Tax breaks with super outcomes

A new financial year and new tax brackets. It all adds up to some positive changes that some will use to boost their super.

PORTFOLIO POINT: The new income tax rates provide for some improved super planning and tax opportunities from this week. Read them here.

Largely, I haven’t been very complimentary about the super changes of recent years. But I think it’s fair to say that there hasn’t been a lot to be positive about.

However, you’ve always got to search for the silver lining, don’t you? So, today I’ll do that.

And there is a silver lining in regards to the changes in marginal tax rates (MTR) and how they impact on superannuation strategies. They have made some existing super strategies that were of marginal appeal a little more appealing.

Under the new tax rates that came into effect on Sunday morning, most people earning less than $80,000 will receive a tax cut starting with their next pay.

The tax-free threshold is rising, so that there is no tax to be paid until you earn $18,200. It’s actually higher than that, but for the purposes of simplicity, we won’t include other offsets, including the “low income tax offset” (LITO), “senior Australians tax offset” (SATO), or others.

But after the higher tax-free threshold, the tax brackets actually increase. The first “tax” bracket used to be 15% (which cut in at $6,000), but is now 19% (from $18,200).

And then from $37,000, the new tax rate is 32.5%, which has been raised from 30%.

The bottom line is that workers will pay less tax until they earn $80,000. Above $80,000, there’s “nothing”. (Well, actually, there’s $3 a year, or six cents a week.)

Concessional contributions

With the former marginal tax rate of 15%, there wasn’t much point for those who earned less than $37,000 to make any further concessional contributions to their super fund.

If they took their money as salary, they’d have a marginal tax rate of 15%, perhaps 16.5% if they had to pay the Medicare Levy.

There were a few legitimate reasons to make concessional contributions if you earned less than $37,000. For example:

  • You wanted to get more money into super so that it was tax-free income when you turned 60 and switched on your pension.
  • You wanted to reduce your taxable income for a particular reason.
  • You were prepared to take the difference of 1.5% for the Medicare Levy, as small as it was.

But even if you made a concessional contribution (via salary sacrifice, for example) of $10,000, reducing your salary from $35,000 to $25,000, the likely overall tax saving was going to be just $150 a year.

In the 2012-13 financial year, however, the increase in the MTR to 19% means concessional contribution strategies make more sense for some. Using the same example again, and assuming the Medicare Levy is due in both cases, the person making a $10,000 concessional contribution will now save 4% on that $10,000, or $400 a year, being the difference between an MTR (including the Medicare Levy) of 16.5% to 20.5%. It’s a saving of $400.

On top of that, you’ll still be paying less tax because of the increase in the no-tax threshold from $6000 to $18,200.

Note: And don’t forget that under another rule introduced on July 1, those earning less than $37,000 will have the 15% “contributions tax” refunded to their super account under the Low Income Superannuation Contribution (LISC) scheme.

This not only applies to the Superannuation Guarantee, or 9%, that your employer pays, but salary sacrifice and other deductible contributions as well.

Those earning, for example, up to the $31,920 limit of the Government Co-Contribution (GCC) could most benefit from making a little extra salary sacrifice and a non-concessional contribution of $1,000. They would get back up to $500 under LISC and then another $500 under the GCC.

The LISC rules don’t allow for a fade-out of the rebate. So, if you’re going to be even a few dollars over $37,000, you won’t get a cent of LISC. If you’re going to be just over $37,000, it might make more sense to make a non-concessional contribution of up to $1,000 in order to get the GCC of up to $500. For more information, see below.

Similarly, the increase in the middle income MTR from 30% to 32.5% also makes contributions more appealing for those earning between $37,000 and $80,000.

Someone earning $60,000 who wanted to salary sacrifice $10,000 will save around $250 in tax when FY2013 is compared to FY2012.

In both examples, those savings are part of “overall” tax savings. In the examples I’ve cited, they would be inside super. That is, your super balance would be improved.

Non-concessional contributions

LISC is now going to make a bit of a guessing game about how to make the most out of both LISC and the GCC, which has the potential to be best utilised for incomes around the $25,000 to $32,000 range (but not solely, depending on your individual situation and ability to make contributions).

It will probably be something best calculated towards the end of a financial year (particularly if your salary varies week to week, or month to month, such as for casuals) in, say, May or June.

In some cases, a person on, say, $30,000 might gain the most benefit by salary sacrificing $633 a year (about $55 a month), which would then get them the maximum $500 back from LISC and then make a non-concessional contribution of $1,000 to get the $500 GCC.

In that case, they would effectively get the maximum of $1,000 back from the government ($500 LISC and $500 GCC). You would be paying no tax on concessional contributions and getting the maximum GCC back.

The silly thing about this is going to be the calculations and how complex they will be for individuals who want to make the most of their contributions.

But still, thinking positively, it’s going to lead to a better super outcome at these income levels than previously. And they can still be massaged for even better outcomes than 9% superannuation guarantee contributions would normally allow for.


  • AMP is continuing to build its new self-managed super fund division, appointing former ANZ-owned Super Concepts managing director Craig Jameson as director of business operations at AMP SMSF. Jameson is charged with setting up the new business unit, including its overall strategy, AMP said. AMP SMSF managing director Paul Sainsbury said he was looking forward to working with Jameson “to create a new force in the SMSF market”. Prior to working with Super Concepts, Jameson held positions with ING Australia, Belle Property and Tower Australia. Last week AMP announced the acquisition of Cavendish Superannuation, based in Adelaide, as a key plank in launching its new SMSF business. Under the new business, AMP has also reportedly said it expects to operate three separate SMSF administration brands to increase its appeal to a broader market.
  • The SMSF Professionals Association of Australia (SPAA) has strongly criticised a proposal for self-managed fund sector contributions to a $121.5 million APRA levy, calling the requests “grossly inequitable and fundamentally flawed”. SPAA CEO Andrea Slattery said APRA-regulated funds would be able to spread the levy across thousands of members, at an estimated cost of $5 per member compared with an estimated $40 per member in SMSFs. “We have been a strong supporter of the SuperStream measures and we strongly refute any claim that the SMSF sector is not paying its fair share towards the cost of these measures,” Slattery said.
  • Self-managed super fund auditors must consider their compliance requirements under new rules designed to register auditors with ASIC – something that was previously exempt for accountants. Auditors who register with ASIC and perform more than 20 SMSF audits in the year to June 30, 2013, will not have to sit a new exam, but SMSF Academy head Aaron Dunn points to Australian Taxation Office statistics that suggests more than half of auditors will not meet this 20 benchmark. “The challenge will be whether many practitioners currently auditing SMSFs have the necessary skills around audit and SIS compliance to continue to operate in the new regulatory environment,” Dunn writes. As a result of the recent changes, BT Financial Group’s Securitor has started to offer accountant training programs to help with compliance, offering two new training packages to help meet the new legislative requirements.
  • Both the Future of Financial Advice legislation and Stronger Super legislation were passed by the Senate without amendment, ahead of the new financial year last week. FoFA legislation, which includes opt-in requirements for financial advisors’ fees, took effect July 1, with a 12-month transition period. Strong Super reforms are also set for a transition phase, with widespread changes to the industry superannuation sector. SPAA’s Andrea Slattery said the FoFA reforms provided clarity, and “should be viewed as a win-win for consumers and financial planners”.

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 highly complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking.