Kai Swoboda
Following the Government’s pre-election policy that there would be ‘no negative unexpected changes’ to superannuation it is not surprising that there are only relatively minor changes proposed for superannuation in the 2014–15 Budget.[1] Any significant changes are likely to be left until the Government has considered the recommendations of the financial system inquiry (reporting to the Treasurer in December 2014) and the proposed tax white paper (end 2015).[2]
Changing the trajectory for the superannuation guarantee increase to 12 per cent
The Government has proposed extending the deferral of the increase in the superannuation guarantee from the current 9.25% to 12% by a further year. This is to be achieved by pausing the rate at 9.5% between 2014–15 and 2018–19 and then increasing the rate incrementally by 0.5 percentage points each year to reach 12% in 2022–23.[3]
The Superannuation Guarantee (Administration) Act 2012 implemented the previous Government’s policy to incrementally lift the superannuation guarantee rate from 9% in 2011–12 to 12% by 2019–20.[4] This increase was linked to the revenue from the Minerals Resource Rent Tax (MRRT). In March 2014, the Senate rejected the Government’s proposal to modify the timetable of the increase to 12%, which would have resulted in a pause in the rate at 9.25% for a further two years, with annual incremental increases thereafter to reach 12% by 2021–22 (figure 1).[5]
Figure 1 Superannuation guarantee rate increases under existing arrangements and Coalition Government proposals, 2011–12 to 2023–24 (%)[6]
Superannuation industry groups are generally disappointed with the proposed pause.[7] The Association of Superannuation Funds of Australia (ASFA) considers that ‘the original timetable for phased increases should be maintained … This view is overwhelmingly supported by the community, with ASFA consumer research showing almost four in five Australians support the measure’.[8]
The impact of the Government’s proposal is a revenue gain of $90 million over the forward estimates due largely to reduced tax deductions by businesses from 2017–18.[9] Any change to the trajectory for the superannuation guarantee increase may have implications for employees and employers, who may be better or worse off under the proposed arrangements depending on how the superannuation guarantee rate is incorporated into their employment arrangements.
Non-concessional excess contributions tax changes
Non-concessional contributions are generally those made to a superannuation fund from after-tax income. An annual cap of $150,000 applies to non-concessional contributions, although a ‘bring forward’ arrangement also applies. This allows certain individuals to bring forward two years’ worth of entitlements to make three years’ non-concessional contributions in one year. As the earnings of a superannuation fund are concessionally taxed, this cap (in conjunction with a cap on concessional contributions) limits the amount of funds that can be shifted into superannuation each year. Under current arrangements, breaches of the cap excess are taxed at the Excess Contributions Tax (ECT) rate of at 46.5% (the rate increases to 47% from 2014–15).[10]
Included in the 2014–15 Budget is a measure to allow individuals the option to avoid ECT on non-concessional contributions by withdrawing superannuation contributions in excess of the cap made from 1 July 2013 and any associated earnings and have these taxed at their marginal rate.[11] This implements a pre-election commitment to ‘develop an appropriate process that addresses all inadvertent breaches of the contribution caps where an individual can show that their mistake was genuine and the error would result in a disproportionate penalty’.[12]
Such a proposal is similar to that legislated by the previous Government for contributions exceeding the concessional contributions cap. These changes allowed individuals to withdraw any part of their excess concessional contributions from 1 July 2013 and have these subject to ECT at their marginal tax rate, plus an interest charge, rather than the 46.5% ECT rate.[13]
A review by the Inspector-General of Taxation (IGT) of the Australian Taxation Office’s (ATOs) compliance approach to ECT—dated March 2014 but released on 13 May 2014—included the recommendation that government consider whether the ECT regime provides an appropriate treatment for excess non‑concessional contributions.[14] The IGT suggested minimising the impacts through methods such as refunding excess contributions, applying a charge to neutralise any benefit on concessionally taxed earnings from these contributions, and having a ‘deterrent factor that is commensurate with targeted taxpayer action’.[15] The Government’s announced policy, by providing the option for refunding excess contributions, is consistent with this suggested approach. However, the final details of the policy are yet to be determined, with the Government indicating that there would be further consultation.[16]
[5]. Minerals Resource Rent Tax Repeal and Other Measures Bill 2013, Schedule 6, clause 1, accessed 14 May 2014; Australia, Senate, Journals, 2013–14, No. 24, 25 March 2014, pp. 793–704, accessed 16 May 2014.
[7]. Financial Services Council (FSC), FSC Statement on 2014 Federal Budget, media release, 13 May 2014, accessed 15 May 2014; Australian Institute of Superannuation Trustees, Federal budget measures set to widen retirement income gap, media release, 13 May 2014, accessed 15 May 2014; SMSF Professionals Association of Australia, Decision on excess non-concessional contributions a win for SMSF trustees, media release, 13 May 2014, accessed 15 May 2014.
[9]. Budget measures: budget paper no. 2, 2014–15, op. cit., p. 17.
[11]. Budget measures: budget paper no. 2, 2014–15, op. cit., p. 17.
[12]. Liberal Party of Australia, op. cit., p. 5.
[16]. Budget measures: budget paper no. 2, 2014–15, op. cit., p. 17.
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