Most people don't know it, but there are death taxes by stealth in Australia.
While it's not an inheritance tax per se, millions of Australians' retirement savings may be taxable upon death.
It all depends on your marital status and whether you have dependents (that is children or someone else who lives with you and financially depends on you).
If you are single and childless, and no one else is depends on you, your super money will be taxed before being handed to the person you nominate to receive it — assuming you nominated someone prior to your death to get the money.
If you've got hundreds of thousands of dollars in your retirement savings and die, that money will be taxed up to 32 per cent before the remaining portion is transferred to your nominated beneficiaries.
Conversely, married people, those in a de facto arrangement and those with dependent children don't face the same tax consequence in the event of their death.
Many people choose to withdraw their superannuation tax-free at retirement age to avoid any tax that would be payable on it if they die.
However, for those who don't have the option to withdraw, it begs the question: Is having a hefty tax on some and not others a fair outcome in a society where more Australians are making life choices to stay single and not have kids?
Tax rate applied to super payments upon death differs
The amount of tax levied before funds are transferred to any nominated, non-dependent beneficiary depends on various factors.
If you have not nominated a beneficiary, the super fund trustee would follow the relevant laws to decide who receives your balance.
However, assuming you have nominated one or more beneficiaries, they are not dependents and they are to be given your super as a lump-sum payment upon your death, it may include both a taxed and/or an untaxed element.
The taxed element will be subject to a maximum tax rate of 17 per cent — 15 per cent plus the Medicare levy.
Meanwhile, the untaxed element will be subject to a maximum tax rate of 32 per cent — 30 per cent plus the Medicare levy.
You can contact your super fund to nominate beneficiaries and check what tax rate would apply upon your death.
The Australian Taxation Office (ATO) website also has information about it.
Single households are becoming more common around the world
So, back to the question of fairness.
While lone-person households used to be an anomaly, they are becoming more common.
According to ABS data, about one quarter of Australian households are now made up of people living alone.
This figure is projected to increase over time.
In 2016, the ABS recorded 2 million lone-person households, with that projected to increase to between 3 million and 3.5 million by 2041.
On Wednesday, the ABS reported that just 78,989 marriages were registered in Australia in 2020, a 30.6 per cent decrease compared with 2019, with COVID-19 lockdowns playing a big part in people being unable to tie the knot.
ABS director of health and vital statistics James Eynstone-Hinkins said 2020 saw the largest annual decrease in registered marriages ever reported by the ABS, and the lowest number of registrations reported since 1961.
While the rate of marriages locally is likely to bounce back with lockdowns ending, globally, divorce rates are also rising and there is also a trend of more lone-person households.
According to market research company Euromonitor International, single-person households were the fastest-growing household type globally in 2010-2019, expanding 31 per cent, with nearly half this growth in absolute numbers attributable to the Asia-Pacific region.
It also released a report in 2019 about how the traditional definition of the family is transforming.
Its Future of Family report predicted that single-person households would record 128 per cent growth between 2000 and 2030, while the total number of household heads aged 60-plus will reach 807 million by 2030.
It also noted that divorce rates have been surging globally and populations with a divorced marital status will be, by far, the fastest growing over the 2000 to 2030, at 78.5 per cent.
Over the same period, the number of single-parent households will grow at three times the rate of couple-with-children households.
It predicted almost all countries would see a decline in children per household between 2000 and 2030.
The decline will be larger in developing countries (-33.8pc) than in developed markets (-26.5pc), as the number of children is, on average, higher in developing households.
As fewer couples have children, the report suggested, the number of childless-couple households will surge worldwide, far outpacing growth in couple-with-children households.
It argued that, to deal with this, the design of cities needs to shift to smaller-sized housing, and that workplaces will increasingly have to rely on robotics as the workforce ages.
But what about our tax system? Can it be changed to suit the new type of household?
Singles without children get less welfare
Superannuation is not the only area where singles can lose out.
Australia's tax and transfer system is designed with families in mind.
As the graph below shows, singles get far less in social assistance.
Singles don't get as much welfare support, such as family tax benefits.
This, many argue, is a fairness measure since they do not have the added financial pressure that comes with having a family.
Singles face higher Medicare levy surcharges. Again, this may be an in-built fairness measure, since for families, the same income is being used to support both the earner and dependents.
And singles tend to fork out more for private health insurance, rent and some other living costs.
This may mean that the impact of bracket creep — where wage inflation places you into higher tax brackets — also bites singles harder.
'Family trusts' are a tax advantage for some
While both singles and married couples can structure their affairs to reduce their overall tax bill, some tax benefits are only available to those who are married with children.
The family trust is one of those.
Rather than get taxed at the rate of the highest income earner in the family, income from any assets in the trust is distributed to family members — beneficiaries — with low tax rates.
This allows the higher earners in the family to pay less tax.
At the 2019 election, Labor had proposed introducing a minimum tax rate, of 30 per cent, on distributions from a family trust. It's not clear if it will now take this same policy to next year's election.
Consecutive governments have long ignored issues affecting singles in policy design and in federal budget announcements.
However, they are becoming a bigger, and more important, voting demographic.
It may be worth considering whether our tax and super system needs to shift in line with societal changes.
Is it currently fair to those who fend for themselves?
Ask your single friends what they think.
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2021-11-28 18:37:10Z
CBMicWh0dHBzOi8vd3d3LmFiYy5uZXQuYXUvbmV3cy8yMDIxLTExLTI5L2RlYXRoLXRheC1ieS1zdGVhbHRoLXN1cGVyYW5udWF0aW9uLXNhdmluZ3MtcmV0aXJlbWVudC1pbnZlc3RpbmcvMTAwNjQ0MTAw0gEoaHR0cHM6Ly9hbXAuYWJjLm5ldC5hdS9hcnRpY2xlLzEwMDY0NDEwMA
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