The lowering of interest rates and rises in the value of property and shares have increased the gap between the haves and have-nots. Of course, this has led to vested interests claiming we need to raise more revenue to make the system “fairer”.
The new premier of New South Wales has been an office for a very short time, but has already flagged the possibility of replacing stamp duty on property purchases with a universal land tax, which would be levied on every residence, and affect every householder. This would be just another impost on retirees who are asset rich and cash poor.
Then there are calls to include the family home in the Assets Test for the Age Pension. But this would be impossible to implement due to the variation in the cost of the average home depending on its location.
The latest one is yet another call to impose death duties in Australia. The proponents of this action claim that it’s not right that many wealthy people die leaving big chunks of money to their beneficiaries. In their view, a substantial death tax should be introduced to make sure the government, not the family, get a major part of your estate when you die.
They point to Britain as a great example, whereby a standard inheritance tax of 40 per cent is charged on those assets above the tax-free threshold, which is currently £325,000. For example, if your estate was worth £625,000, you would pay 40 per cent of £300,000, which would be £120,000. There are certain concessions for estates left to a spouse, and the tax may reduce to 36 per cent if at least 10 per cent of your estate is left to charity.
This is not something to be rushed. For starters, if you have a death tax you must also have a gift tax, otherwise people would simply give money away before they died. In any event, we have hefty taxes on your estate right now. For example, the taxable component of your superannuation is hit with a death tax of 17 per cent (15 per cent plus Medicare levy) if left to a non-dependent.
Then there is the capital gains tax (CGT). I accept that CGT is not triggered by death – the liability is passed on to the beneficiaries who will pay CGT if and when they dispose of the assets bequeathed. However, in my experience, there are very few beneficiaries who are prepared to wait years to cash in what they see as their rightful inheritance.
I wouldn’t be too worried right away. Australia has a history of floating controversial ideas and then backing away once a rigorous analysis is carried out and problems come to light.
Remember the Henry Tax Review, which was commissioned by the Rudd government in 2008, and published in 2010? The report contained 138 recommendations, most of which have been ignored.
In 2014, we had the 320-page Murray report, which made 44 recommendations, most of which never saw the light of day. In 2015, the CEDA published a comprehensive paper “The Super Challenge of Retirement Income Policy,” which pointed out that “constant tinkering around retirement income policies makes it difficult for those planning for retirement to make informed decisions about how best to fund their retirement.”
What we need more than ever is a government who is prepared to leave the system as it is for the foreseeable future, so that people can plan their affairs with certainty.
To read more from Noel Whittaker, click here.
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.