Hockey Budget creates super opportunities

super moneyBy Steve Blizard

Unlike Labor’s past six budgets Treasurer Joe Hockey’s first budget has seen superannuation being boosted in several positive ways.

The rise in the concessional (pre-tax) superannuation contribution limits for the 2015 financial year is welcome news.

When Rudd Labor gained office, one of the first changes made was to slash the upper limit of $100,000 for people over aged 50 making concessional super contributions, which massively reduced any reward for people seeking to save for their retirement.

The increased contribution cap of $100,000 was meant to cease after July 1, 2012, but proved to be another of Labor Treasurer Wayne Swan’s broken promises.

Since 2008, concessional super contributions have been further capped at $25,000, with a slightly higher limit of $35,000 for those aged 59 or over.

The Abbott Government has now reversed the freeze on concessional superannuation limits.

The concessional super contribution limits applying from 1 July will be increased to $35,000 for people aged 50 and above, and up to $30,000 for under 50s.

Beating the Deficit Levy

Despite howls of moral outrage from Opposition Leader Bill Shorten, he barely blinked when asked to pass the new high-income earners Deficit Levy through the lower house.

However, all is not lost for employees wanting to reduce the impact of the Deficit Levy.

Employees have few ways of reducing their taxable income.

But increasing super contributions from $25,000 to $30,000 (or $35,000 if over 50) from 1 July, is a good place to begin.

For under 50s, income up to a limit of $30,000 diverted into superannuation is taxed at 15 percent, so anyone in the 49 percent tax bracket, which comes into effect from July 1, will keep an extra 34 cents in every dollar earned, if they sacrifice that salary until retirement.

It’s too easy!

New non-concessional limits

Labor also amended how the limit on non-concessional (after-tax) super contributions is calculated.

Beforehand, non-concessional contributions were set at three times the concessional contribution limit.

After Labor’s changes, the non-concessional contribution limit was six times the concessional contribution limit, calculated to be only $150,000.

Under the Abbott-led Coalition Government, the non-concessional contribution limit for the 2015 year has now raised to $180,000.

Where the appropriate conditions have been met, a fund member can use the two-year bring-forward rule enabling them to contribute up to three times the non-concessional annual contribution limit.

This means that from 1 July 2014 the maximum non-concessional super contribution limit will be $540,000, rather than the $450,000 limit that applies for the 2013-14 financial year.

This is subject to the member being under age 65 and not having exceeded the contribution limit in the previous three years.

If the member meets the work test in the financial year when using the bring-forward rule, they can make the maximum non-concessional contribution up to June 30 of the year they turn 65.

Subject to advice, as long as a person has not turned 65 during the 2014 year they can maximise their non-concessional contributions by contributing $150,000 for the 2014 year, and then make a $540,000 non-concessional contribution after June 30, 2014.

Excess contributions relief

The Abbot Government has also moved to introduce a mechanism allowing taxpayers to withdraw excess non-concessional contributions made after 1 July 2013.

This is a positive outcome as it stops punitive tax outcomes where taxpayers can pay up to 93 percent on excess non-concessional contributions.

While the government will need to work through the finer details of the proposal, the changes allow taxpayers to refund excess non-concessional contributions, removing the overly punitive outcomes.

In its 2014-15 Federal Budget Report, Bendzulla Actuarial said this measure will reduce the significant tax impost of making an inadvertent contribution error.

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