Fairer Tax on Non Super Income

Fair taxation of non-superannuation income for all retirees

Set out below is an argument for non-superannuation income to be taxed separately from the superannuation income of all retirees. It will be put before all members of the Federal Parliament.

SA Superannuants (the Association) is an organisation representing the interests of members of the South Australian State Pension Scheme. This scheme pays untaxed-source defined benefit pensions to about 15,000 former employees of the South Australian Public Sector. About 1500 of these people are financial members of the Association.  The Commonwealth government also pays untaxed-source pensions to most of its civilian and military superannuants. Untaxed-source pensions are taxed as ordinary income with a 10% tax offset applying after age 60. These pensions also attract the Medicare levy of 2% and any additional, taxable income that a pension recipient has is taxed at the marginal rate for the combined income.

I am making this contact with you on behalf of the Association to seek your support for consideration to be given to a change income tax and Medicare arrangements. We would like to see non-superannuation income taxed, and assessed for the Medicare levy, separately from superannuation income for people aged over 60. This would have a small cost to tax revenue arising from the fact that the people we represent currently have superannuation income that remains taxable income after age 60.  We accept this because the fund from which our member’s pensions are paid is an untaxed-source fund but we consider it unfair that any taxable income (including age pension) our members have is added to their superannuation income and taxed at the marginal rate for the combined income. In addition the total income is subject to the Medicare levy.

For people age 60+ years belonging to taxed-source pension funds other income (non-superannuation income) attracts tax and the Medicare levy as if it was the only income. In contrast to this the corresponding members of untaxed-source funds have other income added to their superannuation income and pay tax on that income at the marginal rate for the combined income. They also pay the Medicare levy.

A single person or a couple with a taxed-source superannuation pension of a certain value will pay no tax on their non-superannuation income until it exceeds $18,200 which is the tax-free threshold for personal income tax. Another single person or couple with an untaxed-source superannuation pension of the same value as the taxed-source pension will likely pay about $4000-$6000 tax and Medicare levy  on $18,200 of non-superannuation income.

Each untaxed-source superannuation fund only exists because an Australian Government (State or Commonwealth) determined that it would, and made the decision to operate an untaxed-source fund, rather than a taxed-source fund, without making any attempt to obtain the informed agreement of the people who would be affected. In our view this places an obligation on the Commonwealth Government to ensure, as far as practicable, that members of untaxed-source funds enjoy equal retirement income outcomes as are enjoyed by members of comparable taxed funds.