Superannuation Contributions Tax to Double
From 1 July 2012, individuals with ‘income’ greater than $300,000 will have the tax concession on their concessional contributions reduced from 30% to 15% (excluding the Medicare levy). This means that the tax rate on concessional contributions will effectively double from 15% to 30% for very high income earners from 1 July 2012. There will still be an effective tax concession of 15% (up to the concessional contributions cap of $25,000) for these high income earners.
The definition of ‘income’ for the purpose of this measure will include taxable income, concessional superannuation contributions (e.g. superannuation guarantee contributions and salary sacrificed contributions), adjusted fringe benefits, total net investment loss, target foreign income and tax-free government pensions and benefits, less child support.
If an individual’s income (excluding their concessional contributions) is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, the reduced tax concession will only apply to the part of the contributions that are in excess of the threshold. For example, someone with income excluding their concessional contributions of $285,000 and concessional contributions of $20,000 (taking their total income to $305,000) would have the reduced tax concession only apply to $5,000 of their contributions.
Importantly, the reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap of $25,000 and are therefore subject to excess contributions tax (ECT). Excess concessional contributions are effectively taxed at the individual’s top marginal tax rate and therefore do not receive a tax concession. ‘Concessional contributions’ for the purpose of this measure include all employer contributions (both superannuation guarantee and salary sacrifice contributions) and personal contributions for which a deduction has been claimed. For members of defined benefit funds (both funded and unfunded schemes) it will include all of their notional employer contributions.