Author: Chris Campbell
While superannuation funds were spared from any adverse tax changes in last night's Federal Budget, the Treasurer has said that the process of restoring the budget to surplus will be an ongoing task for this Government.
Superannuation tax concessions continue to be one of the largest line items of "notional expenditure" in the National Accounts, making superannuation funds and contributors a prime target for tax saving measures.
In particular, the Treasurer has said that the Government will methodically consider and review the remainder of the 86 issues raised by the National Commission of Audit that were not addressed in the 2014/15 Budget.
Raising the Superannuation Preservation Age to 70
One of the issues raised by the National Commission of Audit was the raising of the superannuation preservation age to age 70.
Currently the age at which a person can retire and access their superannuation is 55 years. This preservation age is already increasing gradually to age 60 over 5 years for those born after 1 July 1960 following changes back in 1997.
Raising the preservation age further to age 70 would increase the earliest retirement date by a further 10 years. This measure is to be considered by the Murray Financial System Inquiry and a forthcoming Government Tax White Paper.
Reform of excess non-concessional contributions tax
Reform of the excess contribution rules is always welcome news for those contributing to superannuation, and their advisers.
Non-concessional "undeducted" contributions are capped at $150,000 in 2013/2014, rising to $180,000 in 2014/2015 for eligible contributors. The penalty for exceeding the non-concessional cap has been excess contributions tax (ECT) at 46.5% on the excess amount contributed.
The Treasurer announced in the Budget that the ATO will allow individuals the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap made since 1 July 2013, and any associated earnings with these earnings to be taxed at the individual's marginal tax rate.
This is welcome relief and restores common sense, given that non-concessional "undeducted" contributions come from a person's private "after tax" savings. Taxing the earnings made while the excess amount was in a superannuation fund at personal marginal rates also seems to be an equitable solution.
It was noted that an Inspector-General's report into ECT which made a further 9 recommendations to improve the ECT system, including further ATO resources to assist taxpayers in monitoring their contribution levels was also welcome news.
Super Guarantee – Increase to 9.5% from 1 July 2014
As announced in the Budget, the Government now proposes to allow the scheduled increase to the compulsory Superannuation Guarantee (SG) rate to rise to 9.5% from 1 July 2014, but will freeze SG at this rate for 4 years, until 30 June 2018.
The SG rate will then recommence its scheduled increase of 0.5% p.a. until reaching 12% of an employee's earnings, as introduced by the previous government.
A pre-election promise was to freeze the current 2013/2014 SG rate at 9.25% for 2 years, easing the burden on struggling employer businesses. The promised 2 year freeze was rejected by the Senate.
Seniors Health Card – expanded income test
From 1 January 2015, the Government will include untaxed superannuation income such as tax free superannuation pensions in the assessment of income for eligibility for the Commonwealth Seniors Health Card.
For retirees over age 60 intending on taking a superannuation pension, this announcement will be disappointing news. However, those over age 60 receiving an account based superannuation pension that is in place prior to 1 January 2015 will be able to retain their Seniors Card under "grandfathering" rules.
The current test of eligibility for a Seniors Card is $50,000 of adjusted taxable income for singles and $80,000 for couples. Tax free superannuation pensions will now be deemed to be included as notional income to determine eligibility.
From 1 July 2016, the Government will establish a funded superannuation scheme for new members of the Australian Defence Forces, closing the current Military Superannuation & Benefits Scheme to new members.
Military personnel will also have a "choice of fund" for the first time, allowing them to have contributions made to private sector superannuation funds and self managed superannuation funds (SMSFs).
Retired MPs & Superannuation – no pension increases
A proposed 12 month freeze on Parliamentary salaries will also see the pensions of former MPs frozen from indexation increases for 12 months.
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© Hanrick Curran 2014
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.