USEFUL TAX FACTS - 2008/2009

While the information provided below is believed to be correct at the time of publication (July 2008) no liability is accepted if this is not the case. It represents an overview of tax and related issues and should not be relied upon for specific purposes. Professional advice should always be taken in any particular case as individual circumstances can vary.

Therefore, we would encourage you to seek financial advice before making any decision.

·         Employment Termination Payment Tax Rates

·         Genuine Redundancy and Early Retirement Schemes Tax Rates

·         Superannuation Member Benefit Tax Rates

·         Personal Tax Rates

·         Corporate Tax Rates

·         Superannuation Guarantee Legislation Timetable and Contribution Requirements

·         Contribution Limits, Tax Deductions and Rebates

·         Co-Contributions for Low Income Earners

 

 

Employment Termination Payment Tax Rates

From 1 July 2007, an employment termination payment (“ETP”) is a payment in consequence of the termination of employment. It can include:

ETP’s do not include:

The amount up to the ETP cap amount will be concessionally taxed. The amount in excess of the ETP cap amount will be taxed at the top marginal rate.

ETP’s will comprise a tax free component (pre 30 June 1983 and invalidity components) and a taxable component (the balance of the payment).

The taxable component will be subject to an “employment terminations payment cap” which is indexed each year to AWOTE, in $5,000 increments. For the 2008/09 year the cap will be $145,000. This cap is an annual limit, and applies to all ETP’s received in a financial year.

Taxable amounts within the cap are taxed as follows:

Age

Tax Rate

Less than age 55

31.5%

Age 55 or over

16.5%

Taxable amounts over the cap

46.5%

Age is based on the age at the end of the financial year in which the ETP is received. Taxable amounts within the cap will not be counted towards the low rate threshold on superannuation lump sum benefit payments. Except for transitional arrangements (see below), employees will no longer be able to elect to roll-over ETP’s to superannuation.

Transitional ETP Cap Amounts

Transitional arrangements apply to ETP’s in the period 1 July 2007 to 30 June 2012, if the amount of the payment (or method of calculating the payment) was specified in a written contract, law, legal instrument or workplace agreement as at 9 May 2006. “Transitional termination payments” can be rolled over to superannuation, and an “upper cap” of $1,000,000 applies.

Taxable components of Transitional ETP’s are taxed as follows:

Age

Tax Rate

Less than age 55

31.5% on amounts up to $1,000,000

46.5% on amounts above $1,000,000

Age 55 or over

16.5% on amounts up to $145,000 (lower cap)

31.5% on amounts between $145,000 and $1,000,000

46.5% on amounts above $1,000,000

 

 

Bona Fide Redundancy and Early Retirement Scheme Tax Rates

Bona fide redundancy will now be known as “genuine redundancy” and individuals qualifying under either a genuine redundancy or approved early retirement scheme will continue to be entitled to a portion of the payment tax free. This amount will not constitute an ETP.

Any amounts received in excess of the tax-free portion (shown below) will still be an ETP, but will be taxed under the new ETP rules (described above).

 

Type of Payment

Assessable Part

Maximum Tax Rate

 

Redundancy and Approved Early Retirement

  • First $7,350 plus $3,676 for each completed year of service

nil

n/a

  • Balance, taxed as an ETP

As Above

As Above

 

 

Superannuation Lump Sum Member Benefit Tax Rates

Lump sum and pension benefits (known as “superannuation member benefits) paid from a taxed superannuation fund at age 60 or over will be tax free. Members are not required to include these payments in their annual tax returns. The tax rates on lump sum withdrawals from Taxed superannuation funds are as follows:

Age

Tax Free Component

Taxable Component

Below 55

Nil

20%

Between age 55 and 59

-         Up to Low Tax Threshold of $145,000*

-         Excess over Low Tax Threshold of $145,000*

 

Nil

 

Nil

 

Nil

 

15%

Age 60 and above

Nil

Nil

*Rates apply to post 30 June 1983 component (now referred to the “Taxable Component”).

The “Tax Free” component consists of the following:

Important Notes:

 

Personal Tax Rates (2008/2009)

Taxable Income

Marginal Income Tax Rates*

Up to $6,000

Nil

$6,001 to $34,000

15%

$34,001 to $80,000

30%

$80,001 to $180,000

40%

Over $180,001

45%

* Plus applicable Medicare Levy

 

 

 

Corporate Tax Rate

Tax Year

Rate

1999-2000

36%

2000-2001

34%

2001 onwards

30%

 

 

Superannuation Guarantee Timetable and Contribution Requirements

Year

Minimum SG Rate

1 July 2002 onwards

9%

Maximum contribution salary per quarter: $38,180 (2008/2009 year)

From 1 July 2003, employers are required to pay their superannuation guarantee contributions on a quarterly basis. However, employers must continue to ensure that they comply with any award or workplace agreement that stipulates a more frequent payment.

