Super is set to benefit from the Minerals Resource Rent Tax (MRRT), which has passed the Senate and will come into effect on 1 July 2012 after it receives Royal Assent.
The MRRT is part of the government’s mining tax package consisting of 11 bills, two of which relate to super. The amendments to the super legislation proposed in the bills were dependent on the passing of the MRRT package because the proceeds of the tax will be used to fund a number of government tax initiatives, including policies to build super savings.
1. Superannuation Guarantee Increase
As part of the package, the compulsory employer-paid Superannuation Guarantee (SG) will gradually increase from the current 9% of an employee’s salary, paid quarterly, to 12% by 2019-2020, where it will subsequently remain. This increase intends to boost future retirement incomes.
The schedule for the increase is set out below.
2. Abolishing the Superannuation Guarantee age limit
Amendments will include the removal of the maximum age at which an employer no longer needs to pay an employee super. Currently, employers are not required to make SG contributions for employees who are aged 70 or over. Effective 1 July 2013, employers will have an SG liability for eligible employees regardless of their age.
Also included in the package are amendments to the Income Tax Assessment Act 1997 (ITAA 1997) to allow employers to claim an income tax deduction for SG contributions in the year in which the contribution is made for employees aged 75 and over.
Currently, employers are only able to claim a full deduction for SG contributions made on behalf of their employees up to age 75. The deduction is limited to the amount of the contribution that reduces the employer’s SG charge percentage in respect of an employee. The SG charge percentage is the minimum level of employer superannuation contributions applied to each eligible employee’s ordinary time earnings.
Example
For example, if in 2013/14, when the SG charge percentage is 9.25%, an employer contributes more than this amount, they will only be allowed a deduction for the amount equal to 9.25%. The amendments, effective 1 July 2013, aim to match the deductibility of SG contributions with the removal of the SG maximum age limit.
3. Introduction of a low income superannuation contribution of up to $500
The package also amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 to enable eligible low-income earners to receive the low income super contribution from 1 July 2012.
The low-income super contribution effectively returns the tax paid on concessional contributions by their super fund. It will also remove the 15% tax penalty that exists for individuals with a 0% personal marginal tax rate in relation to their SG contributions. The amount will be paid into a super account of an individual to directly boost their retirement savings.
Low-income earners are defined as individuals with an adjusted taxable income (being taxable income, adjusted fringe benefits, target foreign income, total net investment losses, tax-free pension or benefit, reportable super contributions less any deductible child maintenance expenditure for that year) not exceeding $37,000. The individual must have concessional contributions for the year (which include SG contributions, salary sacrifice and personal deductible contributions), must not hold a temporary resident visa, and satisfy an income test in which 10% or more of their total income is derived from business or employment.
The amount of the low-income super contribution is calculated at a rate of 15% of the total eligible concessional contributions for the year where the amount payable is $20 or more, up to a maximum payment of $500. It forms part of the contributions segment, and therefore the tax-free component of any super benefit. It is a different payment from the Government super co-contribution which is determined separately.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
