Is it just me …. or is it ground hog day again
June 27, 2013

Morning All, 

OK I will admit it. 

I am a self proclaimed political tragic and I loved nothing better than sitting down last night to watch the drama unfold before my very eyes. 

That said I am a little intrigued by what Mr Rudd said. 

According to Mr Rudd, Australian politics had let the people of Australia down …. WTF. 

No Mr Rudd, Australian politics has not let the Australian people down. It has been you and your fellow cohorts who have let the people down by becoming self absorbed and thus allowing Mr Abbott and his merry band of followers to assume Government with little or no resistance. 

While I do believe that an Abbott Government is a given (and deservedly so), you would do this country a great favour by focusing on the task at hand and at least providing the Australian people with an alternative and perhaps challenging Mr Abbott ….. just a thought

Happy days to all

Luke Eres CFP SSA  

High Income Earners … Well hello Superannuation Surcharge
May 10, 2013

Howdy All, 

The Government for all its mismanagement is at it again declaring that high income earners will again be subject to a surcharge rate of tax on superannuation contributions. 

While I am all for an equitable tax structure, I am becoming increasingly annoyed by the actions of this Government. Rather than focusing on a class war, they should instead stop spending money on gimmicks which ultimately will amount to nothing more than increased waste. 

Fortunately this will all be resolved by September of this year but in the interim we have to put up with idiotic ideas as the one which is being proposed for high income earners. 

Listed below is an extract of what we understand will apply once the legislation is enacted. 

In this alert, we explore the more complex aspects of the Government’s draft legislation to reduce the tax concessions that individuals with annual income above $300,000 receive on their concessional contributions.

The application of the new tax to defined benefit arrangements, departing temporary residents and to scenarios involving excess and potentially excess contributions are summarised below.
 

Review

An individual will have a liability for Division 293 tax for an income year if in a given financial year their income for surcharge purposes, less their reportable super contributions plus their low tax contributions, exceed $300,000.

It is worth recalling three definitions which are fundamental to understanding the calculation process:

  • Low tax contributions include employer contributions to accumulation interests, personal contributions where a tax deduction is claimed, contributions to a defined benefit interest (valued by an actuary), salary packaged contributions to constitutionally protected funds and amounts allocated by the trustee (as prescribed in income tax regulations for the purposes of determining concessional contributions).
  • Income for surcharge purposes (as defined in ITAA 97) includes taxable income, reportable super contributions, reportable fringe benefits and total net investment losses.
  • Reportable super contributions are reportable employer super contributions (generally employer contributions other than award or SG) and personal contributions for which the individual claims a tax deduction.
     

Impact issues

Taxable income is a major component in the calculation of ‘income’ for surcharge purposes. Remember that lump sum payments are included in an individual’s taxable income, even though they may be subject to a prescribed rate of tax, rather than the individual’s marginal rate. Such payments include:

  • the taxable component of lump-sum death benefits paid to non-dependants for tax purposes (for example, an adult child)
  • employment termination payments
  • payments of unused annual and long service leave
  • a capital gain on the sale of property.

Receiving payments of this type may result in a breach of the $300,000 threshold and thus trigger Division 293 tax on the recipient’s low tax contributions for that year.

Treatment of excess and potentially excess concessional contributions

Excess concessional contributions can be refunded and potentially excess concessional contributions can be disregarded or allocated to another year using the Commissioner’s discretion. These variations impact the inclusion or exclusion of these contributions in the calculation of low tax contributions and the $300,000 threshold.

The following table, based on the table provided in the Explanatory Memorandum issued with the draft legislation, summarises the treatment of excess and potentially excess concessional contributions for the purposes of Division 293 tax.

Treatment of excess and potentially excess concessional contributions

Scenario

Include in low tax contributions?

Include in $300,000 threshold?

Excess concessional contributions subject to excess concessional contribution tax.

No.
These amounts are already subject to tax at the highest individual marginal tax rate.*

No.

Excess concessional contributions that are disregarded (once-off refund of excess concessional contributions under $10,000)

No.
These amounts are included in the individual’s assessable income and subject to tax at the individual’s marginal rate.

Yes.
These amounts form part of normal assessable income within the definition of income for surcharge purposes.

Concessional contributions which would be excessive but for the application of the Commissioner’s discretion to disregard them

Yes.
These are low tax contributions because they are not excess contributions.

Yes.
Because these amounts are low tax contributions, they are included in the calculation of the $300,000 threshold.

Concessional contributions which would be excessive in the year in which they are made, but for the application of the Commissioner’s discretion to allocate them to another year

Yes.
These are low tax contributions in the year
that they are made. These are low tax contributions because they are not excess contributions.

They are not low tax contributions in the year to which they are allocated.

Yes.
Because these amounts are low tax contributions, they are included in the calculation of the $300,000 threshold in the year in which they are made.

They are not included in the calculations of the $300,000 threshold in the year to which they are allocated.

* This tax treatment may change as a result of the Government’s announcements on 5 April 2013 that it would reform the treatment of excess concessional contributions.

