Superannuation and personal tax changes effective in the 2014 Budget

Superannuation and personal tax changes effective in the 2014 Budget

Last month’s budget announcement was big news in Australia, taking over our radio, news stations and water cooler conversations. The most important thing to really know about it however, is how does it affect you?

Our Wealth Management team have collated and compiled the relevant information for you that’s come out of the budget so you can see it laid out clearly. Here are some of the big proposed budget changes regarding superannuation and personal tax that could affect you. 

SUPERANNUATION

Along with the Super guarantee set to increase to 9.5 per cent on 1 July 2014, there are additional increases and changes to various functions within super that are expected to be implemented.

Increase in Retirement Pension age

One major change that affects a vast majority of workers in Australia is the increase in the age at which point the retirement pension is made available. For individuals born 1 January 1966 onwards, the qualifying age is now set at 70 years.

If you were born after this date and want to retire before reaching the age of 70, you must consider how much additional superannuation income is required to fund the gap in between until you reach the pension age. For example, a person who is currently 48 (born in 1966) who wishes to retire at 65, will require approximately $96,432 to generate the equivalent of the maximum age pension, currently $29,912 per annum, for singles, to fund the five year gap. For members of a couple, they require approximately $72,689 each to fund the five year gap. This is a substantial amount to accumulate over the next 16 and a half years in pre-tax contributions.

With this is mind, what better time to consider your retirement options than now? Self-funding your retirement would be a more attractive option than the age pension for most. How to do this will mean a focus today on your super contributions, investment maintenance and planning. Remember this lift to the Age Pension acceptance has not affected the Superannuation access age. See below table to help you understand your goal timeframes:

Date of Birth

Preservation Age

Before 1 July 1960

55

1 July 1960 – 30 June 1961

56

1 July 1961 – 30 June 1962

57

1 July 1962 – 30 June 1963

58

1 July 1963 – 30 June 1964

59

From 1 July 1964

60

Super contributions caps and tax

The Federal Government expects the non-concessional cap to increase to $180,000 for the 2014/2015 financial year, in line with the expected increase in the concessional cap for the same year. Having said this, the contributions caps have failed to have been adjusted in line with inflation as promised, with the government freezing the contributions caps since originally being introduced in July 2007.

It has been promised by the Federal Government that as of the 2014/2015 financial year, the non-concessional contributions cap will be indexed along with increases in the concessional before-tax cap, which is six times the level of the indexed concessional cap. If this goes through, the non-concessional cap could rise to $180,000 from the 2014/2015 financial year.

Income year

Amount of cap

2014-15

$180,000 Proposed

2013–14

$150,000

Concessional Contribution Caps (Employer and Salary Sacrifice)

The concessional contributions cap will be temporarily increased to $35,000 for the 2014/2015 financial year or a later financial year if you are aged 49 years or over on the last day of the previous financial year, or if you are aged 59 years or over on 30 June 2013 for the 2013/2014 financial year.

Income year

Cap for those aged 59 years or over on 30 June 2013

Cap for those aged 49 years or over on 30 June 2014

2014–15

$35,000

$35,000

2013–14

$35,000

$25,000

Concessional Excess Contributions Tax at your tax rate

From 1 July 2013, any amount above the annual cap is included as assessable income, and is subject to tax at your marginal tax rate. Where the annual cap is exceeded, the ATO will send you a tax assessment which is payable by you. It is no longer deducted from the super account and sent to the ATO.

Prior to 1 July 2013, concessional contributions in excess of the annual cap were subject to an additional tax of 31.5% (including the Medicare Levy). This made the total tax 46.5%

The new law applies in respect of the 2013/14 and subsequent years, so if you exceed the concessional contributions cap in respect of 2012/13 or prior, the old law still applies.

PERSONAL TAX CHANGES

Personal tax rates increase looming

The new personal income tax rates and thresholds have been summarised without including the Medicare levy, which is currently sitting at 1.5 per cent, but set to rise to two per cent from 1 July 2014. If the Medicare levy were to be included, the top marginal rate would be 49 per cent from 1 July 2014 to 30 June 2017.

Personal income tax rates and thresholds

 

2013-14

2014-15

2015-16 and 2016-17

 

Threshold

Rate

Threshold

Rate

Threshold

Rate

1st tier

$18,201

19.0%

$18,201

19.0%

$19,401

19.0%

2nd tier

$37,001

32.5%

$37,001

32.5%

$37,001

33.0%

3rd tier

$80,001

37.0%

$80,001

37.0%

$80,001

37.0%

4th tier

$180,001

45.0%

$180,001

47.0%

$180,001

47.0%

Budget Repair Levy

There has been a Temporary Budget Repair Levy placed on income earners earning over $180,000, which applies as of 1 July 2014 with a projected end date of 30 June 2017. This is a levy of two per cent applied to an individual’s taxable income over $180,000.

Taxable Income

Temporary Budget Repair Levy

$200,000

$400

$250,000

$1,400

$300,000

$2,400

It is also important to be aware that while the Temporary Budget Repair Levy is applicable to high income earners, it also has the potential of applying to people with income below $180,000 where they:

  • Sell an asset and realise capital gains
  • Take a superannuation lump sum benefit consisting of taxable component between the age of 55 and 59, as this amount will be included in the taxpayer’s taxable income and could push the taxpayer over the $180,000 threshold.

Taxpayers considering selling assets or taking superannuation lump sums between 1 July 2014 and 30 June 2017 may therefore need to take into account any additional levy they may incur as a result.

The rate of Fringe Benefits Tax will also increase to 49 per cent as a way of preventing high income earners from using fringe benefits to avoid the levy. The increase in Fringe Benefits Tax rate will exist from 1 April 2015 to 31 March 2017, to align with the Fringe Benefit Tax year.

Company tax rate to decrease by 1.5 per cent

As of 1 July 2015, the company tax rate is set to decrease from 30 per cent to 28.5 per cent. Although, benefits from this reduction won’t be evident for those companies whose taxable income exceeds $5 million. This is because they will need to pay the 1.5 per cent paid parental leave levy in addition to the company tax. This is not expected to affect unincorporated small businesses. 

If you would like to discuss your wealth management solutions with our specialised team, contact us on 1300 654 484.