Contributions / SMSF

The impact of when the cap no longer fits?

caps

In the latest round of discussions about superannuation changes at this year’s Federal Budget, it appears that the Coalition Government may simply look to a reduction in the concessional contribution limit to around $20,000 (currently from $30,000), rather than the more significant reforms previously raised to assess contributions at an individual’s marginal tax rate less of contribution tax offset.

The most significant aspect of the former Rudd Government’s decisions to reduce the concessional contribution caps was the more than tripling of excess concessional contributions tax notices, due to the timing of contribution payments.   The table below highlights this problem in 2009-10 when concessional contribution caps were reduced from $50,000 to $25,000 (for those under 60 years at that time):

ECT stats

Whilst reform measures to automatically refund excess contributions are now in place (from 1 July 2013), it still is likely to pose a significant unrest right across the superannuation industry, with these excess contribution amounts to be subject to excess concessional contribution charges and shortfall interest amounts with members. Unexpected amended assessments to personal tax returns with interest charges, all leading to additional revenue and further disgruntlement amongst individuals and superannuation.

At a time where the Government would like to help define the purpose of superannuation and build a framework for future policy direction, these measures to seem counter-intuitive to helping Australians be better prepared for retirement and alleviate fiscal pressures on Government from the retirement income system.

If we are going to see a reduction in the concessional contribution cap, maybe it’s time to consider a ‘carry forward’ system which allows individuals the ability to play catch up at a time when they have the capacity to do so, rather than the current use it or lose it?

My ‘guess’ is that we will see changes announced before budget night (as opposed to on budget night), as May 3 will be typically left for good news budget stories.

 

 

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