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Australia Seeks To Expand Tax Breaks For Pensions

by Mary Swire, Tax-News.com, Hong Kong

23 July 2014


The Australian Government is consulting on plans for extending concessional tax treatment to deferred lifetime annuities (DLAs).

The proposals form part of a broader project on retirement income stream products. The Government is reviewing regulatory barriers and wants to encourage greater product innovation.

At present, superannuation income streams receive concessional tax treatment. Income derived from assets supporting a superannuation income stream is exempt from tax (the earnings tax exemption).

Superannuation income streams must make payments at least annually. As DLAs do not satisfy this requirement in the period before payments commence, they do not qualify as income streams under the rules. They are therefore not entitled to the same concessional treatment.

The aim in extending concessional treatment is to facilitate the provision of DLAs in the Australian market.

The Government's discussion document suggests that DLAs could be payable for life from an age specified in the annuity contract. Consistent with existing arrangements, purchasers could benefit from tax-free annuity payments once aged 60 and over.

The paper seeks views on whether a minimum and/or maximum deferral period should be introduced for DLAs, and poses a series of questions about how they could be purchased. One option is that DLAs could only be purchased with superannuation money once a condition of release has been met, such as retirement on or after preservation age.

Earlier this year, research by professional services company Towers Watson and the University of Melbourne revealed that a significant number of Australians are unlikely to achieve adequate retirement incomes. Only 53 percent of couples and 22 percent of single people in the 40-64 age bracket are on track to enjoy a comfortable level of retirement income against the Association of Superannuation Funds of Australia's comfortable living Retirement Standard.

TAGS: tax | pensions | tax incentives | retirement | Australia | ministry of finance | tax rates | tax breaks | services | Pensions | Pensions

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