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Under the banner ”Making our tax system more sustainable” the government has proposed the following changes to superannuation contributions;

  • Couples with combined incomes (and superannuation contributions) greater than $250,000 will pay 30 per cent tax on their concessional contributions, up from 15 per cent.
  • The superannuation concessional contributions cap will be lowered to $25,000 pa regardless of age.
  • A $500,000 lifetime cap for non-concessional contributions.
  • Individuals with an adjusted taxable income of $37,000 or less will receive an effective refund of the tax paid on their concessional contributions (15%), up to $500.

There may be some unintended consequences

Assuming the following situation;

  • Partner A has an annual income $80,000, a super balance of $50,000 and an annual concessional contribution of $30,000.
  • Partner B has an annual income $150,000, a super balance of $300,000 and an annual concessional contribution of $30,000.

Combined incomes and contributions are within the current cap of $300,000 and so concessional contributions are taxed at 15%. Assuming a net return of 5% pa, in 10 years partner A will have a balance of $1,018,006 and partner B a balance of $1,681,330.

The new changes will demand reducing incomes or contributions to avoid contributions tax being paid at 30%. Combined incomes and contributions are within the current cap of $300,000 and so concessional contributions are taxed at 15%. Assuming a net return of 5% pa, in 10 years partner A will have a balance of $1,018,006 and partner B a balance of $1,681,330.

Reducing contributions to avoid 30% tax

Both partners will have to reduce their concessional contributions to $10,000 pa to avoid 30% tax. This would reduce final balances to $427,779 for partner A (a 58% reduction) and $1,091,103 for partner B (a 35% reduction).

Reducing contributions to $25,000

Both partners will have to reduce their concessional contributions to $25,000 pa and pay 30% tax on those contributions. This would reduce final balances to $740,252 for partner A (a 27% reduction) and $1,403,576 for partner B (a 17% reduction).

What is clear is partner A suffers the greatest reduction. The couple have their fortunes tied when deciding tax on contributions but what happens if the relationship dissolves near or after retirement? The courts may have some tricky calculations to preside over.

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