The Federal Budget proposal to change the taxing of excess non-concessional (after tax) superannuation contributions will improve confidence in superannuation, as people will not have to worry about being penalised unfairly for making simple mistakes.
Coupled with the increased superannuation contribution caps coming into force from 1 July 2014, it should encourage people to consider superannuation more favourably as a tax effective savings vehicle, says HLB Mann Judd Sydney, director superannuation, Andrew Yee.
“The recent Budget proposal to change the taxing of excess after tax superannuation contributions has just about closed the door on one of the worst taxes ever introduced into the Australian tax system,” Mr Yee says.
“The excess contributions penalty tax regime caused a lot of angst for the superannuation industry because in the vast majority of cases, the tax was triggered by inadvertent or innocent mistakes on the part of the individual contributor, or their employer.
“The changes mean that superannuation contributions that exceed the non-concessional contributions cap will no longer be taxed at 46.5% and in some instances, taxed at the horrendous rate of 93%.
“Despite the relaxation of the rules surrounding excess contributions, people should still be vigilant in the monitoring and planning of their superannuation contributions. This is especially the case this year, as an increase in the available contributions cap will apply from next year.
“For example, if in this financial year, you inadvertently contribute more than $150,000 in non-concessional contributions, you will have triggered your three year bring forward non-concessional contribution cap of $450,000.
“This means you are only allowed to contribute no more than $450,000 over three financial years from 1 July 2013.
“However, if you had you stayed under the $150,000 cap this year, you would have been eligible for the higher annual non-concessional contributions cap of $180,000 or $540,000 over 3 years from 1 July 2014. That represents an additional $90,000.
“Careful planning will be required as it is pretty easy to inadvertently trigger the three year bring forward non-concessional contribution cap,” Mr Yee says.
Discussions around contributing large sums of money into superannuation, and being aware of the effect of the non concessional contributions limit, is frequently a trigger point for individuals to decide to set up their own SMSF, Mr Yee says
“The lump sum non-concessional contributions involved can provide the critical mass needed to make a SMSF a viable option. Furthermore, high income individuals are not subject to an additional tax on their non-concessional contributions in the same way as concessional contributions.
“For instance, the increase in the bring forward non-concessional contributions cap from $450,000 to $540,000 may provide enough “wriggle room” for business owners who own their business premises to transfer the business property to their own SMSF as a large non-concessional contribution. Or, a couple who already have $200,000 in a retail or industry super fund, and who are deciding to both contribute $150,000 each, will have a total superannuation balance of $500,000.
“Although they are frequently started with less, $500,000 is a preferred level for the establishment of a SMSF,” Mr Yee says.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.
For more information please contact:
Andrew Yee – Phone: 02 9020 4213
20 May 2014