The 2012-13 Budget will build on the Government’s previous reforms to improve the fairness, sustainability and efficiency of the superannuation system.
The Gillard Government has taken the historic step of boosting the superannuation guarantee from 9 per cent to 12 per cent, to provide a more secure retirement for 8.4 million Australians.
The reforms in this Budget are in addition to the Government’s decision to introduce the Low Income Superannuation Contribution, which will make the system of superannuation concessions fairer for 3.6 million low income earners.
From 1 July 2012, workers with income up to $37,000 will receive a boost of up to $500 to their superannuation savings, to ensure they effectively pay no tax on their superannuation guarantee contributions.
These important measures build on the Gillard Government’s strong record of managing the economy in the interests of working Australians and spreading opportunity right across the community.
Reduction of higher tax concession for contributions of very high income earners
The Government will make the superannuation system fairer by reducing the higher tax concession that very high income earners receive on their concessional contributions, to align it more closely with the concession received by average income earners.
“It is clear that a small number of people on high incomes are getting a better tax deal out of super than millions of Australians on average incomes,” Minister Shorten said.
“The Government will make the system fairer by ensuring that the tax incentives for super are more in line across income ranges.”
Currently, the 15 per cent flat tax on concessional contributions provides high income earners with a significantly larger tax concession than those on lower marginal tax rates.
From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions reduced from 30 per cent to 15 per cent (excluding the Medicare levy).
“There will still be an effective tax concession of 15 per cent for these high income earners,” Minister Shorten said.
This measure will save $946 million over the forward estimates. It is estimated that it will affect around 128,000 people in 2012-13, or 1.2 per cent of people contributing to superannuation.
The definition of ‘income’ for the purpose of this measure will include taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment loss, target foreign income, tax-free government pensions and benefits, less child support.
If an individual’s income excluding their concessional contributions is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to the part of the contributions that are in excess of the threshold.
For example, someone with income excluding their concessional contributions of $285,000, and concessional contributions of $20,000 (taking their total income to $305,000), would have the reduced tax concession only apply to $5000 of their contributions.
‘Concessional contributions’ for the purpose of this measure include all employer contributions (both superannuation guarantee and salary sacrifice contributions) and personal contributions for which a deduction has been claimed. For members of defined benefit funds (both funded and unfunded schemes), it will include all of their notional employer contributions.
The reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap and are therefore subject to ‘excess contributions tax’. These contributions are effectively taxed at the top marginal tax rate and therefore do not receive a tax concession.
Treasury will consult with the superannuation industry and other relevant stakeholders on further design and implementation details.
This reform will only reduce the tax concession which very high income earners receive on their contributions into superannuation. The 15 per cent flat tax on earnings within superannuation (and tax exemption for assets supporting pension payments) provides high income earners with a significantly larger tax concession than those on lower marginal tax rates, and this will not be affected in any way by this reform.
Deferral of higher concessional contributions cap
The Government will defer the start date of the higher concessional contributions cap measure by two years, from 1 July 2012 to 1 July 2014.
Under the higher concessional contributions cap measure, individuals aged 50 and over with superannuation balances below $500,000 will be able to make up to $25,000 more in concessional contributions than allowed under the general concessional contributions cap.
The two-year deferral means that for 2012-13 and 2013-14, all individuals will be able to make concessional contributions of up to $25,000 per year as permitted under the general concessional contributions cap. In 2014-15, the general cap is likely to increase to $30,000 through indexation, and the higher cap would then commence at $55,000.
In consultations on the implementation of the higher cap, the superannuation industry raised concerns in relation to the cost and complexity involved in administering the balance limit, and the difficulty some individuals may face in determining whether they are eligible for the higher cap.
Deferring the start date of the higher cap to 1 July 2014 will bring significant synergies and efficiencies, as it will allow implementation to occur in conjunction with changes to superannuation fund reporting and systems that will be occurring under the SuperStream reforms.
In addition, individuals will be able to more easily determine whether they are eligible for the higher cap from 1 July 2014, as the ATO is developing an online reporting facility that will provide access to comprehensive account balance information from early 2014.
Deferring the start date of the higher concessional contributions cap will save $1.46 billion over the forward estimates.
Delivering a more efficient superannuation system for members, employers and funds – SuperStream levy arrangements
The Government has today confirmed that a temporary SuperStream levy will be paid by Australian Prudential Regulation Authority (APRA) regulated superannuation funds to fund the costs to Government of implementing the SuperStream reforms.
SuperStream is a package of reforms that will make the superannuation system easier to use for members, employers and funds. The reforms were recommended by the Super System Review chaired by Jeremy Cooper.
Industry submissions to the Super System Review estimated that savings of up to $1 billion per annum are achievable from implementing the SuperStream reforms.
- Fund members will benefit from being able to easily look up and keep track of their superannuation, having low value inactive accounts consolidated automatically, being able to consolidate larger accounts easily, having their contributions and rollovers processed more quickly, and being able to more easily check if their superannuation contributions have been paid.
- Employers will benefit from having standardised simplified administrative processes when dealing with superannuation funds.
- Superannuation funds will benefit from standardised simplified administrative processes when dealing with employers and other funds, from being able to make greater use of tax file numbers to facilitate matching and consolidation of accounts, and from electronic validation services from the ATO which will help their administration and help ensure members are properly matched with their superannuation.
To meet the costs to Government of implementing and supporting these important reforms to Australia’s $1.3 trillion superannuation industry, a temporary SuperStream levy will be imposed on APRA regulated superannuation funds (as foreshadowed by Government on 16 December 2010 in response to Review recommendation 10.6 – that the ATO be adequately resourced for its SuperStream functions).
The additional SuperStream levy will be $121.5 million in 2012-13, $111.1 million in 2013-14, $83.1 million in 2014-15, $69.3 million in 2015-16, $41.2 million in 2016-17 and $40.9 million in 2017-18.
The costs associated with the implementation of SuperStream will be collected by APRA within the existing Superannuation Supervisory levy. As is normal practice, a discussion paper will be released shortly after Budget setting out how the levy will be apportioned between superannuation funds.
Contact: Sam Casey – 0421 697 660
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