With less than a week until the Federal Budget is handed down, the media is alive with speculation as to what changes the Government will impose and, as usual, superannuation is at the forefront of the pre-Budget rumour mill.
Rumours by very definition are reports or stories circulating with uncertain truth or origin and, with that being said, it is always advisable to approach such accounts in a level-headed and sensible manner.
Outlined below are just a few of the possible changes that could be implemented next week and what it could mean for you.
Rumour: Concessional caps will be lowered
Concessional contributions are the deposits into your super fund that are not subject to personal or company income tax. Instead, these contributions attract a concessional tax rate of 15% in your super fund.
Concessional contributions are made up of your employer’s compulsory 9.5% plus any additional salary sacrifice contributions you choose to make. If you are self employed, concessional contributions are the contributions for which you claim a tax deduction.
For people earning less than $300,000 and under the age of 50, the current concessional cap is $30,000, with a $35,000 cap for those aged 50 and over. For all of those earning over $300,000 a flat top-up tax of 15% applies to concessional contributions in addition to the standard 15%.
It has been reported that these contribution caps may be significantly lowered. It has also been suggested, as an alternative strategy, that the high income limit be reduced to as low as $180,000.
Rumour: Transition-to-retirement (TTR) will be scrapped
As outlined in our recent blog article, One smart pre-Budget move you should consider if aged 55 or over, the TTR initiative was originally introduced in 2006 to help members access their superannuation in the form of an income stream without having to meet the ‘full retirement’ conditions.
If aged between 55 and 60, income from a TTR pension is taxed at your marginal tax rate less a 15 per cent tax offset. If over 60, it’s tax free. Current TTR rules actually allow you to continue to work full-time and access your TTR pension by salary sacrificing a portion of your income, allowing you to take advantage of the greater tax benefits. In addition, the investment earnings from the assets backing your TTR pension, under current regulations, are tax-free.
Rumour: Matching tax concessions on contributions
Super contributions are currently taxed at 15%, which is deducted by super funds on your behalf from employer and salary sacrifice contributions.
The suggestion is that instead of the flat 15%, have super contributions taxed at the individual’s marginal tax rate, less a 20% discount.
If this is a change to the system that is employed, it is not entirely clear how the discounted tax rate will be applied and whether the individual or fund is offered a refundable tax offset, or the deduction is made at the employee level.
Rumour: Investment earnings on large super balances to be taxed
Investment earnings of assets supporting the payment of a super pension are currently tax-exempt. The suggestion is (as proposed by the Federal Opposition) that a 15% tax rate would be applied to every dollar of investment income over $75,000.
Rumour: Preservation age will be increased
Preservation age is the age in which you can access your super benefits. Pension age is the age that those who cannot fully support themselves in retirement can access the taxpayer-funded Age Pension.
The current preservation age for most Australians is 60, however with the Age Pension age rising to 67 years incrementally by 2023, it has been suggested that the preservation age may rise to 62 years. This will maintain the traditional 5 year age gap between preservation and pension age.
Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.