Superannuation


Budget Review 2009-10 Index

Budget Review 2009 10: Superannuation

Revised 26th June 2009

Les Nielson

The 2009 2010 Budget contained several key changes to superannuation arrangements. Overall, the key theme for changes applying to individuals was to lower the impact on government finances of these arrangements and to restrict access to the most favourable concessions for high income earners. Another measure, the proposed extension of the reduced minimum drawdown requirements for superannuation-based income streams assists recipients of these payments with coping with the effects of the global financial crisis.

The Budget also contains several measures applying to superannuation funds. The major theme of these changes is to assist these entities in achieving economies of scale through mergers and reducing administrative burdens.

Individuals

Briefly, for individuals the significant proposed changes are:

  • a temporary reduction in the government superannuation co-contribution between 1 July 2009 and 30 June 2014[1]
  • a 50 per cent reduction in the maximum amount of tax-deductible (or concessional) contributions made to a superannuation fund from 1 July 2009[2]
  • a new method of calculating the cap on after-tax (or non-concessional) contributions to superannuation funds[3]
  • a reduction in the minimum required amount paid from a superannuation pension for the 2009 2010 year,[4] and
  • a trans-Tasman superannuation portability scheme.[5]

Another significant superannuation budget initiative for individuals is the transfer of small inactive superannuation accounts, and other unclaimed superannuation monies, to an unclaimed monies holding account maintained by the Australian Taxation Office.[6] For further information on this measure, see the article in this Budget Brief on Tax Fairness and Integrity measures.

Government Superannuation Co-contributions

Under current law the Government contributes a maximum of $1.50 for each after personal income tax dollar contributed to a superannuation fund by eligible people within the income threshold. The maximum government contribution is $1500 per year in response to a contribution of $1000 or more, which decreases as income rises above the shade out threshold.

The Government proposes to reduce the maximum possible co-contribution amount as follows:

  • a dollar for dollar contribution for amounts contributed from 1 July 2009 through to 30 June 2012, with the maximum annual co-contribution being $1000 for those whose income is below the lower threshold ($31 920 in 2009 2010), and
  • a $1.25 government co-contribution for every dollar contributed by a person whose income is below the lower threshold for contributions made between 1 July 2012 and 30 June 2014. The maximum amount contributed will be $1250 in response to a contribution of $1000 by a person whose income is below the lower threshold
    • From 2014 15 the maximum co-contribution amount will return to $1500.

In the 2007 2008 financial year the total government co-contribution amount was about $1.3 billion.

Concessional contributions

Under current law a person may contribute, or have contributed for them, up to the following amounts of concessional contributions annually and claim the corresponding deduction from their personal tax assessable income:

  • $50 000 per annum (indexed) if they are under 50 years of age, and
  • $100 000 per annum (not indexed), for contributions made before 30 June 2012 if they are at least 50 years of age at the end of a financial year.

These amounts are taxed at 15 per cent once they enter the superannuation fund. Concessional contributions made above these thresholds are classed as excessive superannuation contributions and taxed at an additional 31.5 per cent so that the total tax withheld on these amounts is equal to 46.5 per cent, or the top marginal personal income tax rate plus the Medicare Levy.

In the 2009 10 Budget the Government proposes to reduce the maximum tax deductible contribution amounts to:

  • $25 000 per annum (indexed) for those under 50 years of age, and
  • $50 000 per annum (not indexed), for contributions made before 30 June 2012 if they are at least 50 years of age at the end of a financial year.

The $25 000 base amount is indexed annually to movements in Average Weekly Ordinary Times Earnings (AWOTE), if the annual increase in AWOTE is large enough and is rounded down to the nearest multiple of $5,000 to determine the concessional contribution cap for the financial year. The $50 000 limit remains fixed until it no longer applies after 30 June 2012.

Generally, only higher income earners can afford to make the maximum concessional contributions to superannuation funds. It is argued that this particular measure will improve the equity of the current superannuation system. Certainly, it will reduce the forgone tax revenue lost through such deductions.

Non-concessional contributions

Currently, a person may contribute up to $150 000 per annum to superannuation, made up of amounts that have already been subject to personal income tax. These contributions are known as non-concessional superannuation contributions. A person less than 65 on 1 July of a financial year can bring forward two years worth of non-concessional contributions which means they can contribution up to $450 000. Annual non-concessional contributions above this threshold are taxed at a rate of 46.5 per cent.

From 1 July 2009, the non-concessional contribution cap for a financial year will be six times the relevant concessional contribution limit of $25 000 (indexed) as discussed above. Effectively this means that the non-concessional contributions cap after 1 July 2009 will be $150 000 (or six times the indexed concessional cap) per annum

These measures were implemented by Schedule 3 of Tax Laws Amendment (Budget Measures No. 1) Act 2009.

Required pension drawdown

Normally, superannuation pensions paid from an accumulation style superannuation fund (one where the benefits are based on the contributions plus investment earnings only) must have an annual payment of between 4 and 14 per cent a year, depending on the age of the recipient.

During the 2008 2009 year, accumulation style superannuation funds experienced significant investment losses. The requirement to make the above-mentioned level of pension payments would have forced many of these funds to realize these losses, as assets would have to be sold to meet these requirements. On 18 February 2009, the Minister for Superannuation and Corporate Law announced that this requirement would be relaxed for the 2008 2009 financial year so that the minimum annual pension drawdown would be halved. The government now proposes to extend this decision to apply to the 2009 2010 financial year as well.

Trans-Tasman portability

Briefly, a KiwiSaver account is a New Zealand retirement savings vehicle where the employee is required to contribute up to 4 per cent of their salary. The employee may choose to opt out of the scheme, or contribute a lesser amount.

The government proposes to allow the transfer of retirement savings between KiwiSaver accounts and Australian complying superannuation funds. As the government has, as yet, only agreed in principle to the signing of a memorandum of understanding with New Zealand, the final details of the scheme are still being settled.

Superannuation Funds

The most significant budget initiative for superannuation funds is the extension of the ability to transfer (or rollover) capital gains losses to a new fund created out of the merger of two complying funds until 30 June 2011.[7] This concession will now be extended to pooled superannuation trusts having at least five members (they should not be confused with self managed superannuation funds or SMSFs) and the superannuation business of life insurance companies.

Small superannuation funds (not SMSFs) will benefit from the relaxed requirements for pay-as-you-go tax payments for small business entities for the 2009 2010 tax year.



[1]. Australian Government, Part 2: Expense measures , Budget measures: budget paper no. 2: 2009 10, Commonwealth of Australia, Canberra, 2009, p. 391.

[2]. Australian Government, Part 1: Revenue measures , Budget measures: budget paper no. 2: 2009 10, Commonwealth of Australia, Canberra, 2009, p. 35.

[3]. Part 1: Revenue measures , Budget paper no. 2: 2009 10, p. 35.

[4]. Part 1: Revenue measures , Budget paper no. 2: 2009 10, p. 33.

[5]. Part 1: Revenue measures , Budget paper no. 2: 2009 10, p. 36.

[6]. Part 1: Revenue measures , Budget paper no. 2: 2009 10, p. 35 36.

[7]. Part 1: Revenue measures , Budget paper no. 2: 2009 10, p. 11.


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