Changes to limits on concessional contributions to super

From 1 July 2007, concessional contributions made to super will be subject to an annual cap of $50,000. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a self-employed person. The age-based limits on deductions that currently exist for these contributions will no longer apply.

You will be taxed on concessional contributions over the $50,000 cap at a rate of 31.5%. This is on top of the 15% tax paid by the fund. You can ask your super fund to release money to pay this excess contributions tax.

Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply. During this time, the annual cap will be $100,000 for people aged 50 or over.

Reducing the super red tape burden on business

Senator the Hon Nick Sherry, Minister for Superannuation and Corporate Law, announced on 20 March 2008 the introduction into Parliament of Tax Laws Amendment (2008 Measures No. 2) Bill 2008 which will provide fairer treatment for employers who make super contributions after the due date. This Bill will ensure late contributions still count towards reducing the required superannuation guarantee payments of an employer. These changes mean employers will not have to pay the same amount twice. Under Superannuation Guarantee (SG) law, employers are required to make compulsory super contributions at least quarterly on behalf of their employees. If employers fail to make required contributions within 28 days of the due date, they must make the payments through the SG charge payable to the Australian Taxation Office (ATO). When paid to the ATO, the employer”s SG charge includes the shortfall amount. “The problem with the current system is some well meaning employers incorrectly make late SG payments directly to their employee”s super fund instead of the ATO. If they do that, they are then treated as not having paid at all - in effect, they are forced to pay twice.” “In Opposition, Labor called on the then Coalition Government to fix this harsh treatment of employers, to no avail,” Minister Sherry said. The Bill will extend the late payment offset for employers so late contributions will count towards reducing the SG charge. The net effect is that employers will no longer have to pay twice. The offset will be available to employers from the date of Royal Assent, including to employers who have been assessed with the SG charge before this date, if their SG charge remains unpaid.

Federal Cabinet approves first home saver accounts

On 4 Feb 2008, The Treasurer Mr Swan and the Minister for Housing, Tanya Plibersek, have announced that The Federal Cabinet formally approved the establishment of First Home Savers Accounts to help first home buyers save for their first home and help fight inflation.

First Home Saver Accounts are the first of their kind in Australia, and from 1 July 2008 will ensure a couple each earning average incomes and saving for their first home, putting aside 10 per cent of their incomes, will be able to save a deposit of more than $85,000 after five years of disciplined savings.

This is up to $14,000 more than they would have saved otherwise, depending on returns.

Eligibility

· An individual can open an account if they:

o are aged 18 or over and under 65;

o are an Australian resident for taxation purposes;

o have not previously purchased or built a first home in Australia to live in;

o do not have or have not previously had an account; and

o make an initial contribution of at least $1,000.

Contribution arrangements

· Individual contributions of up to $10,000 (indexed) may be made into an account each year. These contributions may be made by the account holder or another party, such as an employer, on behalf of the account holder.

o Contributions have to be made from after-tax income.

· The Government will make an additional contribution which will be paid directly into the account, with arrangements broadly reflecting those for superannuation.

o The Government contribution will be made on up to $5,000 of individual contributions each year.

o The contribution level will be either 15 per cent, or the account holder”s marginal income tax rate less 15 per cent, whichever is greater.

- Individuals with incomes of up to $80,000 who contribute $5,000 to their account will receive a Government contribution of $750.

- For individuals on incomes above $80,000, the contribution will vary depending on the marginal income tax rate of the individual.

Contribution Levels

INCOME (MARGINAL TAX RATE)	Co-contribution %	Benefit based on full $5000 contribution
0-6,000 (0%)	15% (*min )	$750 (=$5,000 X 0.15)
6,000-34,000 (15%)	15% (*min)	$750 (=$5,000 X 0.15)
34,000-80,000 (30%)	15% (30%-15%)	$750 (=$5,000 X 0.15)
80,000-180,000 (40%)	25% (40%-15%)	$1,250 (=$5,000 X 0.25)
180,000+ (45%)	30% (45%-15%)	$1,500 (=$5,000 X 0.30)

Level of tax on accounts

· Contributions will not be subject to tax when contributed to an account.

· Investment earnings (or interest) will be taxed at a rate of 15 per cent.

· Withdrawals will be tax free if used to purchase or build a first home to live in.

Four-year savings horizon

· To withdraw their benefits, individuals will have to contribute a minimum of $1,000 in each of at least four years.

Withdrawals for a first home purchase

· Individuals will be able to withdraw their account balance tax free to buy or build a first home to live in. The full amount in the account will need to be withdrawn and the account closed.

· Alternatively, individuals can close their account and contribute the full amount in the account to superannuation at any time.

Early release provisions

· Individuals will be able to apply to access their account in cases of severe financial hardship and terminal illness, and on compassionate grounds, through the superannuation early release provisions by transferring the full amount in their account to superannuation and closing the account.

Account providers

· Most superannuation providers, life insurers, banks, building societies, and credit unions will be able to offer the accounts.

o Self-managed and non-public offer superannuation funds will not be able to offer the accounts.

Tax cuts Bill introduced

The Treasurer has introduced the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2008 into the House of Reps.

The changes will take effect in three stages: from 1 July 2008, 1 July 2009 and 1 July 2010.

From 1 July 2008:

the lower limit of the 30 per cent threshold will rise from $30,001 to $34,001; and

the low income tax offset will increase from $750 to $1,200. The low income tax offset will continue to phase out from $30,000 at a rate of 4 cents in the dollar for every dollar of income over $30,000.

From 1 July 2009:

the lower limit of the 30 per cent threshold will rise from $34,001 to $35,001;

the low income tax offset will increase from $1,200 to $1,350; and

the 40 per cent tax rate will be reduced to 38 per cent.

From 1 July 2010:

the lower limit of the 30 per cent threshold will rise from $35,001 to $37,001;

the low income tax offset will increase from $1,350 to $1,500; and

the 38 per cent tax rate will be reduced to 37 per cent.

Reducing the super red tape burden on business

Senator the Hon Nick Sherry, Minister for Superannuation and Corporate Law, announced on 20 March 2008 the introduction into Parliament of Tax Laws Amendment (2008 Measures No. 2) Bill 2008 which will provide fairer treatment for employers who make super contributions after the due date.

This Bill will ensure late contributions still count towards reducing the required superannuation guarantee payments of an employer. These changes mean employers will not have to pay the same amount twice.

Under Superannuation Guarantee (SG) law, employers are required to make compulsory super contributions at least quarterly on behalf of their employees.

If employers fail to make required contributions within 28 days of the due date, they must make the payments through the SG charge payable to the Australian Taxation Office (ATO). When paid to the ATO, the employer”s SG charge includes the shortfall amount.

“The problem with the current system is some well meaning employers incorrectly make late SG payments directly to their employee”s super fund instead of the ATO. If they do that, they are then treated as not having paid at all - in effect, they are forced to pay twice.”

“In Opposition, Labor called on the then Coalition Government to fix this harsh treatment of employers, to no avail,” Minister Sherry said.

The Bill will extend the late payment offset for employers so late contributions will count towards reducing the SG charge. The net effect is that employers will no longer have to pay twice.

The offset will be available to employers from the date of Royal Assent, including to employers who have been assessed with the SG charge before this date, if their SG charge remains unpaid.