Given that we are now well into the 2013/14 financial year, OBT reflects on the key changes and identifies some of the possible impacts to your financial situation:
So what has changed?
A number of areas of the superannuation system have been targeted to make the system fairer and more sustainable over the long-term. Some of the key changes include:
- An increase in the contribution caps for individuals above a certain age
- A change to the way certain excess superannuation contributions are taxed
- An increase to the taxation of contributions for high income earners
Evidently, the main theme has been to reduce the tax concessions available within the superannuation system. It is important to note however, that despite these changes, superannuation remains a very tax-effective environment and should generally form a key strategy in most people’s retirement plans.
Increase to the contributions caps
Beginning this financial year, the cap on pre-tax superannuation contributions (referred to as concessional contributions) has been increased by $10,000 to $35,000 for those who turn 60 during the year. This higher cap will be available to those aged 50 and over from 1 July 2014.
The higher cap provides the opportunity for those who meet the age requirements to increase their contributions to superannuation as they approach retirement. Given the tax-effective nature of the superannuation environment, this in turn provides the opportunity to lead a more comfortable lifestyle in retirement.
If you meet the age requirements, you should meet with us to ensure you take advantage of this window of opportunity.
A change to the way excess contributions are taxed
After much industry pressure, the Government has reformed the superannuation contribution rules to ensure the penalties for exceeding the concessional contribution cap are more appropriate. Historically, such contributions could have been taxed at up to 93% depending on the nature of the transgression.
Under the new rules, an excess concessional contribution is effectively taxed at the individual’s marginal tax rate and in any case, at a rate of no more than 31.5%. The excess contribution can be withdrawn from superannuation to assist in funding the penalty.
Moreover, withdrawing the excess contribution will ensure that no other excess contribution penalties are incurred.
As always, seek advice from your OBT financial advisor should you receive a letter from
the tax office indicating you have an excess contribution. If the wrong decisions are made, a large tax penalty could result.
Increased taxation of contributions for high income earners
Those on very high incomes (around $300,000 and above) may be liable for an increased tax on concessional contributions. Typically these contributions are taxed at 15% however with this reform an additional 15% tax could be imposed, that is a total of 30%.
This reform may sound relatively straight forward, however in practice it is quite complicated with a number of issues needing to be considered. Again seek advice from your OBT financial advisor prior to making any decisions.
While these reforms have some impact on the overall benefits of investing in superannuation, overall super still remains a tax-effective environment. However it’s important with any decision regarding your superannuation that you seek advice from your OBT Financial Advisor to ensure you make the right decisions now thereby optimising
your financial situation over the long-term. 07 5462 2277.