2 May 2012


The following is an extract from a recent McPhersons Super Consultants newsletter which we subscribe to.  While we personally think it unlikely that changes to concessional and non-concessional contributions would take effect from Budget night, the suggestion to make contributions before the budget, that you were going to make anyway, is worthy of consideration.  However we strongly suggest you discuss proposed actions with us and/or your financial planner before acting.  We note that the budget is delivered next Tuesday.

The Government's next Federal Budget is to be handed down next week (Tuesday 8 May 7.30pm). With experts predicting the Government needs to cut spending or increases taxes by $8 billion to deliver a surplus, some fear the $30 billion of tax concessions available in superannuation each year may be within the Treasurer's sights.

Higher Contribution Taxes
Over the weekend, many newspapers reported that the Government intends to double the tax rate on superannuation contributions for very high income earners. It is understood individuals with incomes of $300,000 or more per annum will be levied with a tax rate of 30% on their concessional superannuation contributions, rather than the flat 15%.

This would mean the tax incentive for very high income earners to contribute to superannuation would drop from 31.5 cents in the dollar to 16.5 cents in the dollar. This reform is expected to impact approximately 128,000 individuals and raise $1 billion over 4 years. Note also that, if the concessional contributions for these individuals exceeds their cap (eg because their employer contributes 9% of their $300,000 salary), the tax rate on the excess would become 61.5% - ouch!

Of course, there are no details yet of when this reform would commence or how this additional tax would be collected.

What Else?
Whilst we are not aware of any specific proposals in mind, there are a number of other areas which could also be targeted including:
  • reducing the non-concessional contribution cap
  • removing or limiting the tax exemptions available for pension funds
  • removing or limiting the refund of franking credits in pension funds
  • including non assessable non exempt income (ie pension payments & lump sums to persons age 60 or over) in the definition of adjusted taxable income, being the income test used to assess eligibility to a number of tax concessions
This list could go on and on.

If you want to try to pre-empt any Budget attacks on superannuation contributions for your clients, you could consider the following:
  • If individuals earning $300,000 or more per annum have not yet fully utilised their concessional contribution cap, consider making any additional contributions before 8 May 2012.
  • If clients were intending to utilise their $150,000/$450,000 non-concessional contribution cap in the current financial year, consider making the contribution on or before 8 May 2012, if circumstances permit. This would include completing withdrawal & recontribution strategies.
Unfortunately, it is hard to predict the actions of desperate politicians and accordingly it is difficult to take pre-emptive action against any of the other options listed above.

* * * *
This Newsletter, of necessity, has dealt with matters of a technical nature in general terms only. Clients should contact us for detailed information on any of the items in the Newsletter. No responsibility for loss occasioned to any person acting or refraining from acting in reliance upon any material in this Newsletter can be accepted by any member or employee of the firm.

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