By Andrew Yee, HLB Mann Judd (Sydney)
Recent changes have further complicated the super rules. For example, the limits on contributions to superannuation may again catch some people out with the possibility of breaching contribution caps.
For the 2013 financial year, the concessional contribution caps for those aged over 50 have halved, as shown in the accompanying chart.
|Year ||Contribution type ||Age under 50 ||Age over 50 |
| 2012|| Concessional|| $25,000|| $50,000|
| 2012|| Non-Concessional|| $150,000|| $150,000|
| 2013|| Concessional|| $25,000|| $25,000|
| 2013|| Non-Concessional|| $150,000|| $150,000|
Therefore for those over 50 it is particularly important to review and, if necessary, revise their current contributions planning and salary sacrifice agreements to avoid going over the limits, as excess super contributions can result in a tax rate as high as 93%. Accidental breaches are not accepted as an excuse, although this year there is some good news for those who do go over the limits by less than $10,000.
They can now claim a refund of the excess contribution but this does not apply to anyone who breached the limits in previous years and are liable to pay the penalty. Repeat offenders will not be given the opportunity to claim a refund, so it is vital for fund members to make sure they keep within the limits.
For those over 65, the work test must be satisfied for the concessional and non-concessional limits to apply.
SMSFs and property
The ATO recently provided some clarification to those who invest in property through their self-managed superannuation funds. The update means that those who had planned renovation or repair work on the property, now have a better understanding of whether borrowings can be used to pay for the work, depending on whether the work is ‘maintenance’, ‘repair’ or ‘improvement’. For instance, work to repair damage to the property with similar materials and to a similar standard, counts as repair and borrowings can be used to finance the work.
However, if improvements are made at the same time, they cannot be paid for by borrowings. An example is a fire that destroys a kitchen. To replace the kitchen to the same standard, using modern equivalent materials, counts as repair. Deciding to expand the kitchen at the same time, counts as an improvement. ‘Trifling’ additions, such as installing a dishwasher where there wasn’t one before, can still be called a repair.
High income earners
Another recent change is not so welcome. Those earning over $300,000 must now pay 30% tax on their superannuation contributions. This change came into effect on 1 July 2012.
When taken in conjunction with the limits on contributions, this could have a significant impact on the amount people are able to save in their superannuation, and could cause problems for those still seeking to build their retirement savings.
As a result, establishment of a retirement savings strategy outside the superannuation system may need to be considered.
Disclaimer: All material contained in this newsletter is written by way of general comment to clients of member firms of the HLB Mann Judd Australasian Association. No material should be accepted as authoritative advice and any reader wishing to act upon the material contained in this article should first contact a member firm for properly considered professional advice which will take into account each client’s own specific conditions. No responsibility is accepted for any action taken without advice by readers of the material contained herein. Liability of Australian firms is limited by a scheme approved under Professional Standards Legislation..