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Double Taxation

The introduction of “Imputation Credits” into the tax system a few years ago got rid of the most blatant and long-standing examples of double taxation in our economy. Even governing politicians could no longer live with the fact that if a company had paid tax on its earnings it was unreasonable to tax after tax earnings (aka dividends) again.

It’s difficult, if not impossible, to think of any situation in which taxing the same income twice is justifiable. BUT there is one current outstanding anomaly which lurks in the corner to bite the recipients of a payment – not even income – which has been taxed already.

Not everyone will be aware that superannuation funds can be taxed (at 15%) on contributions made on behalf of members. It’s also possible to make “undeducted” contributions to your own super fund which aren’t taxed but are separated within the super fund.

Here comes the whammy!

On your death funds in your superannuation labelled “taxed” are taxed again if they finish up in the hands of any person except a spouse or a dependant.

There is a system – recontribution strategy – which can partly alleviate this problem by converting taxed contributions to untaxed contributions but it’s not a total answer.