Tax and your annuity
[At the 2016 Council it was agreed that this issue would no longer be pursued. For a number of years the GSA has expended considerable effort on this cause and has made no progress. It is not expected that this situation will change in the near future. This is not to say that the matter may not be resurrected should circumstances change. This subject has been removed from the Strategic Plan and is no longer on the Board agenda.]
The main outstanding anomaly in the schemes is the fixed annuity reduction imposed in 1990 in substitution for tax, taking full effect in 1999.
From 1 April 1990, a major change was made affecting the taxation of contributions to superannuation schemes, earnings on fund investments and annuities paid. Prior to these changes, contributions to the scheme by employees and by employers were exempt tax, up to certain limits, investment earnings were exempt, and annuities were taxed as ordinary income. This is described as an EET (exempt/exempt/taxed) regime.
In the TTE (taxed/taxed/exempt) regime applied from April 1990, all contributions to the scheme and earnings on the invested funds became fully taxed and annuities tax exempt. For annuitants who retired prior to 1 April 1990, their annuities were reduced by the rate of the “G” tax code. For those retiring from 1 April 1990, the amount of the annuity reduction progressively increased to a maximum of 30% for those retiring from 1 October 1999 (40% for NPF). These figures were loosely based on the taxation rates that existed at the time of the change.
Details of your annuity and the basis of its calculation, including the 1990 reduction, are included (for most GSF annuitants) in the letter sent to you on retirement and from Datacom each March advising you about your cost of living adjustment. It is recommended that you retain these letters with other personal papers for future reference.
As the reduced annuity is deemed tax paid, it is not assessable for income tax. (But members should note that the annuity is assessable for all forms of Government subsidy).
It is the GSA view that a 30% reduction factor is no longer appropriate as the tax regime has changed significantly since it was imposed. The GSA has lobbied Government for a number of years on this issue and our lobbying culminated in a GSA petition tabled in Parliament in 2011:
That the House of Representatives call on the Government in its role as employer to adjust the annuities payable to members of the Government Superannuation Fund and the National Provident Fund to reflect taxes applicable in 2011 rather than the currently reduced annuities that reflect 1990 taxes.
See Tax and your annuity: the case for equity for the GSA submission.
As members will now be aware, the submission achieved very little. Subsequent attempts to engage with Government on this matter have met with no response.
At the September 2015 Annual Council it was resolved that the GSA would go back to square one and conduct a full review of everything we have on this matter to see if there may be another way in which we can better represent our case. The Board will be reporting the results of this review to the 2016 Council.