Defined benefit arrangements

Low tax contributions for people with defined benefit arrangements will consist of:

  • low tax contributed amounts made to non-defined benefit interests
  • less excess concessional contributions
  • plus defined benefit contributions in respect of defined benefit interests (calculated using a method to be set out in regulations).

The defined benefit contributions calculated using the prescribed methodology will not necessarily be the same as ‘notional taxed contributions’ which are used for determining an individual’s concessional contributions for excess contributions tax purposes. Certain notional taxed contributions which are above the dollar amount of the relevant concessional contributions cap are deemed to be within the cap due to grandfathering arrangements. There will be no grandfathering of defined benefit contributions for the purposes of calculating a person’s low tax contributions.

Where Division 293 tax applies to low tax contributions attributable to a defined benefit arrangement, the ATO will make a deferred payment determination and a debt account will be maintained by the ATO until the first benefit is paid from that defined benefit interest, when payment of the accrued amount will be required. The ATO will issue a release authority to enable payment to be made from the superannuation fund.

Alternatively, the Division 293 tax may be paid by the individual from other sources, as it arises. The ATO will also issue a release authority at the time the Division 293 tax arises so that where the individual also has an interest in a non-defined benefit superannuation fund, they may use the release authority to make voluntary payments to reduce the tax.

The Explanatory Memorandum provides a series of examples of how to calculate low tax contributions where contributions to a defined benefit interest are involved.

Special rules – Contributions to constitutionally protected funds

Low tax contributions in respect of certain state higher level office holders (to be defined in regulations) are calculated in the same manner as described for contributions to accumulation style funds and defined benefit contributions, except that where those contributions (defined benefit or otherwise) are made to a constitutionally protected fund, only salary sacrificed amounts are counted as low tax contributions.

However, all low tax contributed amounts (whether resulting from salary sacrifice arrangements or not), including defined benefit contributions are included in the calculation to determine whether the $300,000 threshold is breached.

Special rules – Commonwealth justices and judges

Defined benefit contributions for a defined benefit interest in a superannuation fund established under the Judges’ Pensions Act 1968 are not included as low tax contributions and therefore not subject to Division 293 tax. These special rules only apply to justices and judges who have a defined benefit interest in a superannuation fund established under the Judges’ Pensions Act 1968.

You should note however, that a calculation of low tax contributions will still be made, based on these defined benefit contributions, and will be included in the calculation to determine whether the $300,000 threshold is breached. This will be relevant if other low tax contributions have been made to a superannuation fund in respect of these individuals.

Special rules – summary

Contributions

Include in low tax contributions?

Include in $300,000 threshold?

Contributions to constitutionally protected funds for state higher level office holders

No.
Not included as low tax contributions and therefore not subject to Division 293 tax, unless part of a salary package arrangement.

Yes.
All low tax contributed amounts, including defined benefit contributions are included in the calculation to determine whether the $300,000 threshold is breached.

Defined benefit contributions for a defined benefit interest in a superannuation fund established under the Judges’ Pensions Act 1968

No.
Not included as low tax contributions and there not subject to Division 293 tax.

Yes.
These defined benefit contributions will be included as low tax contributions in the calculation to determine whether the $300,000 threshold has been breached. Division 293 tax may be payable on other low tax contributions.

Temporary residents departing Australia

Individuals who receive a departing Australia superannuation payments (DASP) will be entitled to a refund of Division 293 tax they have paid. This is because any concessional tax treatment of their superannuation contributions is removed by the final withholding tax which applies to DASPs.
 

Conclusion

The closing date for submissions on this draft legislation is Wednesday 8 May 2013, allowing only a week for the industry to review and comment.

As we have seen, the implementation of this measure requires some complex calculations to determine whether a liability for the new Division 293 tax will arise and taxpayers who would not generally be considered to be very high income earners may be caught by the new rules.

We will as a matter of course be reviewing all affected individuals and we will be in touch with possible solutions in due course. 

Bidding you all a wonderful weekend ahead ….. Go Bombers 

Luke Eres CFP SSA 

 

 

The current state of Australian Politics ….. from bad to worse
April 2, 2013

Howdy All,

I hope that you had a pleasant Easter break. It always nice to have two short weeks back to back.

I came across this article written by Waleed Aly in this month’s Monthly Magazine and I thought that I would share it with you.

Unfortunately we live in a world where politically things are way out of kilter. We have a Labor Government battling a class war that they have essentially created and we have a Liberal opposition so fearful of making a mistake that they are paralyzed to say anything constructive. Regardless of what your political persuasion is, the fact as they stand are not good. I hope you enjoy Waleed’s article.

There’s an old Jewish prophecy that, as end times approach, history will speed up. Surveying the Australian political landscape, it seems Armageddon must be nigh. Events move in fast forward. The chaotic frenzy of our age, in which leaders are culled the moment a whiff of electoral defeat is in the air, economic stability notwithstanding, is unprecedented.

