Superannuation rules are constantly changing and 2013 was no different. Crissy Demanuele reviews the year that was for superannuation and how the changes will impact on advice strategies in the year ahead.
The amount invested in superannuation in Australia grew by approximately 15.5 per cent over the past year to an estimated total of $1.62 trillion. Most legislative change in 2013 affected contributions (both personal and employer), but some good reforms to fix areas of contention were also passed.
This article recaps the major 2013 changes and the impact for advice strategies in 2014.
Co-contribution
| 2012-13 | 2013-14 | |
| Maximum co-contribution | $500 | $500 |
| Matching rate | 50% | 50% |
| Lower income threshold | $31,920 | $33,516 |
| Cut-off threshold | $46,920 | $48,516 |
| Advice strategies | Identify working clients with adjusted taxable income (ATI) less than $48,516 and review their opportunity to qualify for the co-contribution. |
Low income superannuation contribution
Lower income-earners have less opportunity to increase their super through the co-contribution, but this may be counterbalanced by eligibility for the low income superannuation contribution (LISC).
This measure refunds up to $500 of contributions tax for clients with adjusted taxable income (ATI) of $37,000 or less.
| Example | Christine is an Australian resident with ATI of $28,000. Her employment income represents more than 10% of her total income, so she is eligible for the LISC.Christine’s employer pays super guarantee (SG) contributions of $2405. Tax of $360.70 is deducted within the fund.The Australian Tax Office (ATO) determines that Christine is eligible for the LISC and refunds the tax into her account (included in tax-free component). |
This measure commenced on July 1, 2012 but clients are only just starting to receive the refunds and should look for the increase in their account balance.
As part of the repeal of the Minerals Resource Rent Tax, the current government has proposed to abolish this measure, so its existence may be short-lived.
| Advice strategies | Salary sacrifice might now be effective for self-employed or working clients with ATI less than $37,000. |
Contribution caps
The proposed increase in the concessional contributions cap (CCC) for people with super balances below $500,000 was scrapped in favour of an age-based rule. Clients aged 60 or over have a CCC of $35,000 for 2013-14. This will extend to clients over age 50 from July 1, 2014.
The standard cap remains at $25,000 for younger clients but is expected to increase to $30,000 in the 2014-15 financial year. If this indexation occurs it will flow on to increase the non-concessional cap to $180,000 per year.
| Under age 50 | Age 50-59 | Age 60+ | |
| 2012-13 | $25,000 | $25,000 | |
| 2013-14 | $25,000 | $25,000 | $35,000 |
| 2014-15 | $30,000 (expected) | $35,000 | |
| Advice strategies | Review salary sacrifice levels for older clients, particularly those using the transition-to-retirement strategy. |
Relief for excess concessional contributions
The penalties for exceeding the concessional contribution cap are now less harsh. Care needs to be taken to determine when the contributions that give rise to an excess were made.
| Contributions made… | Tax impact |
| July 1, 2007 – June 30, 2012 | Taxed at 31.5%Tax amount can be withdrawn from superLimited ATO discretion |
| July 1, 2012 – June 30, 2013 | Taxed at 31.5%If excess does not exceed $10,000 it can be refunded and taxed at marginal rate instead of 31.5% excess rateLimited ATO discretion |
| From July 1, 2013 | Excess refunded and added to personal assessable incomeTaxed at personal marginal rate less 15% contributions tax plus an interest penalty from start of year of contribution |
Where an excess concessional contribution is refunded it will not count against the non-concessional contribution cap.
| Advice strategies | The new changes avoid clients creating an inadvertent excess contribution. However, care should still be taken to calculate contributions carefully.Clients who wish to have excess contributions (made before July 1, 2013) refunded must apply to do so within 21 days of receiving a notice of determination from the ATO. |
Increase in superannuation guarantee
To assist Australians to save more for their retirement, the SG is gradually increasing to 12 per cent by July 1, 2019.
| Year | Rate % |
| 2013-14 | 9.25 |
| 2014-15 | 9.5 |
| 2015-16 | 10 |
| 2016-17 | 10.5 |
| 2017-18 | 11 |
| 2018-19 | 11.5 |
| 2019-20 | 12 |
The current government has proposed freezing increases in some years so that the increase up to 12 per cent is more gradual.
| Advice strategies | Ensure small business clients are adjusting SG payments each financial year.As the SG increases this may reduce the amount of salary sacrifice available for a client. These strategies should be reviewed each year. |
Tax treatment when members die in pension phase
Clarification has been received on when a pension stops for a deceased member. This impacts the tax exemption for earnings in the pension phase.
The ATO view has differed to the industry view. However, in 2013, the tax law was amended to provide clarity. With effect from July 1, 2012, if a pension member dies, the tax exemption continues to apply until the death benefit is paid.
| Advice strategies | This clarification negates the need to set up an automatic reversionary beneficiary to retain the tax exemption, provided the death benefit is paid as soon as practical. |
Crissy Demanuele is technical manager at Strategy Steps.
