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Superannuation and the 2012/13 Budget
A Grade Tax as a leading firm of Penrith Accountants, are able to assist clients with their SMSF requirements.
DEFERRAL OF THE HIGHER CONCESSIONAL CONTRIBUTION CAPS
There were two announcements made in the budget that will impact superannuation members, the higher tax rate on contributions for high income earners and the deferral of the higher concessional contribution cap for individuals aged 50 and over. The deferral of the higher cap is by far of greatest significance as individuals nearing retirement have watched as the Government has stripped away the amount able to be contributed over the past few years.
Having originally cut the concessional cap in half in 2009/10, to take effect from 1 July 2012 for those aged 50 and over, the Government then announced they were increasing the concessional cap to $50,000, as long as an individual’s superannuation balance was less than $500,000. Having determined that this is now too difficult to implement by 1 July 2012, they have postponed the measure until 1 July 2014.
The end result is that an individual aged 50 or over is now limited to $25,000 from 1 July 2012 regardless of their account balance. This is compounded by the fact that the Government have frozen indexation of the concessional cap until 1 July 2014, a measure announced late in 2011.
To further discourage individuals aged 50 and over who earn income greater than $300,000 they will be taxed at an additional rate of 15% on their $25,000 contribution which means they will end up paying the same tax on $25,000 as they would have previously on $50,000. That leads us to the second announcement that we had all expected.
30% CONTRIBUTION TAX FOR HIGH INCOME EARNERS
From 1 July 2012 an individual earning greater than $300,000 will pay an additional 15% tax on concessional contributions. With a sense of irony surely not lost on those who can remember back to 1996 when the then Government attempted to introduce a “surcharge” rather than a “tax” this announcement reduces the tax concession for high income earners rather than imposes an additional tax.
An additional peculiarity is that this measure can be implemented from 1 July 2012 as opposed to the “increased concessional cap” which needs more time to be developed. There was concern pre-budget that the higher tax could result in some excess concessional contributions being taxed at 61.5% and as a consequence excess non-concessional contributions could face a potential overall tax rate of 106.5%. This concern was alleviated by the announcement that concessional contributions exceeding the cap will not be subjected to the additional 15% because the excess contribution tax ensures that no tax concession is received.
The definition of income includes taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment losses, target foreign income, tax-free government pensions and benefits, less child support.
If an individual’s income only exceeds the $300,000 threshold because of concessional contributions then it will only be the amount of the contribution in excess on the threshold that will be taxed at 30%.
Example – An individual earns $280,000 and makes a concessional contribution of $25,000. In this instance only $5000 will be taxed at 30%.
The measure confirms that the tax is only applicable to contributions and does not affect the tax on other income received by a Fund.
Although not directly related to SMSFs, many SMSF members may be affected by the announcement
related to “Golden Handshakes”. A golden handshake is an Employment Termination Payment (ETP), often paid out in addition to a redundancy or for other purposes. ETPs are taxed concessionally up to the ETP cap which is currently $165,000, increasing to $175,000 from 1 July 2012. ETPs under the cap are taxed at 16.5% for individuals who have attained preservation age and 31.5% for those under preservation age. Amounts above the cap are taxed at 46.5%.
From 1 July 2012 the Government will introduce a “whole-of-income” cap of $180,000 that will mean only the part of the ETP that takes an individual’s annual taxable income, including the ETP, up to $180,000 will be entitled to the tax concession and the balance will be taxed at 46.5%.
Example – Person aged 60 with a taxable income of $150,000 receives a golden handshake for $160,000. Under the existing rules the entire amount would be taxed at 16.5%. From 1 July 2012 only the amount that takes the income up to $180,000 is entitled to the concession. In this instance the person will pay 16.5% on $30,000 and 46.5% on $130,000.
Bona fide redundancy, invalidity, certain compensation payments and death payments will not be subject to these changes.
MANDATORY V VOLUNTARY
Since 2009 the Government has reduced the concessional contribution cap for all individuals, reduced the co-contribution from $1,500 to $1,000 and now to $500 for personal contributions and reduced the income threshold for entitlement to the co-contribution from $61,920 to $46,920. All of these measures plus to a lesser extent the $300,000 income measure have impacted on the volume of contributions made to SMSFs.
On the other hand, the Government have introduced a rebate of tax on contributions for those earning up to $37,000 to ensure they are also receiving a concession on their superannuation savings, removed the age restriction for superannuation guarantee contributions from 1 July 2013 and increased the compulsory superannuation rate from 9% to 12% coming in to full effect from 1 July 2019.
Individually these measures will benefit many Australians but it is unlikely to put them in a position of self-funding their retirement.
As has been the position of the Government since the release of their Stronger, Fairer Superannuation package, most of the superannuation concessions they are targeting are related to the compulsory superannuation saving pillar of our retirement savings policy rather than the voluntary saving pillar.
One of the biggest issues associated with such measures is that they have the potential of pushing more of those people who would otherwise provide for themselves towards the third and final pillar of our retirement income policy which is the Government- funded Age Pension.
Contact A Grade Tax Accountants Penrith for superannuation tax advice.
Article courtesy of Bendzulla Actuarial Pty Ltd.