With a few big changes happening with superannuation legislation from 1 July 2012 here is the latest update from Parliament House with regards to the legislation in progress. It seems there has been some distraction going on which has hopefully taken a back seat for now!
Refund of excess Concessional Contributions
On Thursday 1st March 2012, the Government introduced legislation focusing on the refund of excess concessional contributions (the ones where you get a tax benefit). The introduction of the legislation provides certainty for people who exceed the concessional contribution limits by less than $10,000 for any financial year from 1 July 2011. Remembering that the responsibility sits with you as the members of the fund not your employer or the ATO.
The refund of excess concessional contributions less than $10,000 will apply to contributions made into superannuation from 1 July 2012. Consistent with the draft legislation announcement, the refund of the excess concessional contribution will continue to operate on a once-off basis and effected clients will need to include the refunded amount within their personal income tax return for the financial year in which the contribution was made.
If you exceed the $10,000 limit you will not gain access to this refund mechanism and will need to rely on the current process of applying to the Australian Tax Office to have the excess concessional contributions disregarded or re-allocated to another financial year.
The ATO will use its current excess contributions processes to give effect to refunds and these will only be offered to a client when the ATO has done its preliminary assessment.
This could be years after the actual contributions were made. If the client accepts the offer, the ATO will serve a release notice on the super fund for 85 per cent of the excess concessional contribution (net of contributions tax) and the super fund will pay that amount to the ATO.
The ATO process is to then:
• includes 100 per cent of the concessional contribution in the individual’s assessable income
• applies a 15 per cent rebate for the tax already paid by the super fund
• refunds the contribution net of any additional tax payable.
This change should not mean that you disregard your super contribution strategy, you should ensure that you understand what you have in place and what the contribution limits are.
Confirmation of non-indexation of the Concessional Contribution Limits
As announced within the Mid Year Economic and Fiscal Outlook on Tuesday 29th November 2011, the Government will delay indexation of the $25,000 concessional contribution limits until 2014/15 where it is expected it will increase to $30,000.
The concessional contributions limits has been $25,000 since 2009/10 when the original limit of $50,000 was halved. Consequently there has been no indexation of the concessional contributions cap since caps were introduced in 2007/08.
Our view is that this needs to be reviewed to ensure people focus on their retirement savings without restriction!
Catch up Concessional Contribution Limits
No news is not good news! – Isn’t it?!
The transitional concessional contributions limits of $50,000 applying to clients age 50 and over during a financial year is set to expire at 30 June 2012. To date, no legislation has been released (or tabled within Parliament) for the proposed ‘catch up’ concessional contribution limits for clients age 50 and over who have less than $500,000 in superannuation.
The Government has advised it is committed to following through with the proposed extension of the $50,000 limits, however they have referred it to a new consultative body, the Superannuation Round table, to advise on implementation issues. The issue is currently under discussion.
Lets hope that get an act on with this process as if current timing is anything to go by we will be at 30 June 2012 in no time at all!
As always if you have any questions with regards to your specific setup or situation please do not hesitate in contacting our office 1300 772 643.
– Scott and the Money Mechanics Team.
Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.
The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.