Issue 535, 15 May 2014
In this issue:
Budget ‘repair levy’: the impact on some superannuation-related amounts
Budget ‘repair levy’: the impact on some superannuation-related amounts
With the introduction of bills to implement the temporary ‘Budget repair levy’ announced in the 2014/15 Budget, it has become clear that the levy will also increase the rate of tax paid on some superannuation-related amounts.
The Budget announced the Government’s plan to introduce a ‘Budget repair levy’ in the form of additional income tax on Australian resident and foreign resident individuals, for the 2014/15, 2015/16 and 2016/17 financial years. The levy will be applied at a rate of two per cent of each dollar of a taxpayer’s annual taxable income over $180,000.
The Government has now introduced a package of bills to implement the levy, including an intention to increase certain superannuation related tax rates. More specifically, where there are tax rates that are currently based on the top personal marginal tax rate (45 per cent), as well as those based on a calculation comprising of the top personal rate and the Medicare levy (which increases to 2 per cent from 1 July 2014), these will be increased by the new levy.
This will not impact on those superannuation lump sum benefit payments that are subject to a capped rate of tax, such as lump sums received before the age of 55. This is due to the fact that, even though they form part of an individual’s taxable income, a tax offset will be available to offset any increased tax liability.
However, the levy will impact on some (limited) types of income received by superannuation funds, and to a number of other superannuation-related benefits and amounts.
- The tax rate on excess non-concessional contributions will increase from 47 per cent to 49 per cent. That said, as mentioned in ASFA Action issue 534, a separate Budget measure announced on Tuesday night will allow a member to withdraw any excess non-concessional contributions made after 1 July 2013. This will enable the member to avoid incurring excess non-concessional contributions tax on these amounts.
- Where a member has an excess concessional contribution amount that is counted against their non-concessional contributions cap, the maximum tax rate applied to that amount will be limited to albeit a quite high 95 per cent. This is necessary because, since 2013, excess concessional contributions have been taxed at a member’s marginal tax rate plus the Medicare levy and – unless they are withdrawn from the superannuation fund – also counted against the member’s non-concessional contributions cap. Where that occurs, and causes the member to incur excess non-concessional contributions tax, the total rate of tax on such an amount could, without an adjustment, potentially reach 98 per cent (the sum of the highest marginal tax rate, the new Budget repair levy rate and the Medicare levy, plus the excess non-concessional tax rate). The overall maximum rate of 95 per cent will be achieved by reducing the rate of non-concessional contributions tax that would otherwise be applied.
- The levy will also be reflected in the tax rates paid by former temporary residents on any taxable component of a departing Australia superannuation payment (DASP). The tax rate on the taxable component of a DASP paid from an untaxed fund will increase to 47 per cent. The tax rate on the taxable component of a DASP paid from a taxed fund will increase to 38 per cent (an increase of 3 per cent rather than 2 per cent, taking into account an adjustment for tax already paid within the fund).
- The tax rate payable on excess untaxed rollover amounts will increase from 47 per cent to 49 per cent. An excess untaxed rollover amount arises where a benefit is rolled over from an untaxed fund, and the taxable component exceeds a threshold ($1,355,000 for the 2014-15 year). The tax is on the excess amount is effectively withheld by the paying fund, and the amount is then treated by the receiving fund as having come from a taxed source.
- The tax rate payable on the taxable component of a superannuation benefit where the recipient has not quoted their tax file number (TFN) will increase from 47 per cent to 49 per cent.
- The overall tax rate paid by superannuation funds on their ‘no-TFN contributions income’ will increase from 47 per cent to 49 per cent. (‘No-TFN contributions income’ arises where a fund has received taxable contributions for a member who has not, by 30 June in the relevant financial year, quoted their TFN).
- The tax rate paid by complying superannuation entities on any non-arm’s length component of their taxable will increase from 45 per cent to 47 per cent.
- The tax rate paid by non-complying superannuation entities on their income will increase from 45 per cent to 47 per cent.
The relevant bills can be found on the Parliament of Australiawebsite:
- Superannuation (Departing Australia Superannuation Payments Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
- Superannuation (Excess Non-Concessional Contributions Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
- Tax Laws Amendment (Temporary Budget Repair Levy) Bill 2014
- Income Tax Rates Amendment (Temporary Budget Repair Levy) Bill 2014
- Superannuation (Excess Untaxed Roll-over Amounts Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
Subject to the bills passing through Parliament, funds will need to ensure that their administration systems, processes, disclosure materials and member communications are updated to reflect the increased tax rates for the affected financial years.
