Super laws make it through the turmoil

Taxpayers earning [above] $300,000 will pay more tax.

Despite the political turmoil in its final days last week, the Federal Parliament managed to enact three key pieces of superannuation legislation. This will allow taxpayers to plan ahead for the new financial year without any uncertainty about the applicable arrangements.

After severe cutbacks in the maximum level of contributions attracting concessional tax treatment, taxpayers aged 60 or more are now able to receive tax deductible contributions up to a total of $35,000 annually. This is a $10,000 increase on last year's limit of $25,000, the maximum limit for all other taxpayers.

The legislation will extend this higher limit in 2014-15 to all taxpayers aged 50 or more. This is not the only additional benefit available to older taxpayers this year. Previously, the requirement for employers to provide compulsory superannuation guarantee contributions (SGC) ceased when employees turned 70.

This financial year all employers are required to provide SGC benefits to all employees, even those aged over 75 who are not eligible to receive any salary sacrifice or other contributions. These taxpayers represent only a small percentage of the working population but nevertheless this provides a major benefit to them working beyond the normal retirement age.

The other two pieces of new legislation also affect only a relatively small number of taxpayers. The first is a long overdue change to reduce the severity of the tax penalties on taxpayers exceeding their annual concessional contribution cap. Instead of having the excess contributions taxed at the top 46.5 per cent, the legislation will apply each taxpayer's marginal tax rate to calculate the liability.

There will also be a small interest tax penalty to remove the advantages of delaying payment of the liability until the ATO issues its assessment. Members can also ask their fund to repay all excess concessional contributions to them after the deduction of income tax and the interest penalty.

Higher income taxpayers earning more than $300,000 a year will pay more tax on their super contributions after July 1, 2012, under the third piece of legislation. This will be levied by an additional 15 per cent surcharge increasing the contributions tax rate to 30 per cent.

This legislation will present administrative challenges for the ATO because of the problems of calculating the level of employer contributions to defined benefit funds such as the Commonwealth Superannuation Scheme, Public Sector Superannuation and military schemes.

Not as many taxpayers will be affected by this change as were under an earlier Coalition surcharge applying at a much lower income level. That surcharge was abolished largely for administrative reasons and it will be interesting to see how the second super surcharge can overcome much the same problems.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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