if the benefits of using the superannuation system are insufficient to justify having their wealth in a highly regulated structure. If that happens, it will be people like the Greens who will blame someone else for our government not creating a strong superannuation system. They will be the last people to say, “we got it wrong”. Our superannuation system is the envy of the world – leave it alone!
Dear Senator Milne
“Avoid” “Rort” & “Loophole” are strong accusatory words to use against taxpayers who are only following the law of Australia as it stands today.
You are obviously confused between the words “inequitable” and “illegal”.
By all means, your role in representing your constituents is to promote policy changes as you see fit, but this type of sensationalist hype is petty, and best left for the tabloids.
Attempt to change the law legitimately if it is the will of the people you represent. I believe that is what taxpayers are paying you for?
Be assured, by saving for retirement under the laws we have been dealt, no one is [u]breaking[/u] the law!
How is something a “loophole”, when it is available to everyone?
And, by the way, I’m sure the “low and middle income earners” would love to have their super balances taxed at marginal rates…..that will really give their retirement savings a boost!
Ummm…. Don’t we have caps in place to stop excessive contributions by the uber rich?
Another brain dead comment by the non-contenders!
Notice the Greens aren’t volunteering forgoing their parliamentary privileged super benefits… Be serious and put that up on the list of motions if you want to make Australia fairer in the super department, otherwise you have nil credibility.
Hilarious fiscal policy comments by the Greens. Heaven forbid they are ever taken seriously on anything, let alone monetary guidelines & Australia taxation (I’d hazard a guess their members are amongst the most adverse to paying tax).
A great aspect of our super system is it isn’t discriminatory.
Convincing [u]every[/u] Australian to save a proportion for their retirement assist the entire nation.
And to pop the La-La Land bubble; no, not ‘everyone deserves a comfortable retirement’. That’s straight out of the ‘world owes me a living’ idiotic hand out entitlement philosophy (gee – Greens and dole hand outs, never happens surely?).
Ala the Ant & Grasshopper fable, if you work hard, take some risks and save a decent amount then why should you be dragged down and penalised by a long haired pot smoking wastrel?
I agree with Ms Milne. The super rich can contribute up to $200,000 as concessional contribution to SMSF from fully franked dividends from their company and still pay only 15% tax inside and outside super.
Marginal tax rate inside and outside super is the only solution to plug this loophole.
So say the politicians who have an indexed linked pension for life that they can access aged in their 40’s. Perhaps Christine Milne could lead by example and agitate that politician’s super play by the same rules as everyone else.
Ms Milne obviously doesn’t understand the superannuation system and the fact that there are contribution limits.
Why should someone who has earned a large income all their working life, paying the tax that supports the infrastructure of Australia (including the wages of politicians) have to retire on a lower income? Why should they have to continue to pay high levels of tax on money they have already been taxed on?
The Greens should stick with looking after the environment and not try and deal with the fiscal prosperity of our nation, because they just don’t get it!
Now I know why they call the Green’s watermelon’s – Green on the outside, but Red inside??