The reason for this policy is to ensure that investors whose income is entirely or mostly from PIEs are not overtaxed on their PIE income. The problem of over-taxation for these people arises because PIE tax is a final, flat rate. An example of the problem that would arise is where an investor earns $20,000 of only PIE income. In the absence of the higher threshold for taxable + PIE income, every dollar of their income would be taxable at 21% – even though the majority of it should be taxable at 12.5%.
The policy underlying the PIE rules is that PIE investors should not be disadvantaged compared to other investors. When the PIE rules were introduced, each threshold for taxable + PIE income was raised to the next threshold.
Recommendation
That the submission be declined.
Issue: Threshold for 30% rate for 2009-10 income year
Submission
(7 – Barry Preddle)
The thresholds at which the 30% rate applies did not rise at the time of the tax cuts. This means that, for the 2009-10 income year, people earning between $38,000 and $48,000 had to elect the 30% rate for their PIE income, whereas a direct investor would have been able to use 21%. Affected taxpayers should be given a tax credit or rebate.
Comment
It was not possible to make changes to the PIE rates until 1 April 2010 due to the time needed to consult with PIE managers.
A credit or rebate to this group of investors for the 2009-10 income year would be extremely complex and expensive to administer, particularly given that it would apply only to a single transitional year.
Officials also note that PIE tax treatment is still concessionary for this group in a number of respects. In particular, PIE income is not taken into account for determining social policy entitlements or obligations, and the threshold for taxable and PIE income is higher than the threshold for taxable income.
Recommendation
That the submission be declined.