Superannuation Contributions Tax to Double
From 1 July 2012, individuals with ‘income’ greater than $300,000 will have the tax concession on their concessional contributions reduced from 30% to 15% (excluding the Medicare levy). This means that the tax rate on concessional contributions will effectively double from 15% to 30% for very high income earners from 1 July 2012. There will still be an effective tax concession of 15% (up to the concessional contributions cap of $25,000) for these high income earners.
If an individual’s income (excluding their concessional contributions) is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to the part of the contributions that are in excess of the threshold. For example, someone with income excluding their concessional contributions of $285,000 and concessional contributions of $20,000 (taking their total income to $305,000) would have the reduced tax concession only apply to $5,000 of their contributions.
Importantly, the reduced tax concession will not apply to concessional contributions which exceed the concessional
$50,000 Concessional Contributions Cap Deferred to 1 July 2014
The proposed higher concessional contributions cap for individuals aged 50 and over with Superannuation balances below $500,000 will be deferred from 1 July 2012 to 1 July 2014. Accordingly, all taxpayers, regardless of age, will be subject to a concessional contributions cap of $25,000 for the 2012/13 and 2013/14 income years.
The deferral of the start date for this measure will have significant implications for salary sacrificing arrangements, deductions for personal contributions and transition to retirement (TTR) pension strategies. It places massive restrictions on those empty nesters who are attempting to boost their retirement savings in the remaining years before retirement.
Taxpayers will need to review their strategies before 1 July 2012 when the concessional contributions cap for those aged 50 and over will drop from $50,000 to $25,000 for 2012/13 and 2013/14. A taxpayer aged 50 and above on the top marginal tax rate who is currently making full use of the $50,000 concessional contributions cap will effectively pay an extra $7,875 in tax if she or he has to restrict concessional contributions to $25,000 from 1 July 2012, and take the remaining $25,000 in cash salary.
Increases to the Superannuation Guarantee
However while restrictions have been replaced on taxpayers providing for their own superannuation, the Super Guarantee rate will be increased from 1 July 2013 starting at 9.25% with further increments of 0.5 percentage points will apply annually up to 2019/20, when the SG rate will be set at 12 per cent.
With the first increase only 12 months away employers should start taking into account the increased SG contributions when negotiating future wage negotiations.