1. Super contributions caps changing.
The tax concessions available on superannuation contributions make it a popular investment choice for many people. While the tax-free withdrawal of superannuation at retirement remains in place, the government continues to tinker with other parts of the system including the tax on contributions in excess of the thresholds and the required rate of superannuation guarantee contributions which is set to rise to 9.50 percent from 1 July 2014.
The old and young alike will appreciate the scheduled $5,000 increase to the employer (concessional) contributions limits but many will fondly remember the $50,000 caps of years gone by. Even with the general concessional contribution limit increase to $30,000 from 1 July 2014, getting your money into superannuation and subject to concessional tax rates, can prove to be difficult.
From 1 July 2014, the non-concessional contribution limit is also set to increase from the long-standing $150,000 limit to $180,000. The good news for those under 65 years of age is that careful planning and the application of the bring-forward rule can allow an individual to make non-concessional contributions of up to three times their cap over a three-year period. This means that someone who has not yet triggered the bring-forward rule, could contribute $540,000 non-concessional contributions into superannuation in the 2015 tax year and obtain the benefit of the concessional tax rates. However, someone who triggered the bring-forward rule in say, the 2014 tax year would be limited to $450,000 until their three year period ends in 2016.
The bring-forward rule is automatically triggered when your after-tax contributions are more than the limit for that year, so we would advise people to watch what contributions have been made to all their superannuation funds in the year, including excess concessional contributions which count toward the non-concessional limit. If you do have excess concessional contributions, from 1 July 2013, the amount that counts toward your non-concessional cap can be reduced by the amount you elect to be released. With 30 June fast approaching, now is the time for individuals to check the total of all their contributions.
For example, if an individual is under 59 and they have already contributed $50,000 in concessional or pre-tax contributions (including compulsory super), then they have already contributed $25,000 toward their non-concessional cap. This is because for those under 59, the upper limit for pre-tax contributions for the 2014 financial year is $25,000. If the individual does not choose to release the excess concessional contributions from their super fund and they have also contributed $130,000 of non-concessional contributions, they will have exceeded the 2014 year non-concessional contribution limit of $150,000 and triggered the bring forward rule. They would be limited to contributing $450,000 of non-concessional contributions over the next three years.
2. High income earners – the temporary Budget repair levy
The introduction of the temporary budget repair levy will increase the top tax rate to 49 percent (including 2 percent Medicare Levy) for 3 years from 1 July 2014 with flow on effects to the fringe benefits tax (FBT) rate from 1 April 2015 to 31 March 2017.
With the enactment of these changes, there may be a salary packaging opportunity in the coming financial year that will help you manage your tax obligations. However, while a salary sacrifice arrangement that takes advantage of the disparity in income tax versus FBT rates from 1 July 2014 through to 31 March 2015 may increase your disposable income, we should warn that the administration of such an arrangement may prove challenging. As a longer term strategy, it may still be a good time to consider packaging a novated lease arrangement or other concessionally taxed fringe benefits in a bid to maximise your disposal income.
3. Other key issues to consider before 30 June
- In terms of capital gains, planning your exit from an investment needs to take into account numerous factors and cannot be based solely on the tax outcome. However the additional 2 percent temporary budget repair levy, certainly provides an incentive to make the most of the time before 30 June and carefully execute strategies to enjoy the current tax rates.
Overseas non-resident investors who already felt the blow from the removal of the capital gains tax discount will also be impacted by the increased tax and should plan accordingly.
- If you are a trustee of a trust and you make beneficiaries of the trust entitled to trust income by way of a resolution, you must do so by 30 June. You should ensure that any resolution you make is made in accordance with the terms of the trust deed.