Superannuation tax concessions remain a tax-effective investment structure for many taxpayers. Best practice, then, is to become familiar with various super developments to capitalize on the opportunities and avoid any pitfalls.
Key developments to watch are:
Concessional cap for over 60s:
A higher concessional contributions cap of $35,000 is proposed for people aged 60 or over from 1 July 2013 (or 1 July 2014 for people aged 50-59) instead of the general concessional cap of $25,000.
From the 2012-13 income year, individuals above the “high income threshold” of $300,000 will be hit with an additional 15 percent Division 293 tax on their “low tax contributions” (essentially concessional contributions, including employer super guarantee contributions) under proposed legislation. The effective contributions tax will be doubled to 30 percent for concessional contributions (up to the cap of $25,000) made on behalf of individuals above the $300,000 threshold.
The $300,000 high income threshold test will use the broad definition of income for surcharge purposes (as used for the Medicare levy surcharge). This means that negative gearing and many salary packaging arrangements will not help to bring you under the $300,000 threshold. Income for surcharge purposes includes:
- taxable income (after adding back any amount which was exempt because family trust distribution tax was paid in relation to it);
- reportable fringe benefits total (if any);
- reportable superannuation contributions;
- total net investment losses (both net financial investment losses and net rental property losses);
- minus any superannuation lump sum amounts entitled to a tax offset for the income year.
The 15 percent Division 293 tax will not apply to concessional contributions which exceed a taxpayer’s concessional contributions cap (generally $25,000). Such excess concessional contributions are already effectively taxed at the individual’s top marginal tax rate. Accordingly, the maximum Div 293 tax payable for an income year is $3,750 (15 percent times $25,000).
Despite the proposed extra 15 percent tax there will still be an effective tax concession of 15 percent (the top marginal rate minus 30 percent) on concessional contributions up to the cap of $25,000.
The message for taxpayers with incomes of more than $300,000:
Consider restricting concessional contributions to only the nine percent compulsory superannuation guarantee contributions for 2012-13 (rising to 9.25 percent for 2013-14) where such benefits can be packaged in a more tax effective manner. Alternatively, consider whether it is more beneficial to instead make after-tax non-concessional contributions (which form part of the tax free component at the benefit stage).
Higher concessional cap for over 50s
The government scrapped plans to limit the proposed higher concessional contributions cap to balances below $500,000 for persons aged 50 and over from 1 July 2014.
Superannuation guarantee rate
The minimum level of employer superannuation guarantee will begin to gradually increase to 12 percent from nine percent (starting with a rise to 9.25 percent for 2013-14). If an employee is already salary sacrificing more than 9.25% of her or his ordinary time earnings as at 1 July 2013, the employer will technically already be complying with the higher superannuation guarantee rate and not obliged to make additional superannuation contributions at the increased rate. Although an industrial award or agreement may require an employer to make superannuation contributions above the standard charge percentage.
Accordingly, employees already salary sacrificing above the 9.25% rate (for 2013-14) should review their employment agreements and salary sacrifice arrangements to clarify that the employer is liable for all payments under the superannuation guarantee regime (at the increased SG rate for the relevant year) on the total remuneration agreed.
The guarantee maximum contribution base will rise to $48,040 for 2013-14 (up from $45,750 for 2012-13). An employer is not required to provide the minimum superannuation guarantee support for that part of an employee’s ordinary time earnings above the quarterly maximum contribution base. This quarterly maximum contribution base represents a per annum equivalent of $192,160 for 2013-14.
Employers are obliged by law to contribute up to a total maximum of $17,774.80 for 2013-14 (9.25 percent of $192,160). Therefore, the mandatory employer super guarantee contributions for employees with earnings above $192,160 from one employer will have already used up $17,774.80 of their $25,000 concessional contribution cap (or the $35,000 proposed cap for those 60 and over from 2013-14). This leaves very little room for any additional salary sacrificing to superannuation.
Consult with your adviser to determine if these changes affect your tax-minimizing strategies.