Last night the Government handed down the 2012-13 Federal Budget. The budget lived up to its reputation as the toughest budget in decades with the Government returning the budget to surplus.
The budget forecasts strengthening surpluses in each of the next four years with a $1.5 billion surplus in 2012-13.
The following provides a summary of the major superannuation announcements.
1. Deferral of higher concessional contributions cap
The Government will defer the start date of the $50,000 concessional cap for individuals over 50 with a superannuation account balance under $500,000. This measure was initially intended to commence from 1 July 2012 but it will now be delayed by two years and will commence from 1 July 2014.
As the standard concessional cap is likely to have increased to $30,000 through indexation by 1 July 2014, the higher cap under this measure is likely to commence at $55,000. The Government says that deferring the start date of the higher cap to 1 July 2014 will bring significant synergies and efficiencies, as it will allow implementation to occur in conjunction with changes to superannuation fund reporting and systems that will be occurring under the SuperStream reforms. These reforms will make it easier for superannuation fund members to consolidate and keep track of their superannuation accounts.
Deferring the start date of the higher concessional contributions cap will provide savings to the Budget of $1.46 billion over the next four financial years (the largest single superannuation budget savings item in this year’s budget).
2. 30% contributions tax for individuals earning over $300,000
From 1 July 2012, individuals with incomes greater than $300,000 will pay 30% contributions tax on their concessional contributions. The definition of “income” for the purpose of this measure includes concessional superannuation contributions. If an individual’s income excluding their concessional contributions is less than the $300,000, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to that part of the contributions that is in excess of the threshold. “Concessional contributions” for the purpose of this measure will include notional employer contributions for members of defined benefit funds.
The 30% tax rate will not apply to any portion of a concessional contribution which exceeds the member’s concessional contribution cap. Excess contributions are effectively taxed at the top marginal tax rate and therefore do not receive a tax concession.
Treasury will consult with the superannuation industry and other relevant stakeholders on further design and implementation details. This measure will provide savings to the Budget of $947 million over the next four financial years.
3. SMSF auditor registration
The Government will provide $10.7 million over four years to ASIC to develop and maintain an on-line registration system for auditors of SMSFs. As part of the registration process, ASIC will develop a competency exam for SMSF auditors. ASIC will also be responsible for the deregistration of non-compliant auditors. Auditors may begin to register with ASIC from 31 January 2013.
The Government will also provide funding to the ATO to police registered auditors, check their compliance with competency standards set by ASIC and refer auditors to ASIC, for enforcement action.
4. Reduced tax offset for “golden handshakes”
From 1 July 2012, only that part of a “golden handshake” that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will be taxed at concessional rates. The $180,000 cap will complement the existing ETP cap ($175,000 in 2012-13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap. The ETP tax offset ensures that ETPs up to the ETP cap are taxed at a maximum tax rate of 15% for those over preservation age and 30% for those under preservation age.
5. Exemption for taxation advice in the context of financial advice
The Government has extended the financial advisors exemption from compliance with the Tax Agent Services Act 2009 up until 30 June 2013. This extension will allow for the details of the regulatory model to be settled and help resolve implementation issues associated with bringing financial planners under the scope of the Tax Agent Services regime.
Increase in managed investment trust final withholding tax rate –
The Government will increase the managed investment trust final withholding tax rate from 7.5% to 15%, with effect from 1 July 2012. This measure will return the withholding tax for managed investment trusts to the level of the original 2007 election commitment.
Implementation of SuperStream reforms –
The Government will provide $467 million over seven years to implement the SuperStream reforms that are part of the package of Stronger Super reforms. These reforms are designed to improve the efficiency and effectiveness of the superannuation system through the better use of technology and by standardising data and payment requirements for member related superannuation transactions.
CGT and loss relief for merging superannuation funds –
The Government will amend the law to ensure that income tax considerations do not prevent mergers of superannuation funds or transfers of existing default member’s balances and relevant assets in the transition to Stronger Super and MySuper.
From 1 June 2012 to 1 July 2017, optional loss relief will be available for mergers of complying superannuation funds on the same terms and conditions as the former temporary loss relief that applied from 24 December 2008 to 30 September 2011 with some exceptions, including an optional roll-over for capital gains and appropriate integrity provisions.