2014/2015 Budget Commentary

This month’s wealth pipeline provides detail and commentary on the 2014/15 budget.  Specifically, we cover the proposed changes to excess non-concessional contributions, Superannuation Guarantee (SG) rates, paid parental leave, and the temporary budget repair levy.  It’s worth noting that these policy changes are proposals only and require the passage of legislation to become effective. 

Option to withdraw excess non-concessional contributions

Currently, superannuation contributions that exceed the non-concessional contributions cap are taxed at 46.5%.  The government proposes that individuals will be able to withdraw superannuation contributions in excess of the non-concessional contributions cap made from 1 July 2013 and any associated earnings, with these earnings to be taxed at the individual's marginal tax rate.

Where this option is chosen, no excess contributions tax will be payable.  Individuals who leave their excess contributions in the fund will still be taxed on these contributions at the top marginal rate.  Therefore individuals who breach their non-concessional cap from 1 July 2013 will effectively be able to reverse the effects of making the excess contribution.     

Our comment –  It is good to see that the treatment of excess non-concessional contributions is brought in line with the treatment of excess concessional contributions. 

Superannuation Guarantee (SG) rate

The Government will change the schedule for increasing the SG rate.  The SG rate will increase from 9.25% to 9.5% from 1 July 2014 as currently legislated.  The rate will remain at 9.5% until 30 June 2018 and then increase by 0.5 percentage points each year until it reaches 12% in 2022-23 as per the following table:

The proposal to retain the previously legislated SG rate increase to 9.5% from 1 July 2014 will provide certainty for employers and employees.

Company tax cut & Paid Parental leave scheme

The Government confirmed that it was committed to cutting the company tax rate by 1.5% (to 28.5%) from 1 July 2015.  For large companies, the reduction will offset the cost of the Government’s 1.5% Paid Parental Leave levy.  Smaller companies thus enjoy a tax break.  The Paid Parental Leave scheme comes into effect from 1 July 2015 and will provide 6 months paid leave including superannuation guarantee for women with an income cap of $100,000 per annum.

Our comment –  It will be interesting to see whether this changes makes it past the Senate. 

Temporary budget repair levy

Previously announced in the media as the ‘deficit levy’, an additional two per cent levy is proposed to apply to certain individuals.  The TBRL will be levied on taxable income in excess of $180,000 p.a. from 1 July 2014 for a period of three years expiring at 30 June 2017.  This will effectively raise the top marginal tax rate from 45% to 47% (46.5% and 49% inclusive of the Medicare levy).  Please note that the Medicare levy increases from 1.5% p.a. to 2% p.a. from 1 July 2015.     

Our comment - With the 0.5% p.a. legislated rise in the Medicare levy and the proposed TBRL, affected individuals may consider deferring tax deductions to next tax year or bringing forward income receipt to the current tax year where possible.  This will result in a decreased levy liability of at least 0.5%, or as high as 2.5%, depending on passage of legislation and income level.