Cullen rubbishes switching claims

Many readers may have seen an article which suggested that the proposed tax changes to managed funds may encourage savers on high marginal tax rates to switch from term deposits to managed funds.

Tuesday, 9 May 2006

"To say that people on a 39% tax rate will move bank deposits to the new investment tax rules so as to limit their tax to 33% is uninformed and inaccurate.

"The new rules do limit tax on savings to a maximum of 33%.

But that simply continues existing rules for superannuation and similar savings vehicles. What the new rules do is tax those on a 19.5% tax rate at their correct personal rate, but those on higher incomes will continue to be taxed at 33%.

"So if you earn over $60,000 a year and have a bank term deposit the interest is taxable at 39%. The same person can currently save in a superannuation fund investing in bank securities and the tax is 33%.

"The simple fact is that a bank deposit is different from saving through a superannuation fund and is taxed differently. This has been the case in the past and will be the case under the new rules," Cullen says.

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