Budget Changes will effect your superannuation contributions. New Cap $25,000 as of July 1 2012
On 8 May 2012 the Federal Government released the 2012 Budget which included information about superannuation caps you should be aware of.
The Government has deferred for two years the start date of a proposal made in the 2011 Federal Budget which would have allowed individuals over the age of 50 with total superannuation balances less than $500,000 to access a higher $50,000 concessional contribution cap from 1 July 2012.
This policy deferral, in conjunction with the transitional $50,000 concessional cap ending 30 June 2012, will effectively mean that for the 2012/2013 and the 2013/2014 financial years, all individuals will be subject to the general $25,000 concessional cap. This includes your 9% employer’s contribution.
From 1 July 2014, the general cap is likely to increase to $30,000 through indexation, and the proposed higher cap would then commence at $55,000.
Given the reduction in how much pre-tax salary you can contribute to superannuation, I suggest this is an appropriate time to review your salary package, and any salary sacrifice arrangements you have in place, to ensure you are not subject to the punitive excess concessional contribution tax regime.
I will continue to monitor developments in this space, and will keep you updated accordingly.
GOVERNMENT CO-CONTRIBUTION REMINDER – great for lower income earners.
If you earn less than $61,920 per annum and make an after-tax contribution of $1,000 to your super fund before 30 June 2012, you could qualify for a Government co-contribution of up to $1,000.
From 1 July 2012, the maximum co-contribution will be reduced to $500, so this is the final year to take advantage of the higher contribution
Are you eligible?
To be eligible for a Government co-contribution you must meet the following criteria this financial year:
- your total income (plus fringe benefits and salary sacrifice) is less than $61,920 per annum
- 10% or more of your work income is attributable to work activities (employed or self-employed)
- you're lodging a tax return
- you're aged less than 71
- you haven't held a temporary resident visa at any time during the year, and
- you've made personal after-tax contributions to a complying superannuation fund.
When will your co-contribution be paid?
Firstly, you must make your after-tax super contribution before 30 June 2012. Then you must lodge your income tax return. Once your tax return is lodged, your super fund automatically lodges a Member Contribution Statement (MCS) with the ATO on your behalf. Within 60 days of the ATO receiving your MCS and providing you with a notice of assessment or refund, the Government co-contribution should be paid into your super fund.
How does it work?
For every $1 you contribute to your super fund, the Government co-contributes $1.00 up to a maximum of $1,000 for individuals on an income of $31,920 per annum or less. The $1,000 co-contribution reduces by 3.333 cents for each dollar of income above $31,920 per annum and ceases at an income of $61,920 per annum.
How do you make a contribution?
Your contribution can be paid into any superannuation fund. Remember it has to be done from post tax dollars and be categorised as a member contribution.
ELIGIBLE SPOUSE CONTRIBUTION REMINDER – again for lower incomes
If your spouse's assessable income (plus fringe benefits and salary sacrifice) is less than $10,800 per annum, you may be entitled to a tax-offset up to $540 if you make a contribution to your spouse's superannuation fund before 30 June 2012.
An Eligible Spouse Contribution is exempt from the 15% tax which applies to assessable superannuation contributions. It also forms part of the ‘tax-free component’ of your spouse’s superannuation fund which means that when the contribution is withdrawn, it is tax free.
Who is an eligible spouse?
An eligible spouse is a person you're legally married to and a de facto spouse. It doesn't include a person who lives separately from you on a permanent basis.
Can you make a contribution?
You can make an Eligible Spouse Contribution if the receiving spouse is aged under 65. If the receiving spouse is aged between 65 and 69, they must have been gainfully employed for at least 40 hours over a period of 30 consecutive days during the 2011/2012 financial year. The spouse making the contribution can be any age and doesn't need to be gainfully employed.
How does it work?
If the assessable income of the receiving spouse (plus fringe benefits and salary sacrifice) is less than $10,800, the contributing spouse will receive an 18% tax-offset on contributions up to $3,000, to a maximum of $540. The tax-offset reduces by $1 for each dollar of income above $10,800 and ceases at $13,800 (plus fringe benefits and salary sacrifice). The above tax-offset doesn’t apply to superannuation charge guarantee (SGC) and salary sacrifice contributions split to your spouse’s super fund.
How do you make a contribution?
Your contribution can be paid into any superannuation fund.
Summary
Despite some changes to superannuation, it continues to be one of the most effective retirement strategies available. The tax treatment is extremely attractive and with the right investment strategy for the funds contributed it can grow to be one of your major assets.