This is Session 1    

Pensioners paying 73% in tax                           

Give pensioners a fair go.

Approximately 16 % of  Australians or  4.2 million people are over age 65 and this will increase to 10 million in 50 years time.

62% of these people are on a full or part pension. Of the people on a part pension 2/3rd is affected by the income test and 1rd by the Asset Test

Assets of this group of people are approximately  $2,000,000,000,000 ( 2 thousand billion)

The majority of pensioners are affected under the income test so let us discuss this first.

Retirees on a part pension are treated very unfairly. They are by far the highest taxed entities by a country mile.

If you are earning more than $106 per week ($212 per fortnight) you become affected under the income test.

The “earnings” include the deemed amount in your superannuation fund or allocated pension.

The average balance in super at age 65 is $414,380 for men and $370,042 for women.

If you have $301,000 in super it is deemed at $212per fortnight and you are affected under the income test. The average pensioner is or will be affected under the income test or asset test.

The deeming rate after $62,600 is 2.25% which is very generous of the government.

I am actually very surprised that Centrelink has not matched the deeming rate to the Reserve Bank interest rate. If they do, the allowable super balance will reduce by $129,000 and your single pension will reduce by $371

A single retiree on an combined pension/income of say $45,000 will pay the following  “tax”

For every dollar earned:

Loss of pension for every dollar earned in excess $204 per fortnight            50.00 cents

Loss Pensioner tax rebate SAPTO .½ of 12.5cts (starts at $34,919)                6.25 cents

Loss of Low income rebate LIT, ½ of 1.5 cts ( starts at $41,089)                    0.75 cents

Tax ½ of 30%  ( income $45,000 – $135,000)                                                15.00 cents

Medicare levy ½ of 2% (starts at $33,738)                                                      1.00 cents

Total                                                                                                                73.00 cents

How unfair is that !

How can we reduce this “tax” ?

The first strategy is to change income to capital gain

Centrelink and the Taxation Dept have different rules. There is for instance no negative gearing for Centrelink ( losses cannot be offset against other income). Building allowances on property (Division 43) are not allowed but  Centrelink will still allow depreciation for plant and equipment (Division 40) . Taxation department still allows both types of depreciation.

                                                                                                                                                          

There is however one Centrelink concession left for retirees and that is Capital Gains . This means that a dollar of Capital Gains is worth a lot of money to a retiree.

Capital Gains is not regarded as income for Centrelink.

It is regarded as an asset but this will normally not affect the pension.

This makes property a very good investment for retirees on a part pension.

Using the example above , a dollar of Capital Gain is worth the following,

Pay Capital Gain after 1 year @  ½ x 30 cents =     15 cents

Therefore a retiree will have 27 cents left for every dollar earned but 85 cents left for every dollar of Capital Gain after paying Capital Gains Tax. This is a 315% increase

Or in other words;  $1 Capital Gain is the equivalent of $3.15 of normal income

The Work Bonus

The government has relaxed the rules to allow pensioners to earn more money without affecting their pension under the Income Test. Previously pensioners had to be employed to qualify for the Work Bonus but now they can be Self Employed as long as there is Active Participation. Passive participation like income from investments or dividends from a company is not allowed.

A pensioner ( married pensioner each) can earn an extra $300 FN on top of  $212/FN.

They can start with a balance of $7,800 per year  , now increased to $11,800. Each fortnightly payment reduces the balance until exhausted. The balance is restored each year to $7,800 or possibly $11,800.

This Work Bonus can be a very useful tool for pensioners affected under the asset test that want to retain a part time job.

The second strategy is to create depreciation allowance as every dollar of depreciation equals $3.88 of ordinary income.

These strategies will be discussed in Session 6