Superannuation & Taxation
Written by Tony Gray   
Tuesday, 09 June 2009 12:15

Superannuation & Taxation

The Federal Government’s changes to superannuation from 1 July impact on most investors.  Those under 50 years of age will be restricted to Concessional Contributions (usually where a tax deduction is claimed) to $25,000 per annum (from $50,000).  This means that it is more important than ever to take a long-term view and lift contribution levels earlier.  For those aged at least 50 between 1 July 2009 and 30 June 2012, the transitional Concessional Contribution limit has been halved to $50,000 and from 1 July 2012 will fall to $25,000 per annum.  Prior to 1 July 2009 the existing (more generous) contribution limits apply, so there is a window of opportunity for some to still act.

There are extremely high penalties that potentially apply where contributions exceed the Concessional Contribution caps, starting at a minimum of 31.5% additional tax and potentially rising to as high as 93%! - so ensure that you have considered all sources of superannuation contributions.  As such, any salary sacrifice arrangements currently in place may need to be adjusted at the start of the new financial year.

With forecast budget deficits and total government debt ballooning, it is becoming more likely that in future some form of taxation will apply to superannuation pension fund earnings or pension payments.  It is far less likely though that pension payments derived from the tax free component (where no tax deduction has been claimed) will be taxed.  This reinforces the benefits of re-contributing surplus pension payments (where possible) as Non-Concessional Contributions (which form part of the tax free component).

With the minimum pension amount that needs to be drawn halved this financial year AND for the coming financial year, it may well be worthwhile considering a transition to retirement pension for those between age 55 and 59.  For those aged 60 plus, in most instances it makes sense to be drawing a transition to retirement pension as it converts your superannuation to tax free status and the pension is tax free.

Concessional Contributions to superannuation will, from 1 July 2009, be counted when assessing if employment income exceeds 10% of income (those considered self employed receive less than 10% of income from an employer) – which may prevent the use of contributions to meet the self employed definition thereby preventing a personal deductible superannuation contribution (different from a salary sacrifice arrangement for employees).

Aside from superannuation, there are new income measures that may potentially impact on the application of the penalty rates of Medicare Levy (or removal of the private health rebate) and similarly the availability of family tax benefits.  There will be an income measure separate from the concept of taxable income (assessable income less allowable deductions).  The new measure will add back to income reportable superannuation contributions in excess of the superannuation guarantee charge, fringe benefits and negative gearing interest when determining entitlements.

Please treat the above comments as general in nature, with no action to occur in reliance without first seeking advice personal to your position.

Last Updated on Tuesday, 09 June 2009 12:40

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