30% Contribution Tax Rate for High Income Earners

The Government has proposed that from the 2012/13 financial year, the contributions tax rate would be 30% (instead of 15%) for super members whose income is $300,000 or more. Essentially, concessional contributions would be taxed at 30% and not 15%.

The finer details of this measure have not been released. However, it seems that “income” will be calculated as taxable income, concessional contributions, adjusted fringe benefits, total net investment loss, target foreign income, tax-free government pensions and benefits reduced by child support.

Where the “income” excluding concessional contributions is less than $300,000 and the inclusion of “concessional contributions” takes “income” above $300,000, then the 30% tax rate will only apply to that portion of concessional contributions which takes the “income” above $300,000.

If a super investor has a taxable income and adjusted fringe benefits of $290,000 (and zero net investment loss, no target foreign income and no tax-free government pensions or benefits and no child support) and has $25,000 of concessional contributions, then their income will be $315,000 and so would be liable to the 30% tax rate on concessional contributions. In this situation, the first $10,000 of concessional contributions will be taxed at 15% and the balance of $15,000 of concessional contributions will be taxed at 30%.

Essentially, super investors exceeding the threshold have their concessional contributions taxed at 15% in the fund and will be subject to another tax of 15% on their concessional contributions.

Excess concessional contributions will not be subject to the 30% tax: these contributions are already taxed at 15% and then again at 31.5%

SC Comments:

The superannuation surcharge is back. The ATO will have to determine each taxpayers “income” for each year and if the $300,000 threshold is exceeded, determine the amount of the excess and the additional tax.
 
Based upon the information so far released, the tax free portion of super pension income and super pension income received after age 60 will not be counted to determine whether the $300,000 threshold has been exceeded. This follows as such income is non-assessable and non-exempt and so does not form part of assessable income and, therefore, cannot be counted as taxable income.

Additionally, capital gains to which the general discount applies or to which a small business concession relief applies will not (based upon information so far released) be counted for the purposes of the $300,000 threshold.

Presumably the Government has learnt the lesson from the super surcharge so that the additional tax of 15% will be imposed on the super member (with the super member having the option of paying the tax using non-super monies or requesting the super fund to pay the tax on their behalf in a manner similar to the payment of excess contributions tax).

The Budget papers estimate that this measure will bring in $1,000m over 3 years. In the scheme of things this is not a significant amount of revenue. (By contrast the reduction in the duty free allowances for cigarettes and tobacco will generate an estimated revenue of $660m over the same period.)

If the Government designs the measure so that the affected super investors will personally bear the liability for the payment of the additional contributions, providing the affected super investors with the choice of paying the tax or having their super fund pay the tax, then the implementation costs for super trustees may not be significant. If, however, the design is to impose the liability on the trustee of the super fund, then material implementation costs will be incurred by super funds.