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Making the most of super incentives in the new financial year

The start of the new financial year is the ideal time to review your super, and ensure that you are taking advantage of all the incentives available – so you can feel more confident about your retirement savings.

The following Government initiatives have become law and will take effect from 1 July 2013.

More super guarantee from your employer

Generally if you are aged over 18, and earn more than $450 per month you are entitled to super guarantee (SG) contributions from your employer. The good news is that from 1 July 2013 the rate of SG will increase gradually starting at 9.25% and rising to 12% by July 2019.

The contributions will compound over time and increase your overall retirement balance. The Government estimates on its Super Future website that someone age 30 who earns around $70,000 per year, retires at 65, will end up with an extra $105,000 in super. For more information on how this initiative could help you view the Government’s More Super Calculator.

Upper age limit for super guarantee abolished

Currently SG cuts out for employees at 70. From 1 July 2013 the upper age limit for SG will be abolished. This will ensure that mature age workers will receive their fair share of super entitlements to help them in retirement.

To find out whether you are eligible for SG contributions and whether your employer is paying the correct amount check the Australian Taxation Office (ATO) SG calculator tool.

No extension of draw-down relief for income streams
Effective from 1 July 2013

Conspicuous by its absence, the Government has not announced any further extension of the minimum draw down relief for superannuation income streams.  In recognition of the constrained markets at the time, over the last few years the Government has granted relief on minimum pension payment drawdowns, with a 25% reduction applying to the current financial year.

In the absence of any subsequent announcements, minimum pension drawdowns will return to their standard level from 1 July 2013 as shown in the following table:

Age of beneficiary at 1 July Current minimum percentage Minimum percentage from 1 July 2013
Under 65 3% 4%
65 – 74 3.75% 5%
75 – 79 4.5% 6%
80 – 84 5.25% 7%
85 – 89 6.75% 9%
90 – 94 8.25% 11%
95 or more 10.5% 14%

Higher tax on concessional contributions for high income earners
Effective 1 July 2012

Previously announced in the 2012 Budget, and now passed, individuals with “total income” in excess of $300,000 will be subject to an additional 15% tax on their concessional contributions to super up to their relevant concessional contribution cap limit.

In this year’s Budget, the Government has announced some minor technical amendments to the measure (and addressed in the draft legislation).  These minor amendments include:

– Exempting certain employer contributions for Federal Judges sitting on or after 1 July 2012 and certain employer contributions made to constitutionally protected funds,

– Amending the definition of “total income” to that used for calculating liability for the Medicare levy surcharge.

The draft legislation released for comment has also confirmed that this additional tax will be collected via a mechanism similar to that currently applying to excess contributions tax.

It will also be important to be aware that the potential for this additional tax will also apply to the higher concessional cap of $35,000 proposed for those aged 60 and above from 1 July 2013 and those aged 50 and above from 1 July 2014.

Changes to tax free treatment of superannuation in pension phase
Effective from 1 July 2014

As previously announced on 5 April 2013, the existing tax free treatment applying to assets supporting a superannuation income stream will be limited to the first $100,000 of earnings on those assets.  Any earnings above that limit will be subject to the standard 15% tax rate applying to complying superannuation funds.  The $100,000 threshold will be indexed to CPI and increase in $10,000 increments.

Transitional rules will apply in respect of capital gains that accrue on assets acquired before the commencement of this measure (ie pre 1 July 2014).  These rules are as follows:

– For assets acquired prior to these announcements (ie pre 5 April 2013), any capital gains realised (as a result of the assets being sold by the fund) before 1 July 2024 will remain tax free and will not be included in the calculation of the $100,000 threshold.  Where the asset is sold after that time, only the gain that accrues from 1 July 2024 is included in the calculation.

– For assets acquired between 5 April 2013 and 30 June 2014, individuals will have the choice to apply the reform to the entire gain on disposal, or only that part of the gain that accrues from 1 July 2014.

– For assets acquired on or after 1 July 2014, the entire capital gain will be included in the calculation.

Whilst not providing details on how this tax will be collected when it applies, the Budget announcements have confirmed that the $100,000 threshold applies across all pension accounts held by an individual – not per pension account.

Changes to concessional contribution caps
Effective from 1 July 2013

From 1 July 2013 a higher concessional contribution cap of $35,000 will apply to people aged 60 and over.  This higher cap will then become available to people aged 50 and over from 1 July 2014.

This cap will not be indexed in future years, and it is projected that the existing $25,000 concessional cap will reach $35,000 in July 2018.  At that time, the same cap will again apply to everyone regardless of age.

Whilst this higher cap is less than that previously due to come into effect from 1 July 2014 (being $50,000), the requirement to have less than $500,000 in total superannuation savings has been removed.

Changes to excess concessional contributions
Applies to excess concessional contributions made from 1 July 2013

From 1 July 2013, individuals will have the ability to withdraw any excess concessional contributions and have them taxed personally at their marginal tax rate.  An interest charge would also apply to the excess amount, reflecting the delay in the collection of the relevant tax by the Australian Taxation Office (ATO).

This will replace the current limited withdrawal option which is only available where clients exceed their cap by less than $10,000 and is only available once.  The new measure can be used each time a client exceeds their concessional contributions cap.

Additional reforms for lost super
Effective from 31 December 2015

In the 2012/13 Mid Year Economic & Fiscal Outlook (released in October 2012), the Government announced that the account balance threshold for inactive accounts and accounts of uncontactable (ie lost) members required to be transferred to the ATO would increase to $2,000 and interest would be paid on these accounts at a rate equivalent to the CPI inflation.

The Government has announced it will now increase the threshold to $2,500 from 31 December 2015 and then to $3,000 from 31 December 2016

This change will increase the number of accounts transferred to the ATO, but may assist in consolidating more lost accounts and aiding clients to find their lost super.

Low Income Superannuation Contribution
Effective from 1 July 2012

The low income super contribution was introduced with effect from 1 July 2012 and essentially provides a refund of the 15% contributions tax for those on incomes of up to $37,000.

Under the existing rules, if the amount of low income super contribution a person was eligible for was less than $20, no payment would be made.

This technical issue has been amended, so that anyone on an income up to $37,000 and otherwise eligible will have the payment made to their super fund.  Where the amount of the payment is calculated as less than $10, the entitlement will be rounded up to $10.

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