The 2012 Federal Budget revealed tougher laws for superannuation from the start of next financial year, 1 July 2012. For over 50’s with an income of $300,000 or over, super will now be taxed at 30 per cent, rather than the current rate of 15 per cent. The proposed concessional contributors cap for those over 50 with less than $500,000 super has been deferred for two years.
This means that for over 50’s, there is only a week left to top-up super payments to the full $50,000 for at least the next two years. After 1 July, contributors will only be able to put $25,000 away before breaching the cap and incurring extra tax. Salary sacrifice arrangements for next year should be revised to ensure salary sacrifice payments that are automatically deducted to the fund do not breach the cap.
Non-concessional contributions, the contributions which are not included in the assessable income of the superannuation fund, are made from the member’s after-tax income. There are also several specific inclusions like Government co-contributions and proceeds from the disposal of business assets that will not breach the cap.
The good news is that legislation has been passed to allow contributors to receive a refund of up to $10,000 of excess contribution for the first time you exceed the cap.
Contributors who have not yet made the maximum non-concessional contribution should take care not to breach this year’s cap. In some cases the penalties start at the top marginal tax rate of 93 per cent.
One way of adding value to an SMSF without breaching the cap is to use franking credits from fully franked dividends to offset the extra tax on contributions. Many funds with shares paying fully franked dividends do not pay over the 15 per cent contributions tax.
For contributors earning less than $300,000, there are few changes to super in this year’s budget, however employees must be aware of any unexpected income that will push them over the $300,000 limit. An example of this is employee share plans that may occur when restrictions come off company shares that vested in employees.
If an employee is unsure about when this might happen, it would be wise to speak to their employer.
As for under 50’s, $25,000 continues as the maximum that can be put into most super funds without breaching the cap and receiving a tax penalty.
Although there is no tax break on super funds, any earnings made once the pension is started, as well as the funds earnings, are all tax free.
Don’t pay excess tax on contributions! Call an Oculus advisor to help you sort through the superannuation contribution maze.