International Comparisons: A Brief Summary
21.52. All industrialised countries with which Australia can be compared have special tax regimes governing provision for retirement. In general and subject to a multitude of conditions, contributions to superannuation funds by employers, selfemployed persons, and, in most countries, employees are allowed as a deduction in computing assessable income. The income of superannuation funds is, again subject to a variety of conditions, exempt from tax. Thus far the present Australian position is comparable with that obtaining in other countries. However, in the treatment of benefits other than in the form of pensions flowing from superannuation funds or paid directly by an employer on retirement, the Australian tax treatment is markedly more favourable. Australia virtually stands alone in the generosity of its treatment of lump-sum retiring allowances paid to employees.
21.53. Information currently available to the Committee shows that legislation and practice in New Zealand, Canada, the United Kingdom and the United States are as follows.
21.54. The New Zealand Government, though still regarding lump-sum benefits received from superannuation funds as wholly exempt, has been forced to legislate to limit the excessive lump-sum retiring allowances paid directly to employees by their employers. Broadly speaking, the effect of section 88B of the New Zealand Land and Income Tax Act is that an employee with ten years or more service is taxable on a lump sum received in consequence of retirement as to 5 per cent to the extent it does not exceed one-third of his total remuneration for the last three years of service and in full to the extent it exceeds that amount.
21.55. In Canada there is no escape from tax on retiring allowance or superannuation benefit paid in a lump sum. However, the effect of the tax is alleviated by general income-averaging provisions and further relief can be obtained by the taxpayer, if he so desires, purchasing an income-averaging annuity contract.
21.56. In the United Kingdom, as in New Zealand, the Government was forced to act to tax large amounts paid on retirement or removal from office, especially on the occasion of take-over bids. Very broadly the provisions of the United Kingdom legislation tax the excess of the retiring allowance over £5,000 and relief is allowed for the long-service or superannuation component included in the payment. In respect of any amount chargeable to tax, relief is allowed by way of a reduction of tax which is based on the additional tax payable being spread over a period of six years. Further constraints are imposed in the United Kingdom by virtue of provisions governing the contributions to and income of superannuation funds which require that benefits must be paid predominantly in pension form if concessional treatment is to be obtained.
21.57. In the United States lump-sum payments from exempt superannuation funds are taxed as income but subject to
generous forward-spreading provisions. These provisions have been significantly changed by the Pension Reform Act
1974 and form the basis for the proposals contained in paragraph 21.77 below. Other amounts received on retirement
are taxable in full, subject however to the application of the
― 361 ―
general income-averaging provisions
which are briefly described in Chapter 14 (paragraph 14.74).