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Concessional Contributions
The government has deferred until 2014 its proposed raise from $25,000 to $50,000 in the concessional contributions cap for individuals over 50 with less than $500,000 in super. This is a 50% reduction on the cap available this tax year.
It has been noted by industry commentators that this saving to the budget will come from the pockets of older taxpayers with relatively small superannuation account balances, the ones needing to boost their savings to ensure a comfortable retirement.
The lower $25,000 annual cap is likely to result in more taxpayers incurring penalty tax bills for exceeding the annual contribution cap. Even with the larger caps applying currently there are employees who are receiving penalty tax bills as a consequence of exceeding the annual contribution cap.
Thomson Reuters comment:
The deferral of the start date for this measure will have significant implications for salary sacrificing arrangements and deductions for personal contributions and transition to retirement pension strategies. Taxpayers will need to review their strategies before 1 July 2012 when the concessional contributions cap for those aged 50 and over will drop from $50,000 to $25,000 for 2012-13 and 2013-14.
A taxpayer aged 50 or over on the top marginal tax rate who is currently making full use of the $50,000 concessional contributions cap will effectively pay an extra $7,875 in tax if she or he has to restrict concessional contributions to $25,000 from 1 July 2012, and take the remaining $25,000 in cash salary.Contributions tax rate rise
From Thomson Reuters' Budget Summary:
From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their concessional contributions reduced from 30% to 15% (excluding the Medicare levy). This means that the tax rate on concessional contributions will effectively double from 15% to 30% for very high income earners from 1 July 2012.
It is noted:
Precisely how (and from whom) the Government will collect this additional 15% tax on concessional contributions for very high income earners will be determined following consultation with the superannuation industry. No doubt the Government may consider reintroducing a superannuation surcharge tax regime to collect this additional contributions tax directly from the superannuation fund holding the contribution on behalf of the very high earner.
We hope not as the cost to administer would significantly nullify the benefits of additional tax received. The Government will be collecting a maximum of $3,750 from a taxpayer who contributes $25,000 into super where their taxable income plus super contributions exceeds $325,000 in the year. This is an overall tax increase of 1.15%. It is estimated it will affect approximately 180,000 taxpayers.
An easier way to collect this tax would have been to increase the personal tax rates for the high income earners and this option would not erode the desirability for retirees and those nearing retirement from boosting their super contributions.
The above changes to superannuation make negative gearing for high income earners outside super more attractive. Treasury would be aware of this and the next "tax grab" from this group may be a limit on the amount of interest deductions.
For more information on the Budget read
