Tax Brief. 18 June Your superannuation contributions the current state of play. 1. Compulsory employer superannuation guarantee contributions

Transcription

1 Tax Brief 18 June 2013 Your superannuation the current state of play With 30 June fast approaching, many people are considering whether they should make additional to their complying super fund eg, from their own funds or through effective salary sacrifice. However, care is needed because these may attract tax - and potentially attract excess tax which results in total tax of 46.5% on the contribution (or in some cases 93%). This Tax Brief sets out the current / currently proposed tax rates and caps for the income and the income applicable to most super fund members. 1. Compulsory employer superannuation guarantee The superannuation guarantee regime requires employers to make minimum super in respect of each employee based on a prescribed percentage of ordinary time earnings (which includes most bonuses) up to the maximum contribution base per quarter. Compulsory employer Rate Maximum contribution base (ie, ordinary time earnings) per quarter Maximum required annual employer superannuation contribution Age limit % $45,750 $16, % $48,040 $17, None

2 The prescribed percentage is legislated to rise each subsequent income until it reaches 12% in the income. The Coalition parties have announced a 2- moratorium on any further increases beyond 9.25%. 2. Concessional Contributions to a complying super fund are generally characterised as either: concessional (which include employer superannuation guarantee ); or non-concessional. Concessional to a super fund include all employer (including made under effective salary sacrifice arrangements) and any deductible made by individuals who are substantially selfemployed. The ATO view is that concessional also include fund expenses paid by the employer (such as insurance premiums and administration fees) as well as many credits to a member s account from fund surplus. Concessional are taxed. The rate of tax and who pays it depends on whether the member exceeds the concessional cap for the relevant income. All concessional received by the fund for a member during an income will count towards this cap importantly, employer for the last quarter of one are often paid in the second and so count towards the cap for the second. Contributions cap and tax rate for concessional Concessional cap Tax rate on concessional up to the cap Tax rate on concessional exceeding the cap $25,000 15% (fund tax) if the member s personal income is up to $300,000 15% (fund tax) plus 15% (personal tax) if the member s personal income exceeds or 15% (fund tax) plus 31.5% (personal tax) the member may be able to choose to have the excess refunded and taxed at their marginal tax rate 2 Your superannuation the current state of play

3 $300,000 see below $25,000, if aged 58 or below at 30 June 2013 $35,000, if aged 59 or above at 30 June 2013 As above As above Fund tax is deducted from the member s account. Where personal tax is payable, the ATO issues a Release Authority to the member for the amount of the personal tax assessed. The member can choose to either pay the tax from their own funds or present the Release Authority to the super fund so that it can release money from the member s account to meet the personal tax liability. A member would be incentivised to choose to have excess concessional refunded where: the member s marginal tax rate is less than 46.5%; or the excess would cause the member to exceed both the concessional cap and the non-concessional cap (see 3 below). Where a member chooses to have excess refunded, the excess still bears fund tax at 15%. However, this fund tax is credited against the personal tax payable at the member s marginal tax rate. For the 2012/13 income the choice is not available where the total excess concessional contribution is more than $10,000 or the member had excess concessional in 2011/12. These restrictions do not apply to the income. To make the refund choice, the individual must ask the ATO to issue a (different) Release Authority to the super fund. The super fund will then release the excess contribution, net of the fund tax. For the purpose of the $300,000 threshold, a member s personal income broadly comprises taxable income, reportable fringe benefits, most concessional and net investment losses (eg, losses from negative gearing are effectively added back to taxable income). 3. Non-concessional Non-concessional are, principally, after-tax member to the super fund. These are not taxed if they are less than the nonconcessional cap. However, if they exceed that cap, they are subject to excess non-concessional tax. 3 Your superannuation the current state of play

4 Importantly, excess concessional (which will have been subject to excess concessional tax as discussed in 2 above) also count as non-concessional. As a result, unless it can be refunded, the one excess concessional contribution may cause both sets of caps to be exceeded potentially producing a total 93% tax on the excess. Contributions cap and tax rate for non-concessional Non-concessional cap Tax rate on nonconcessional up to the cap Tax rate on nonconcessional exceeding the cap $150,000 per annum or Nil 46.5% (personal tax) $450,000 under a 3- rolling cap commenced by persons aged under As above As above As above Where personal tax is payable, the amount of tax will be released from the member s account pursuant to an ATO issued Release Authority. 4 Your superannuation the current state of play

5 For further information, please contact Sydney Andrew Mills phone Melbourne Perth Graham Warren graham.warren@gf.com.au phone Nick Heggart nick.heggart@gf.com.au phone G&F document ID _3.docx These notes are in summary form designed to alert clients to tax developments of general interest. They are not comprehensive, they are not offered as advice and should not be used to formulate business or other fiscal decisions. Liability limited by a scheme approved under Professional Standards Legislation Greenwoods & Freehills Pty Limited (ABN ) Sydney Level 39 MLC Centre Martin Place Sydney NSW 2000 Australia Ph , Fax Melbourne 101 Collins Street, Melbourne VIC 3000, Australia Ph Fax Perth QV.1 Building, 250 St Georges Terrace, Perth WA 6000, Australia Ph Fax Your superannuation the current state of play