Chief Executive Officers
A number of new measures applying to superannuation were announced in the Federal Treasures delivery of the Budget at 7.30 pm on 20 August 1996.
A tax increase of 15%, effective immediately, will apply to all employer (pre-tax) contributions (including salary sacrifice contributions) in respect of employees with taxable incomes starting from $70,000. A phased increase in the tax rate will apply to employees with taxable incomes of $70,000 to $85,000.
This will result in total tax on employer contributions of around 46.5% taking into account the tax on benefit payments (previously the total tax on employer contributions was 31.5%). However, present treatment of earnings on employee or employer contributions in the fund (ie 15% at time of earning and 15% on payment of benefits) is being retained for all fund members.
The maximum age for funds to accept contributions and pay benefits is to be increased from 65 to 70 with effect from 1 July 1997. Super guarantee payments will also be required for this group.
Contributions will now be able be made to a fund on behalf of a spouse if the spouse earns less than $10,800 pa or does not work. ^ rebate of 18% of the contributions made up to a limit of $3,000 p.a. will apply to the person making the contributions. These changes to apply from 1 July 1997.
Employees earning between $450 and $900 per month can negotiate with their employer to receive cash instead of the superannuation contributions under superannuation guarantee legislation (currently 6% of salary).
Employers can only claim a tax deduction for contributions which come within individual limits set by the tax office based on each employee's age. This is not expected to have a large impact on NSW public sector employers.
Banks, building societies, credit unions and life offices can accept employer and employee superannuation contributions into Retirement Savings Accounts (RSAs). RSAs are intended to be simple, low cost, low risk superannuation products that are capital guaranteed.
It has been estimated that employees on salaries as low as $61,000 pa will be affected by the imposition of the new 15% surcharge, with the full 15% tax increase affecting employees on $74,000 pa or more. In schemes with a higher employer cost, the tax increase will apply at lower salary levels.
Although the NSW public sector schemes have flexible provisions to deal with tax, the new surcharge involves administrative complexity. The means of implementing the change in rates has yet to be worked out by the Commonwealth. The States (in NSW represented by the PEO and the Treasury) expect to participate in negotiations with the Commonwealth concerning implementation in public sector schemes.
In relation to the treatment of employees earning between $450 and $900 per month and implementation of an option to take a cash payment in lieu of a superannuation contribution, the PEO, representing the Government as employer, is yet to determine its policy position.
The PEO and the Treasury have met with the Superannuation Trustee Board officers and the Superannuation Administration Authority (SAA) concerning the implications of the Budget announcements for NSW public sector schemes. Although the SAA advisory service can provide general information on the nature of changes announced in the Budget to scheme members, it will not be possible to provide specific information affecting individuals and their schemes until issues of policy and implementation are resolved.
Representatives from various State and Territory superannuation agencies are meeting in Sydney this week to discuss the Budget's main impact on superannuation arrangements and to identify common areas of concern. It is anticipated that there will be a joint State/Territory submission for representation on an Actuarial Advisory Committee being established by the Federal Government for implementation of the new taxation arrangements, in addition to other matters.
ACTION BY EMPLOYERS
At this stage employers are advised to take no specific actions, but to continue meeting their superannuation obligations in the normal way. It should 'be borne in mind that the Commonwealth is yet to work out how to implement its announcements and the enactment of legislation will be necessary in the majority of instances.
Enquiries by individual employees can be referred to the SAA advisory services or the PEO Superannuation Unit (Mrs Robyn Quinn, telephone (02) 9228-3617).
A clearer picture is expected to emerge in the four to six week period following the interstate meeting that is taking place this week, and following the commencement of negotiations with the Commonwealth.
You will be kept informed by the PEO as proposals and strategy to address the implementation of the Government's response to the Federal Budget announcements in superannuation are developed.