Newsletter
August 2013 Newsletter
Key superannuation changes
The Government has recently enacted a number of key superannuation changes. These are discussed below. Importantly, these rule changes are not simple and individuals would be prudent to consider their options before deciding what to do.
Excess concessional contributions
The rules in relation to the taxation of excess concessional contributions have been amended with effect from 1 July 2013. The Government says the new rules will be “fairer for individuals who exceed their annual concessional cap”.
Under the new rules, excess concessional contributions are automatically included in an individual’s assessable income and subject to an interest charge to account for the deferral of tax. Broadly, the new rules ensure that individuals who make excess concessional contributions are taxed on the contributions at their marginal tax rates, rather than at the effective 46.5% tax rate that previously applied for all taxpayers before the changes were introduced.
TIP: These proposed changes will undoubtedly be welcomed by the 40,000-odd taxpayers who are expected to pay (on average) $1,100 less tax on their excess concessional contributions in 2013–2014.
However, taxpayers on the top marginal tax rate are expected to have a slightly higher tax liability for their excess concessional contributions (due to the additional interest charge).
Higher contributions cap of $35,000
On 1 July 2013, the concessional contributions cap increased from $25,000 to $35,000 for individuals aged 60 years and over. The same threshold will apply from 1 July 2014 for individuals aged 50 years and over.
TIP: Eligibility for the higher cap depends on a person’s age on 30 June in the previous income year. This means:
- persons who were aged 59 years or over on 30 June 2013 are eligible for the higher cap in 2013–2014; and
- persons who will be aged 49 years or over on 30 June 2014 will eligible for the higher cap in 2014–2015.
Please contact our office if you wish to discuss your eligibility for the higher cap.
Under the new cap, eligible individuals will potentially be able to claim greater deductions for superannuation contributions, or salary-sacrifice larger contributions. It is important to note that this temporary concessional cap will cease when the general cap reaches $35,000 through indexation (which is expected to be 1 July 2018).
TIP: Taxpayers aged 59 years or over on 30 June 2013 should consider reviewing their salary-sacrificing arrangements, deductions for personal contributions and transition to retirement pensions to take into account the higher concessional cap of $35,000 for 2013–2014.
Extra 15% contributions tax for $300,000+ incomes
From 1 July 2012, individuals earning above $300,000 must pay an additional 15% tax on concessional contributions. That is, the effective contributions tax has doubled from 15% to 30% for concessional contributions (up to the cap of $25,000 or, for older taxpayers from 2013–2014, $35,000) made on behalf of individuals above the $300,000 income threshold.
However, despite this extra 15% tax, it should be noted there is still an effective tax concession of 15% (ie the top marginal rate less 30%) on concessional contributions up to the cap of $25,000 (or $35,000).
TIP: Individuals with incomes above $300,000 may want to consider limiting their concessional contributions to compulsory superannuation guarantee contributions (9.25% for 2013–2014) where such benefits can be packaged in a more tax-effective manner. Alternatively, these individuals may want to consider whether it is more beneficial to instead make after-tax non-concessional contributions.