Federal Budget 2011 – 2012 - Superannuation

This looks at the taxation implications on superannuation.

Superannuation on payslips

The Government will ensure that employees receive information on their payslips about the amount of superannuation actually paid into their account.  Employees and employers will also receive quarterly notification from their superannuation fund if regular payments cease, with effect from 1 July 2012;

Co-contributions income thresholds

The income thresholds for the co-contribution scheme will be frozen for a further 12 months in a measure that will save the federal government $75 million over 3 years.  The thresholds have already been frozen for 2 years.

Under a scheme designed to boost the superannuation accounts of low-income earners, the government provides a matching contribution of up to $1000 for post tax-contributions by individuals earning up to $31,920 a year.

Minimum pension drawdowns: 25% reduction for 2011-12

The minimum annual payment amounts for pensions and annuities will be reduced by 25% for 2011-12 and will return to normal in 2012-13.  In this respect, the Government will begin to phase out the 50% pension drawdown relief that has been provided for 2008-09, 2009-10 and 2010-11 financial years.  Reducing the minimum payment amounts by 25% for account-based, allocated and market linked (term allocated) pensions from 1 July 2011 seeks to provide some assistance to holders of these products to recoup capital losses incurred as a result of the global financial crisis.

Concessional contributions: higher cap for those 50 and over:

From July 1, 2012 the Government will set the proposed higher concessional contributions cap at $25,000 above the general concessional cap for eligible individuals aged 50 and over with total superannuation balances of less than $500,000.

The proposal to allow individuals aged 50 and over with total superannuation balances below $500,000 to continue making up to $50,000 per year in concessional contributions from 1 July 2012 was previously announced as part of the Government's response to the Henry Tax Report on 2 May 2010.

The Government has confirmed that the higher cap will enable eligible persons over 50 to be able to contribute $25,000 more per year than other workers subject to the general concessional contributions cap of $25,000.  As a result, when the general concessional contributions cap increases with indexation from $25,000 to $30,000, the higher cap will increase by the same dollar amount.

Excess Contributions

First-time offenders who contribute too much to superannuation will be able to claim a $10,000 refund from their fund to avoid penalty tax.

A controversial penalty system had meant people who contribute as little as a few dollars too much into super can receive tax bills as high as $70,000 due to the mechanism used to calculate the penalty.

There are two annual caps – a $25,000 to $50,000 cap on tax-concessional contributions and a $150,000 cap on non-concessional contributions, or $450,000 if it’s averaged over three years.

A breach results in a tax of 46.5 per cent on the amount in excess of a single cap.  But people who breach both caps can pay 93 per cent tax, a trap that has caught out people who contribute up to $450,000 on an after-tax basis when selling other assets before retirement.

Example: Will is under the age of 50 and makes a concessional contribution of $30,000 to super.  This is $5000 more than allowed and also counts towards his non-concessional cap.

He has already made a $450,000 non-concessional contribution in the same year, so has also exceeded this cap by $5000.  Under the current rules he would pay tax of $4650 on the $5000 but under the new proposal would be free to withdraw the cash and instead have it taxed at his marginal rate.

There will not be a retrospective concession for the estimated 95,000 people who have already contributed too much into their superannuation.

Increase to SMSF levy

There will be an increase to the SMSF levy from $150 to $180 with effect from the 2010-11 income year and the introduction of SMSF auditor registration fees from 1 July 2012.  This is to assist funding to ‘Stronger Super’ reforms.