May 10, 2006 | Graham

Orphan tax and super

Tax cuts and spending increases – the Treasurer would seem to have covered it all. That’s certainly the impression from today’s papers, but that’s partly a function of the people who write newspapers – they’re employees, and they’re more likely to be older than average and/or have families. It’s these three groups at whom the budget is targeted.
Being an employer gives me a slightly different perspective and two issues jump out. The first is the tax on fringe benefits which has been lowered from 48.5% to 46.5%. When the top personal rate is now 42% (and according to the Treasurer will only be paid by 2% of tax payers), and companies pay tax at 30%, this is an anomaly.
Fringe Benefits Tax was introduced by Keating to ensure that high earners didn’t salary package and avoid paying their proper rate of tax. This at a time when the top tax rate cut in somewhere around $50,000 p.a. and was paid by a significant proportion of the workforce. These days I suspect FBT is primarily paid on provision of company cars and entertainment, they certainly are in my company. Both of these benefits are frequently paid to workers who earn much less than the $150,001 required to pay the top tax rate these days.
The result of leaving the FBT rate virtually unchanged while other rates have been radically rejigged and lowered is to penalise provision of these benefits through the company, rather than to equalise their treatment with those paid directly through wages. It’s about time that FBT was paid at a rate which reflected the top rate of tax paid by the recipient rather than a top rate of tax that’s paid by no-one.
The second issue is that my savings are tied up in my business, not superannuation. Every dollar that I put into my business comes from dollars that I have paid tax on, and I pay tax on every dollar that comes out, including from investments made with the sale of my business after I retire (in the unlikely event that ever happens). Where is the reward for taking the risks that I do when those who contribute to super do so out of before tax income, receive tax advantages on the income their super fund receives, and now take their money out the other end without paying tax on it?
For a government that claims to be in favour of sturdy self-reliance it seems that many of their policies are designed to encourage a grey urban conformity.

Posted by Graham at 7:50 am | Comments Off on Orphan tax and super |
Filed under: Australian Politics

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