Contributions capers: Another year, another change

Don’t get too excited by the latest contributions limit change … there’s been five in five years.

Summary: From July 1, people aged over 60 will be able to contribute $35,000 into superannuation at a concessional tax rate of 15%. While an increase on the current $25,000 limit, it’s still well under the previous contributions limits available to SMSF trustees and superannuation accountholders.
Key take-out: The latest change represents a significant winding back of the government’s previously announced, and delayed, change that would have allowed people over 50 to contribute $50,000 at the concessional rate.
Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

To quote comic legend Rowan Atkinson playing the pastor addressing his flock in an episode of the 1980s sketch comedy classic Not the Nine O’Clock News: “You don’t know whether to sit, kneel or stand!”

I’m referring to federal government policy on concessional contributions – the basic rules surrounding how much you can put into superannuation.

There have been major changes almost every year since 2009. And they’ve gone something like this:

2009: “Too generous – chop it in half!”

2010: “Hey, still too generous! Cut it further!”

2011: “Whoops, mea culpa, went too far. We’d better give some back.”

2012: “Sorry, changed our minds. We can’t afford that! Push it back a few years.”

2013: “Okay, bring it forward again. Whoa! Whoa! Whoa! Not that much. Just a little bit.”

Never has a decision of such importance for a SMSF trustee been stuffed around so much. For those in “the zone” (roughly 50-70), concessional contributions limits have changed about once a year for too long.

How can anyone have a clue about the output from super if you’ve no idea what the input is from one year to the next?

And don’t forget that the changes which kicked this all off – former Treasurer Peter Costello’s introduction of a $100,000 concessional contribution limit – were actually a reduction on the generosity of previous rules.

We’ve had contribution limits halved, then halved again (from $100,000 to $50,000 to $25,000), then reduced further.

Someone admitted an error and held out a carrot (the 50-50-500 rule) of higher contributions for those with less than $500,000 in super. Then, just as it was about to be implemented this time last year, it was pushed back by two years.

Somewhere in there, indexation for concessional limits got frozen. And then got put in the deep-freeze. (I think they’ve thawed now, but I’ve got frostbite, so I’m not sure.)

Now, just in case you were getting used to new, low, contribution limits, they’ve lifted them again. Sort of. For some people. They seem to have abandoned next year’s 50-50-500 rule (the 2012 Budget delayed the introduction of that rule from 1 July 2012 to 1 July 2014) and replaced them with something less generous, but slightly more generous than now, to start from 1 July 2013.

A sort of 60-35-unlimited, if you will (far less catchy than the phrase I coined), which becomes virtually meaningless, given that indexation seems to have been sent off to cryogenics.

Are you confused? It’s okay if you are.

Here are the new rules. (And from this day forward, I won’t try to encourage 50-70-year-olds to make commitments to contributions any further out than a year, for the foreseeable future.)

New concessional contribution limits

For this financial year (FY2013), the rule was that everyone would have the same concessional contribution (CC) limit of $25,000.

From 1 July, that changes. Some people will get higher CC limits.

The government claimed that it was because older Australians hadn’t had their entire working lives with superannuation.

“Accordingly, the Government will bring forward the start date for the new higher cap to 1 July 2013 for people aged 60 and over. Individuals aged 50 and over will be able to access the higher cap from the current planned start date of 1 July 2014. The general concessional cap is expected to reach $35,000 from 1 July 2018.”

The “government will bring forward the start date” is spin. The rule that was to apply from 1 July 2014 was for people aged 50 and over and was supposed to be for contributions of $50,000. This new rule is for people aged 60 and over and is only $35,000. It’s not bringing it forward. It’s a significant winding back of the previously announced, delayed, rule.

(Don’t believe me? The final section of that part of the press release: “This reform will save $365 million over the forward estimates period.”)

What do you do in 2013-14?

If you’re over 60, eligible to make concessional contributions in 2013-14, and have the taxable income to make it work, then make them. You have a one-year head-start on 50-plus year olds.

The upside of this announcement is that it won’t be limited to those with less than $500,000 in super, apparently because it would be too hard to police (something I told them 10 days after they announced the 50-50-500 policy in May 2010 in this 2010 column (Please explain, Mr Rudd).

This new limit is not indexed.

Simply: If you are over 60 and able to make concessional contributions to super, you will have a new limit of $35,000 from 1 July onwards. Use it or lose it.

What to do in 2014-15?

From 1 July 2014 – assuming the rules don’t get rewritten again – the over 50s will also be able to contribute up to $35,000 a year.

That is, they will have a few years of being able to put an extra $10,000 a year on the under-50s, until the under-50s CC limit increases, by indexation (assuming that isn’t frozen again), to $30,000 and then to $35,000. The government expects that to happen by 1 July, 2018.

Simply: Everyone over 50 and eligible will be able to access the $35,000 CC limit from the middle of next year.

But don’t get too used to the new limits.

I’ll probably be writing about further changes this time next year.

The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E:
Graph for Contributions capers: Another year, another change

  • Individuals setting up a self-managed super fund must be alert to the threat of property spruikers, according to Australian Securities and Investments Commission (ASIC) commissioner Peter Kell. “We have seen an increase in the targeting of SMSFs by less scrupulous operators, and we are keen to address this risk”, he told a CPA Australia event. During a review process of over 100 files concerning the creation of SMSFs with a fund balance up to $150,000, ASIC found “concerning pockets of poor advice”. Kell said most of the bad advice concerned recommendations to set up a SMSF to gear into real property, which is becoming more prevalent. Kell’s warnings were reaffirmed at the same event by former federal minister for superannuation Nick Sherry, who also raised concerns about the high percentage that fees take up for SMSFs with relatively low assets under management.
  • Australian Taxation Office (ATO) figures released last week reveal that fewer taxpayers are being caught out by the excess contribution caps to their superannuation. Excess concessional contributions dropped to 35,999 from 50,049 and excess non-concessional contributions more than halved to 970 from 1,940 in 2010-11. SMSF Professionals Association of Australia (SPAA) technical director Graeme Colley said the changes illustrate how people are coming to grips with contributions caps as well as more leniency from ATO. “However, it will be interesting to see what happens for the 2012-13 financial year when the concessional contributions cap was reduced to $25,000 for people aged 50 years and older,” he said. SPAA supports the federal government’s proposed changes to excess contributions, which includes people being able to withdraw their excess component and pay the tax on their marginal rate.
  • TAG Partners director Michelle Griffiths warns SMSF holders that a will is not enough to safeguard who will inherit their funds, but a binding beneficiary form adds more certainty to their legacy. “It’s not difficult for people to contest a will if they feel they haven’t received enough, but it becomes very difficult to do the same with a binding beneficiary form,” she said. Under such a form the SMSF holder can only specify one nomination that lasts indefinitely unless it’s changed.

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