Now that Tony Abbott’s Coalition has assumed Government, it will be interesting to observe what superannuation changes are likely to unfold, especially in comparison to changes noted in the budget announcement on 5 April 2013 by the previous government.
Super topics at a glance
- Breaches of superannuation caps
- Superannuation guarantee charge
- Paid Parental Leave and Super
- Concessional caps
- Income stream products
- Employer reporting
- Minimum withdrawal amounts
- Military superannuation
Breaches of superannuation caps
This issue has been partially addressed by the previous government’s changes to taxation of excess contributions. That is, excess contributions are now taxed at an individual’s marginal rate plus interest, as opposed to the top marginal tax rate.
Problems still remain where contributions have been made in the wrong income year which brings about an undesirable result, such as by triggering the bring forward rule.
Ideally, changes could be made to more easily allow for the allocation of contributions to the correct year. Further, it is noted that lifetime concessional tax limits would be a welcome move, in contrast to the current annual limits imposed.
The Government intends to work with key stakeholders in the super industry to develop an appropriate process that addresses all inadvertent breaches of the contribution caps where an individual can show that their mistake was genuine and the error would result in a disproportionate penalty.
The ATO has already previously flagged that it will apply a de minimis test in respect of inadvertent cap breaches, which may trigger the bring forward rule. A more formal recognition of this would be appropriate.
Superannuation guarantee charge
The Coalition has confirmed that the super guarantee is to increase from 9% to 12%.
It is recalled that there will be gradual increase as follows:
Click here to view table.
However, the gradual increase will be delayed by two years. We have no precise details of this deferral but consider it will likely mean the 9.25% rate will be in place until 1 July 2016.
Paid Parental Leave and Super
Under the Paid Parental Leave scheme, super contributions will be paid at the compulsory super rate based on a woman’s actual wage.
The concessional contribution cap for individuals aged 60 years and over increased to $35,000 in the current financial year. That same cap will apply to those aged 50 and over from next financial year.
The Government notes in its policy paper that it will ‘revisit concessional contribution cap and incentives … for lower income earners once the Budget is back in a strong surplus’.
It would be a welcome move for the Government to increase concessional caps to pre-GFC levels.
Income stream products
It is common strategy for individuals to enter into an annuity income stream product, separate from one’s super, which is intended to provide income in the later stages of life after super pensions have been depleted.
As part of the 5 April 2013 announcement, the previous government provided that would encourage the take-up of deferred lifetime annuities through giving these products the same concessional tax treatment as provided for superannuation assets supporting income streams.
The Government will review regulatory barriers currently restricting the availability of relevant and appropriate income stream products in the Australian market. This could see other products, in addition to deferred lifetime annuities, being introduced.
Previously, regulations were to be introduced to require enhanced payslip reporting procedures. These regulations were not promulgated prior to the election. We wait to see whether the changes will proceed.
The Government previously announced that it will make changes which will allow for small business to report super payments to the agency that collects PAYG payments, as opposed to Medicare.
Minimum withdrawal amounts
The Government is to conduct a review of the minimum payment levels to assess their adequacy and appropriateness in light of current financial market conditions.
In order to deliver fair indexation to recipients of military superannuation, the Government has proposed to index payments to such persons in the same way as aged and service pensions.