The following are the changes in the Federal Budget as announced last week. We see these changes in the concessional super contributions caps and contribution taxes likely to affect some of our clients.
Higher contributions tax for very high income earners
The tax concession on contributions of earners of over $300,000 will go down from 30% to 15%. They are presumably to be taxed at a 30% rate for their concessional contributions.
Higher concessional contributions cap for 50 years and older deferred
Individuals aged 50 and above are subject to a concessional contributions cap of $50,000 but the budget change made a 2-year deferral reducing the cap to $25,000 for the 2012-13 and 2013-14 income years.
In this regard, we will take the following actions to make sure that our clients will not be negatively affected by the said changes.
- Review salary sacrifice and SMSF contribution arrangements. This will be done before June 30 to prevent committing contributions cap violation.
- Discuss the possible impacts of the 15% increase in the super contributions tax for those earning an income of $300,000. The penalty tax increase from 46.5% to 61.5% is not something to treat lightly especially since super funds will not track if people are already about to meet their concessional contributions cap.
- Inform clients how the key budget changes may possibly affect their finances. Emails will be sent so that appropriate actions may be discussed.
- Assist clients who contribute to their concessional super to make the necessary arrangements changes for the coming financial year.
- Inform clients who are super fund members that compulsory employer Super Guarantee contributions add up to the concessional cap. This could cause them to go over their cap without realizing it.
- Give detailed information why those who are earning $250,000 and contributing 12% of it to super may already be close to meeting their concessional limit even before the introduction of the higher SG.
- Ensure that clients have a better understanding of these changes and how they may be affected by them before they get in touch with their respective employer or super fund to make the adjustments in their concessional contribution amounts.
- Give clients a better perspective on the possibilities of unintended consequence of the tax hike on super contributions.
Together with my team, I will be extending this course of action to all clients effective today until June 30. While the changes made may raise a lot questions, we will be there to provide the advice needed and that appropriate steps are taken.