Super contributions caps to rise for under 50s…Don’t miss it!

Little reported changes to superannuation indexation means the dollar amount allowed under superannuation ‘caps’ is finally set to lift.

Summary: Finally, some positive developments on two fronts in super, with lighter regulation of SMSFs a possibility and a return to indexation for concessional contributions means under 50s contribution limit rises from $25,000 to $30,000 on July 1.

Key Take-Out: There will be two new limits to concessional contributions from mid-year: $30,000 for the under-50s and $35,000 for the over-50s.

Key beneficiaries: SMSF trustees and superannuation accountholders.  Category: Superannuation.

At Eureka Report we have been extremely - some might say obsessively - interested in the changing rules around superannuation ‘caps’ .  But it’s no exaggeration to say the issue is crucial to the successful operation of our superannuation system, particularly the DIY fund sector which now has almost one million members. We have continually reported on this issue because we believe the caps are too low : they threaten to delay, if not to substantially halt the accumulation of sufficient superannuation savings among many investors. Now at last there has been a breakthrough of sorts which means under-50s will be able to put an extra $5000 into super.

And in second positive development, SMSF trustees (and the SMSF industry more broadly), regulation and red tape for SMSF trustees is likely to be reduced.

The Australian Tax Office last week announced that indexation was to be reapplied to contribution limits – fixing an unsatisfactory situation that had developed during the Kevin Rudd prime ministership. When the former Labor government was targeting super tax leakage at the height of the GFC, they halved the concessional contributions limits for superannuation. That was bad enough. But Labor also froze indexation of those limits. When it was reduced to $25,000, it was supposed to slowly rise with indexation – tied to wages – over time.

The indexation has now been reintroduced into the calculations, so the concessional contribution limit rises from $25,000 to $30,000 on 1 July 2014. That’s the limit that will apply to the under-50s. The over-50s have their own limit, which will not be increasing. In the current financial year, those over 60 have had a limit of $35,000. And that is due to be extended to the over-50s from  July 1, 2014.

So, there will be two new limits coming into force mid-year. The under-50s will be able to contribute $30,000 and the over-50s will be able to contribute $35,000. Indexation is highly important to limits such as these, as the relative value of each limit has been reducing each year since they were introduced. In 2009, $25,000 was worth $25,000. However, the effect of inflation means that $25,000 in 2009 is now worth around $21,000.

For those who have been taking advantage of the ability to put after-tax money  into superannuation through non-concessional (NCC) limits, there is further good  news. The NCC limit will also rise from $150,000 a year to $180,000 a year, as it is tied to being six times the concessional contribution limit, but also has not moved because of the indexation freeze.

Everyone able to contribute to superannuation will be able to put in $180,000 a year as an NCC. And those who take advantage of the pull-forward rule, which allows members to contribute up to three years’ worth of NCCs at once, they will be able to contribute $540,000 in the one hit, up from the current $450,000 (or three years of $150,000).

SMSF members set to gain the most from a rise in concessional contributions

While the news on contributions will actually aid all superannuation members, it is SMSF members that tend to make the most of their limits. The second front of good news is specifically for SMSF trustees.

The government believes SMSF trustees are largely responsible and can behave like adults. And, as a result, they believe that the regulation load can be reduced  and they’re looking for feedback on how that might best be done.

The request for submissions came from Rob Heferen, executive director of the Australian Treasury revenue group, who said that Treasury believes that the sector was different because “of course (SMSF members are) going to look after their own interests”.

Heferen told the national conference of the SMSF Professionals Association of Australia (SPAA) that problems faced in the sector were unlikely to cause disasters that were further widespread in the economy.

“There’s no systemic risk to the financial system from SMSFs. If an SMSF, or even a group, happened to lose a lot of money, it would be tragic for the people involved, but there’s not the systemic risk,” Heferen said.

Heferen said the Abbott Government was generally in favour of less regulation, rather than more regulation, and was looking for opportunities to reduce the burden of regulation on the economy.

“Given the government’s quite explicit intention regulated only to the level which optimised what the ideas of possible deregulation could be…we would really appreciate hearing that,” Heferen said.

It’s a significant change from messages from the previous government, which once effectively labelled SMSFs cheats and frauds over in-specie transfers of assets into SMSFs. It moved to ban in-specie transfers, before canning the idea due to legislative complexity.

Conference attendees were also told that the areas of concern from the ATO’s perspective from recent activity covered five areas, with no great surprises.They are:

  • illegal early release schemes; on-time SMSF annual return lodgement;
  • fraud; non-arm’s length income; and limited recourse borrowing arrangements (LRBAs).
  • only 150 (out of 516,000) SMSFs were made non-compliant for breaches in FY13 and just 440 people were banned from being trustees.

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: bruce@castellanfinancial.com.au

Graph for Super contributions caps to rise for under 50s…Don’t miss it!

  • The Australian Taxation Office (ATO) has decided that SMSFs which have two or more annual returns outstanding will be removed from the Super Fund Lookup site and will be treated as a “non-person” for tax purposes. SMSFs in this category receive a “black mark” and won’t be able to enter a limited recourse borrowing arrangement, receive contributions from employers, or roll over and transfer their super benefits, according to SUPERCentral
  • SMSF trustees need to provide an electronic service address to their employer for the delivery of contribution messages by May 31 this year, warns ATO. As part of the federal government’s SuperStream review, all SMSFs will receive contributions electronically from employers from the second half of the year. Funds don’t need to upgrade their reporting software to comply with the changes.
  • New technology solutions are threatening the role of accountants in the SMSF sector, according to industry consultant Steve Prendeville. “The pricing of SMSF audits (average $3,000) is under threat [from] technology or product provider subsidised offers,” he said. He believes accounts will engage in merger and acquisition activity to protect their SMSF offering in the months ahead.

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