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Henry Report review

The Henry Review of Australia’s tax system recently released its final report, which made 138 wide-ranging recommendations. At the same time, the Government released its response, which incorporates a small but important selection of these recommendations. Superannuation features heavily in the Government’s response, with the following proposed changes announced:

Increase of Super Guarantee from 9% to 12%

The Super Guarantee will gradually increase from 9% to 12% between 2013 and 2019. This is a major benefit for the retirement savings of Australian workers. As an example, if you are a worker aged 30 with a salary of $50,000, you could expect around $282,000 more upon retirement at age 65 with an extra 3% Super Guarantee during these years (assuming 3% salary increase and 8% earnings each year).

Extension of Super Guarantee to age 75

Currently, if you are aged over 70, your employer is generally not required to pay super contributions on your behalf. From 1 July 2010, Super Guarantee will be payable until you reach age 75.

Government super contribution for lower income earners

Lower income earners who have Super Guarantee made on their behalf may see these contributions taxed at a higher rate than if they had been received as salary. Employer super contributions are subject to contributions tax of 15% when received by your super fund.

From 1 July 2012, if your income is below $37,000, the Government will contribute up to $500 to your super fund to match the contributions tax paid by your super fund. This effectively means that your Super Guarantee contributions are paid into your super fund tax free.

Permanently higher concessional cap for many who have reached age 50

Currently, if you are over 50 a temporary rule allows you to contribute up to $50,000 per financial year in concessional contributions (which include Super Guarantee, salary sacrifice contributions and personal contributions for which you claim a tax deduction). However, this rule is due to come to an end on 1 July 2012, when your contribution limit will return to $25,000.

The Government has proposed giving those over 50 a permanently higher concessional contribution limited of $50,000 from 1 July 2012. This would apply provided your overall superannuation balance is less than $500,000.

How will this affect you?

If put into law, these proposals will mean that you can expect more compulsory superannuation to be paid by your employer on your behalf, as well as greater ability to make tax advantaged contributions as you approach retirement. Speak with your Count Adviser about how these proposed changes can benefit you.