In the space of three years, three first-term heads of government – a prime minister, a premier and a chief minister – have been ejected by their own parties. For all the political mileage the federal Coalition has extracted from Kevin Rudd’s brutal removal, this is no partisan phenomenon. Ted Baillieu’s resignation in Victoria last month only came because the Liberal party room no longer supported him. And neither Rudd’s nor Baillieu’s demise seems as bloody-minded as Terry Mills’s axing in the Northern Territory, executed as it was while he was in Japan on official business, only a week after he had stared down a challenge from his Country Liberal Party colleagues.

In each case, we can identify direct triggers. For Rudd it was his dumping of the emissions trading scheme (ETS), which saw his approval ratings, and Labor’s, nosedive. For Baillieu it was a rogue MP’s resignation from the Liberal Party, and his chief of staff’s involvement in what at least looked like jobs-for-the-boys behaviour, as well as a series of poor polls. For Mills, it was the complete collapse of public support for his government – including a poll showing Mills had lost around 23% of the vote in his own seat – after large rises in electricity and water prices.

To cite these as explanations misses the point. Governments have faced crises before. They have pursued unpopular policies, and dealt with stubbornly bad polls. The failures are not new, but the speed and savagery of the consequences are. Rudd lasted just over two and a half years in office. Baillieu, just under. Mills, an astonishing seven months.

At least three things flow from this. First, political crises come swiftly, far more swiftly than in any previous era. Second, political parties more quickly assume such crises cannot be remedied, at least not in time for the next election. And third, they think the only way to salvage the situation is to replace the leader.

The new media landscape clearly has much to answer for here. Crisis is swift because news and commentary are swift and judgement is instant. Then it’s shared, constantly, and mostly with those who agree. Viewpoints become amplified rather than nuanced. So we forestall cool, reflective debate, and wind up with a public conversation that has almost no ability to persuade. Everyone’s in a war, everyone has a gun, and we’d much rather go on firing than sit through dull peace negotiations.

Political discussion has become a militarised zone. Perhaps that’s why parties are increasingly reaching for the nuclear option. As the debate gets faster and therefore shallower, our politics must become more presidential because image and personality are the only effective weapons left. This is particularly true given the collapse of serious ideological difference between the major parties. Every political problem therefore becomes a leadership problem. When you’re confronted with political disaster, there’s only one thing to do: get new leadership.

As Gillard’s experience shows, there’s no guarantee that change will work. The problems of contemporary politics are far bigger than that. In this connection, Baillieu and Rudd make an instructive comparative study: despite sharing the same fate, they are profoundly contrasting figures. Rudd is widely despised within his own party; his leadership style was unbearable to many of his colleagues and could be tolerated only as long as he had Newspoll in his corner. Baillieu remains liked as a man by colleagues and journalists alike. To follow the news coverage of his resignation was to be reminded every few moments that he is a “decent” bloke. Rudd is maniacally ambitious and hyperactive; Baillieu is aloof, indecisive and frequently passionless.

Rudd was everywhere. As Opposition leader he dismantled John Howard because his ravenous appetite for media engagement was so suited to our media-drenched age. In government, this caught up with him. His was a government of endless “announceables”. Initiatives poured from his office, but with no follow-through. There was an apology, a stimulus package, then a dizzying array of ideas – a dumped ETS, a maligned mining tax, a failed health take-over – that confused more than they inspired. Rudd governed as though the political cycle was the same thing as the 24-hour media cycle. He just couldn’t keep up with his own announcements.

Ted Baillieu didn’t even try. He belonged to a completely different era. You can imagine him taking three months out over summer to read, perhaps aboard a ship bound for England. He and his ministers frequently declined media requests. At first this seemed to be part of a strategy to lie low for the first year while his team – who were as surprised as anyone to find themselves in government in 2010 – figured out what they were going to do. But the invisibility lingered for a second year. Baillieu opted out of the media frenzy, and wouldn’t opt in even as scandal engulfed his own office.

This low-key approach is more affordable to the second tier of government, but even so Baillieu overdid it. When he announced the end of his premiership, the response was very much “So long, Ted Baillieu; we hardly knew ye.”

The stories of these two utterly contrasting leaders, both brought undone by the relentless waves of digital information that define our world, raise a frightening question of contemporary politics: can anyone shine in the top job? If not Rudd with his unceasing media engagement, and not Baillieu with his apparently deliberate disengagement, then who?

Certainly each man had failures of leadership. But is ours an age that will not be led? Is our political and media cycle so unforgiving, so instant and so damn loud that it punishes those who play the game as much as those who don’t?

Colin Barnett might think not, after his serene victory in Western Australia last month. In many ways he’s the middle ground between Rudd and Baillieu: the quiet achiever whose image is of getting things done with a minimum of fuss. But then, his state has seen massive economic growth in recent years. His opposition is inept, and is of the same party as a prime minister so disliked in the west that she was asked not to cross the state line lest she contaminate the state Labor campaign. This is hardly a replicable model for political success.

It’s early days, but it would seem the rapid, shallow brutality of our political conversation reflects a coarsening and hollowing out of our very public culture: a culture of more judgement and less restraint, of sanctimony unearnt through reflection, of instant rhetorical gratification. We need a new pact, but we have no brokers.

Have a great day

Luke Eres CFP SSA