The timetable is as follows:

Period

Due Date for the payment of the SG Contributions

1 July to 30 September

28 October

1 October to 31 December

28 January

1 January to 31 March

28 April

1 April to 30 June

28 July

 

 

 

Contribution Limits, Tax Deductions and Rebates

Limits on Non-Concessional Contributions

What are the limits?

From 1 July 2007, a limit or cap of $150,000 per annum will be imposed for “post tax” undeducted super contributions (referred to as “non-concessional” contributions) made by an individual.

To accommodate larger one-off payments, individuals under age 65 at any time in the first year can bring forward two years of future contribution entitlements, giving them a cap of $450,000 over three financial years. Non-concessional contributions can only be made after age 65 if the “work test” is satisfied, but the $150,000 p.a. cap will apply without any bring-forward provisions.

What are the penalties for exceeding the limits?

Contributions in excess of the non-concessional cap will be subject to penalty tax at the top marginal tax rate plus the medicare levy i.e. 46.5%. Where this occurs, the ATO will issue an assessment to the individual advising them of the additional tax liability. The individual must give this to the Fund for payment together with the relevant release authority (see further details below).

Limits on Concessional Contributions

What are the limits?

From 1 July 2007, a limit or cap of $50,000 per annum will be imposed for employer and self-employed/substantially self-employed tax deductible contributions (referred to as “concessional” contributions). A transitional concessional contributions cap of $100,000 per person per year will apply in the financial years 2007/08 to 2011/12 for clients aged 50 or over at any time in that particular “transitional” financial year.

Concessional contributions include:

*NB: There are specific regulations that apply to members of defined benefit plans. Further details are available upon request.

 

What are the penalties for exceeding the limits?

The ATO will identify any concessional contributions made above these limits and these contributions will be taxed at a penalty rate of 31.5%, in addition to the normal contributions tax rate of 15%. This is then equivalent to the top marginal tax rate of 46.5%. Where the limit has been exceeded, the ATO will issue an assessment advising of the additional tax liability. The individual must pay this personally unless they provide a “release authority” to the trustee within 21 days of receiving the assessment. In this case, the tax will be deducted from the superannuation account. Individuals who receive such an assessment we recommend that they contact their financial or tax adviser.

Contributions which exceed the concessional contribution cap (i.e. $50,000 or $100,000) will count towards the non-concessional contribution cap (i.e. $150,000).

 

Important Reminder

It is important to note that each of the contribution caps described above apply to the total contributions made in respect of an individual during a financial year to all superannuation funds including certain defined benefit accruals and allocations from reserves/surpluses. Particular attention needs to be taken as to the total of the contributions made on behalf of the individual especially if they have one or more contributing employer or more than one fund accepting contributions on their behalf. The ATO will monitor all of contributions (via the individual’s tax file number) and compare the total to the applicable cap.

However, from 1 July 2007, the responsibility for the breaching the concessional contribution limit has shifted from the employer to the employee. Irrespective of whether an individual exceeds the concessional contribution cap or not, the employer will receive a full tax deduction for all contributions made on behalf of their employees under age 75.

As the penalties (i.e. the additional tax) for exceeding both the non-concessional and concessional contribution limits now apply at member level, rather than the employer losing tax deductibility for any “excess” contributions, it is responsibility of individual members to monitor the situation in regards to the new contribution limits.

Spouse Super Contribution Offset

A tax offset of 18% applies to personal superannuation contributions up to $3,000 made on behalf of a spouse with assessable income plus reportable fringe benefits less than $10,800p.a. The maximum offset of $540 reduces where the spouse's assessable income, plus reportable fringe benefits, exceeds $10,800 and is nil when the spouse's assessable income exceeds $13,800p.a.

 

 

Co-Contributions for Low Income Earners

The Co-contributions legislation is designed to encourage additional non-concessional contributions from "low income earners".

The Co-contribution is $1.50 for every $1 of non-concessional contributions (i.e. personal, after-tax contributions) up to a maximum Co-contribution of $1,500 p.a. The maximum Co-contribution applies where the persons income (i.e. assessable income plus reportable fringe benefits) is less than $30,342 p.a. Above this income amount, the maximum Co-contribution reduces by 5 cents for each dollar of income to phase out completely at $60,342 p.a.

You may be entitled to the Co-contribution if you:

Effective 1 July 2007, the Co-contributions scheme was extended for self-employed persons. From 1 July 2007, persons must generate 10% or more of their income (assessable income plus reportable fringe benefits – not reduced by business deductions) from employment or carrying on a business. In determining the amount of the Co-contribution entitlement, income is reduced by business deductions.

From 1 July 2009 the definition of income used to determine eligibility to the superannuation Co-contribution will be expanded to include income salary sacrificed to superannuation.

Co-contributions do not attract the 15% contributions tax and are both fully preserved and are treated as non-concessional contributions. If you are entitled to a Co-contribution you cannot also receive a tax deduction for your personal super contributions.