Superannuation
It seems the welcomed so called “simpler super” measures introduced in 2007 are gradually being wound back. The biggest concern is the growing proposition of additional complexity with respect to superannuation.Despite public pressure the Government has not provided any relaxation or clarification of the excess contributions tax regime, which saw the Australian Taxation Office issue more than 45,000 excess contributions notices for the 2010 year and which can result in the absurd result of 93 per cent tax on contributions.
It is disappointing that no clarification was provided regarding the previous announcement that from 1 July 2012 self-managed superannuation funds (SMSFs) will be required to conduct any asset transfer transactions with members or related parties on the market, where one exists, rather than via off market transfers.
Additional tax on concessional contributions
The Government has confirmed an additional tax of 15 per cent on concessional superannuation contributions from 1 July 2012 for individuals whose ‘income’ exceeds $300,000. The additional tax paid on a $25,000 contribution will be up to $3,750. Income for this purpose will include taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment loss, target foreign income, tax-free Government pensions and benefits, less child support.Treasury will consult with industry to determine the appropriate mechanism for collection of the additional tax, which may be similar to the former superannuation surcharge system, which was abolished in 2006, and which was unpopular due to its administrative complexity and high cost for all involved, including the Government. Alternatively the mechanism for collection may be similar to the excess contributions tax regime which assesses individuals for the additional tax. Whatever the method of collection, it is certain to increase complexity and administrative costs for all members, not just those directly affected by the higher tax.
Despite the additional tax, superannuation remains an attractive investment vehicle for all taxpayers due to the tax concessions provided on contributions, the 15 per cent tax rate on investment earnings and the tax-free status of investment earnings and pension withdrawals in retirement (or transition to retirement).
Concessional contribution caps reduced from the 2012-13 year
The Government has deferred to 1 July 2014 its previously stated policy of a $50,000 concessional contributions cap for individuals aged 50 years and over, where their accumulated superannuation balance does not exceed $500,000.The concessional contribution limit for individuals aged 50 years and over will therefore reduce to $25,000 from 1 July 2012. Concessional contribution limits will be as follows, including indexation adjustments expected to apply in 2015:
| Year | Under age 50 years | Over age 50 years |
| 2012 | $25,000 | $50,000 |
| 2013 | $25,000 | $25,000 |
| 2014 | $25,000 | $25,000 |
| 2015 | $30,000 | $55,000 |
There were no changes to non-concessional contribution limits.
Targeting the employment termination payment tax offset
The Government has further limited concessional tax rates for employment termination payments - this time for "golden handshakes" for those individuals with taxable income above $180,000.From 1 July 2012, only that part of an affected Employment Termination Payment (ETP) which takes a person's total annual taxable income (including the ETP) up to $180,000 will be taxed at concessional rates. This means that for those employees with taxable income over $180,000, the amount of the ETP exceeding $180,000 will be taxed at top marginal rates. Currently, the first $165,000 ($175,000 for 2012-13) of an ETP is taxed at concessional rates being a maximum of 15 per cent for those over preservation age and 30 per cent for those under preservation age.
Existing arrangements will remain for those ETPs relating to genuine redundancy, invalidity or compensation due to an employment-related dispute and death.
This change constitutes the end of any tax concessions for "golden handshakes" and will impact employers who package golden handshakes into employment contracts. It is likely this change will place emphasis on employees retiring in June this year. Individuals planning their retirement who have existing golden handshakes (transitional or otherwise) in place in their employment contracts should consider the impact of the above measure on the timing of their retirement.
