Contributions / Professionals / SMSF / SMSF Strategy

You can budget on a super surcharge!

The media was a buzz over the weekend regarding the proposed budget announcement to increase the contributions tax rate from 15% to 30% for individuals who earn more than $300,000 p.a.

In 1996, the Coalition Government introduced the super surcharge to help ‘fix the mess’ of the previous Labor Government. This time, it appears the Labor Government is introducing this to fix their own mess, as they continue their pursuit to deliver a budget surplus.

Building greater equality into tax concessions isn’t going to come with any major objection as the introduction of the additional tax rate will supposively only affect 1.2% of the population.

Interestingly from reading various media sources, the inclusion of tax-free benefit payments (pension & lump sums) post 60 could capture more people than anticipated if appropriate planning does not occur.  A simple recontribution strategy appears it could affect the calculation should the individual also be making concessional contributions.

It is highly likely the sector impacted the most by this additional contributions tax will be SMSFs. I think it would be a fair assumption that a large number of individuals with taxable incomes in excess of $300,000 are likely to only to be able to contribute $25,000 for 2012/13. This will either be due to the individuals:

  • being under age 50, or
  • the taxpayer is over 50 and their account balance will be greater than $500,000.

Whilst the maximum salary on which an employer has to pay compulsory super is 175,280 (2011/12), some employers may pay the SGC for an individual based upon their salary level.  For somebody earning $300,000, 9% SG contributions would be $27,000, meaning not only 30% contributions tax, but 46.5% excess contributions on amounts above $25,000.

With a broad income test that is likely to apply, there will be very little by way of strategy to avoid reaching the $300,000 threshold.  But, as always, the devil will be in the detail.

Budget night on 8 May 2012 is again shaping up to include further changes to superannuation…

Comments

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5 thoughts on “You can budget on a super surcharge!

  1. Hi Arron,
    Would you mind elaborating on your comments re. tax free benefit benefit payments post 60 the re-contribution strategy and concessional contributions.
    Thanks,
    Ross

    • Hi Ross, the Government is appearing to include a very broad definition to calculating the $300k income threshold which will include tax-free benefits from super post 60 years of age. This will impact those doing TTR or even those making recontributions, who may also be making concessional contributions into super. If somebody does a $450k recontribution, any concessional contributions made personally or by an employer will be subject to 30% tax under the proposed changes.

      Regards,
      Aaron

  2. When I first started planning 8+ yrs ago most conversations involved clients stating that they don’t trust super as the govt always changes the rules. I haven’t heard it for many years, but I am sure the Labor govt will effectively make Australians wary of the super system again.

  3. I too have many clients who have refused to go into super because the Government can’t be trusted not to delve into it and change the rules. It (Super) is like a pregnant goose (the proverbial golden egg laying one) that once it gets very pregnant, the government will want to start inducing – very regularly. Super savings aren’t just there for the people – our government see’s it as something that they can rape in the future as it get’s fatter. I think it’s a joke and undermines the status of super as a retirement saving option! The fact that it supposedly targets the high income earning sector doesn’t shake the concern – it’ll only be a matter of time before they seek to lower the applicable income threshold – ‘Watch this space’!.

    • Spot on, Paul. Who can blame people for turning their backs on super? Superannuation is a great way of building wealth… if you’re the government, a big bank or an industry fund. It’s a free for all. Pity if you are a super fund member, though.

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