ASFA Action, Issue 535, 15 May 2014
In this issue:
Budget ‘repair levy’: the impact on some superannuation-related amounts
Budget ‘repair levy’: the impact on some superannuation-related amounts
With the introduction of bills to implement the temporary ‘Budget repair levy’ announced in the 2014/15 Budget, it has become clear that the levy will also increase the rate of tax paid on some superannuation-related amounts.
The Budget announced the Government’s plan to introduce a ‘Budget repair levy’ in the form of additional income tax on Australian resident and foreign resident individuals, for the 2014/15, 2015/16 and 2016/17 financial years. The levy will be applied at a rate of two per cent of each dollar of a taxpayer’s annual taxable income over $180,000.
The Government has now introduced a package of bills to implement the levy, including an intention to increase certain superannuation related tax rates. More specifically, where there are tax rates that are currently based on the top personal marginal tax rate (45 per cent), as well as those based on a calculation comprising of the top personal rate and the Medicare levy (which increases to 2 per cent from 1 July 2014), these will be increased by the new levy.
This will not impact on those superannuation lump sum benefit payments that are subject to a capped rate of tax, such as lump sums received before the age of 55. This is due to the fact that, even though they form part of an individual’s taxable income, a tax offset will be available to offset any increased tax liability.
However, the levy will impact on some (limited) types of income received by superannuation funds, and to a number of other superannuation-related benefits and amounts.
- The tax rate on excess non-concessional contributions will increase from 47 per cent to 49 per cent. That said, as mentioned in ASFA Action issue 534, a separate Budget measure announced on Tuesday night will allow a member to withdraw any excess non-concessional contributions made after 1 July 2013. This will enable the member to avoid incurring excess non-concessional contributions tax on these amounts.
- Where a member has an excess concessional contribution amount that is counted against their non-concessional contributions cap, the maximum tax rate applied to that amount will be limited to albeit a quite high 95 per cent. This is necessary because, since 2013, excess concessional contributions have been taxed at a member’s marginal tax rate plus the Medicare levy and – unless they are withdrawn from the superannuation fund – also counted against the member’s non-concessional contributions cap. Where that occurs, and causes the member to incur excess non-concessional contributions tax, the total rate of tax on such an amount could, without an adjustment, potentially reach 98 per cent (the sum of the highest marginal tax rate, the new Budget repair levy rate and the Medicare levy, plus the excess non-concessional tax rate). The overall maximum rate of 95 per cent will be achieved by reducing the rate of non-concessional contributions tax that would otherwise be applied.
- The levy will also be reflected in the tax rates paid by former temporary residents on any taxable component of a departing Australia superannuation payment (DASP). The tax rate on the taxable component of a DASP paid from an untaxed fund will increase to 47 per cent. The tax rate on the taxable component of a DASP paid from a taxed fund will increase to 38 per cent (an increase of 3 per cent rather than 2 per cent, taking into account an adjustment for tax already paid within the fund).
- The tax rate payable on excess untaxed rollover amounts will increase from 47 per cent to 49 per cent. An excess untaxed rollover amount arises where a benefit is rolled over from an untaxed fund, and the taxable component exceeds a threshold ($1,355,000 for the 2014-15 year). The tax is on the excess amount is effectively withheld by the paying fund, and the amount is then treated by the receiving fund as having come from a taxed source.
- The tax rate payable on the taxable component of a superannuation benefit where the recipient has not quoted their tax file number (TFN) will increase from 47 per cent to 49 per cent.
- The overall tax rate paid by superannuation funds on their ‘no-TFN contributions income’ will increase from 47 per cent to 49 per cent. (‘No-TFN contributions income’ arises where a fund has received taxable contributions for a member who has not, by 30 June in the relevant financial year, quoted their TFN).
- The tax rate paid by complying superannuation entities on any non-arm’s length component of their taxable will increase from 45 per cent to 47 per cent.
- The tax rate paid by non-complying superannuation entities on their income will increase from 45 per cent to 47 per cent.
The relevant bills can be found on the Parliament of Australiawebsite:
- Superannuation (Departing Australia Superannuation Payments Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
- Superannuation (Excess Non-Concessional Contributions Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
- Tax Laws Amendment (Temporary Budget Repair Levy) Bill 2014
- Income Tax Rates Amendment (Temporary Budget Repair Levy) Bill 2014
- Superannuation (Excess Untaxed Roll-over Amounts Tax) Amendment (Temporary Budget Repair Levy) Bill 2014
Subject to the bills passing through Parliament, funds will need to ensure that their administration systems, processes, disclosure materials and member communications are updated to reflect the increased tax rates for the affected financial years.
