There are calls to introduce an inheritance tax in Australia after research revealed that current legislation actively subsidises inheritances.
As part of the Grattan Institute research on how the younger generations are falling behind financially, which we presented on Monday, there were also findings related to the size of inheritances, and who was benefiting most.
Owain Emslie and Danielle Wood from the Grattan Institute found that 80 per cent of money passed down from parents goes to people aged 50 or over, not people who are saving for a house or trying to raise a young family.
The most common age bracket in which people receive an inheritance from parents is 55-59. This is largely due to Australia’s growing life expectancy.
The Grattan Institute report argues that this will mean inheritances increasingly supplement the retirement savings of middle-aged Australians rather than helping young people.
Australia is one of only seven OECD countries without any inheritance, estate or gift taxes, but the problem goes beyond that, according to the report.
Mr Emslie and Ms Wood found that Australia’s taxation system actively subsidises inheritances.
Superannuation tax breaks that were intended to encourage people to save for their retirement and to take pressure off the Age Pension system are largely being passed down to the next generation through bequests, because there are many retired Australians who do not draw down on their capital.
There is a 15 per cent super death benefits tax, which aims to claw back some of the superannuation tax breaks when the money is passed on, but the Grattan Institute argues it is too low and can be easily avoided.
As well as recommending a higher tax on super bequests, the Grattan Institute is calling for the cap on post-tax super contributions to be lowered and for at least part of the family home to be included in the Age Pension assets test.
It also suggests that older Australians with higher-value properties should be allowed to borrow against their home using the Pension Loans Scheme. The aim would be to allow most people to stay in their home, while ensuring that some of their wealth is used to fund the Age Pension.
What do you think? Should Australia introduce an inheritance tax? Should the tax on super bequests be higher than 15 per cent? What do you think about including part of the family home in the assets test?
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