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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