Last night, the Treasurer handed down the 2012-13 Federal Budget. There were few surprises as regards superannuation, with all but a couple of the measures already announced in the lead-up to Budget night. Unfortunately, however, continual 'tinkering' with the rules will inevitably further affect confidence in the superannuation system, and older taxpayers in particular may well feel disheartened as their contribution opportunities are cut back.
Contributions tax increased for very high income
Consistent with pre-budget indications, the Federal Government (Government) has announced that "from 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions reduced from 30% to 15%". This presumably means that their concessional contributions will be taxed at a rate of 30%.
At this stage, the full particulars of how the additional tax will work are not known, but the Government has announced that a taxpayer's income will include their concessional contributions so that if their income is below $300,000, but the addition of concessional contributions results in their adjusted income exceeding $300,000, then only the amount that exceeds $300,000 will be subject to the higher rate of contributions tax. In addition, the higher rate of contributions tax will not apply to any excess concessional contributions (which are already taxed at the top marginal rate). It appears that, contrary to speculation, untaxed superannuation pensions will not be included in the income calculation.
Importantly, the announcement does not specify the mechanisms for how the higher rate of contributions tax will be collected, nor whether it will be taxed in the hands of the fund trustee or the taxpayer. Rather, the announcement provides that "Treasury will consult with the superannuation industry and other relevant stakeholders on further design and implementation details". Those who had any involvement with the Howard Government's contributions surcharge will recall how the previous incarnation of this announcement created an administrative nightmare. It is hoped that, if this announcement is implemented, it can be done in such a way that would not create a heavy administrative burden on fund trustees or taxpayers.
Higher concessional contributions cap for members aged
The higher contributions cap that the Government had proposed in the 2010-11 Federal Budget for individuals aged 50 and over with superannuation balances below $500,000 will now be deferred from 1 July 2012 to 1 July 2014. Some form of deferral had seemed inevitable, as consultation regarding the detail of the new rules has thrown up numerous administrative difficulties, which are apparently as yet unresolved by Treasury.
At present, individuals aged under 50 are subject to a concessional contributions cap of $25,000 and individuals aged 50 and over are subject to a concessional contributions cap of $50,000. The two-year deferral means that all individuals will be subject to a concessional contributions cap of $25,000 for the 2012-13 and 2013-14 income years. In 2014-15, the Government anticipates that the concessional contributions cap will increase to $30,000 through indexation, and the higher cap for eligible individuals aged 50 and over would then commence at $55,000 (as the higher cap will be set at $25,000 more than the general cap).
The Government noted that concerns had been raised by the superannuation industry in relation to the cost and complexity involved in administering the $500,000 threshold and that the two-year deferral "will bring significant synergies and efficiencies" by aligning implementation of the higher cap with changes to superannuation fund reporting and systems that will be occurring under the SuperStream reforms.
Individuals aged 50 and over with existing salary sacrifice arrangements in place or who have developed contribution strategies in expectation that the higher cap would be effective from 1 July 2012 will need to review these arrangements in light of the current $50,000 cap dropping to $25,000. Superannuation fund trustees should communicate this change to their members as quickly as possible.
New levy to pay for the cost of implementing the
The costs of implementing the SuperStream reforms are to be recovered through a temporary levy on Australian Prudential Regulatory Authority regulated funds from 2012-13. The amount of the levy, and how it will be apportioned among funds, has yet to be announced. The Government expects to raise $121.5 million in 2012-13, $111.1 million in 2013-14, $83.1 million in 2014-15, $69.3 million in 2015-16, $41.2 million in 2016-17 and $40.9 million in 2017-18. This cost will be on top of the costs of implementing the SuperStream reforms that each fund will incur.
Capital Gains Tax and loss relief to facilitate
As previously announced, the Government has confirmed that it will amend the law to ensure that income tax considerations do not prevent mergers of superannuation funds or transfers of existing default members' balances and relevant assets in the transition to the MySuper regime.
From 1 June 2012 to 1 July 2017, optional roll-over and loss relief will be available for mergers of complying superannuation funds on the same terms and conditions as the former temporary relief that applied from 24 December 2008 to 30 September 2011, with some exceptions, including appropriate integrity provisions.
In addition, from 1 July 2013 to 1 July 2017, an optional roll-over and loss relief will be made available for capital gains and capital losses on mandatory transfers of default members' balances and relevant assets to a MySuper product in another complying superannuation fund.
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