Major changes to superannuation are on the way following announcements by the Federal Government. While some of the changes have yet to be legislated, it’s important to understand how they may impact on you.
Superannuation guarantee increase
From 1 July 2013 the superannuation guarantee has increased by 0.25% to 9.25% of an employee’s salary. Employees that are salary sacrificing to a superannuation fund should ensure that this additional superannuation support will not push them over the $25,000 limit.
As with any year, employees should also check their contributions based on any pay rises they may receive and adjust their voluntary superannuation contributions accordingly.
Additionally, from 1 July employers will be required to make superannuation guarantee payments for those aged over 70 which they previously did not have to do.
Proposed increase to superannuation caps for over 60s
The limit on concessional contributions (such as superannuation guarantee, salary sacrifice and personal tax deductible contributions) remains at $25,000 for the majority of taxpayers for the upcoming financial year.
However, it has been increased to $35,000 for those over the age of 60. From July 2014, this increase will be extended to those over age 50.
It is worth noting that the Government has dropped the concept of providing a different limit on contributions depending on a taxpayer’s superannuation account balance.
Proposed increase of tax to those earning in excess of $300,000
Questions have surrounded the Government’s proposal to tax contributions to superannuation at a higher rate for those earning in excess of $300,000 per annum. The Government released a draft Bill to enact this change and reiterated its intention in recent budget announcements.
This change is intended to apply from 1 July 2012 and if passed will impact on contributions made after this date. It is anticipated that taxpayers will receive a notice for excess tax on contributions upon lodgement of their tax returns. Your superannuation savings can be used to pay this levy.
Although the tax on contributions has increased, superannuation remains the most attractive savings vehicle for your retirement. It is worth remembering that once in a superannuation fund, earnings are taxed at 15% not the marginal tax rate (currently 45% for those earning over $300,000) plus the Medicare levy.
Low income super contribution
A low income super contribution has been introduced for those earning less than $37,000 per year and is effective from 1 July 2012.
This contribution is paid to a superannuation fund and offsets the contribution tax on concessional contributions such as superannuation guarantee and salary sacrifice contribution. This could make contributions to superannuation more attractive for those on lower incomes.
Tax on pensions for the over 60s
Finally, in the lead-up to the budget there was speculation about pensions for those aged over 60 being taxed. This has not eventuated and instead, the Government has proposed to tax any superannuation fund with earnings in excess of $100,000 at 15% as opposed to the nil tax rate they currently enjoy. This legislation is yet to be put in place.