Changes to superannuation laws in the 2012 Federal Budget may cause some Baby Boomers to rethink their retirement plans as increased contributions may now lead to cap breaches.
Individuals with an income exceeding $300,000 will have a tax concession on their contributions raised from 15% to 30% as of 1 July 2012.
The tax includes all concessional superannuation contributions, including super guarantee payments.
Last year the Government created higher contribution limits for individuals aged 50 years and over with a superannuation balance of less than $500,000.
This would have allowed these people to make up to $25,000 more in concessional contributions than under general concessional contributions cap.
Concessional contributions include employer contributions for members of defined benefit funds. There will be no changes for people over 50 with an income of less than $300,000 per year. The Government has also announced a deferral of the start date, which means until 1 July 2014, all individuals have a cap of $25,000.
The announcement includes a provision to prevent the new surcharge from applying on top of excess contributions tax. This may be a drawback for those taking advantage of ‘transition to retirement’ strategies.
The changes could result in accidental contribution cap breaches and lead to further contributions tax assessments for clients. Many people planning their retirement may need to assess what these changes mean for them, and individuals over 50 may need to re-assess their salary sacrifice arrangements.
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