Super news for directors from the Budget

Last night’s Budget included an unexpected bonus for directors wanting to build up their retirement nest eggs.

Brad Eppingstall, a principal with accountant RSM Bird Cameron, notes: “Effective from 1 July 2013, any excess non-concessional (after-tax) contributions can be withdrawn from superannuation without being subject to excess non-concessional contributions tax at 46.5 per cent. The earnings generated on the excess non-concessional contribution will also be able to be withdrawn and be taxed at the individual’s marginal tax rate. This means rather than being penalised with a large tax bill for what is often an inadvertent breach of the caps, individuals will have the option to elect to withdraw the money from superannuation without any taxation consequences."

This is welcome news for directors with multiple roles because in the past mandatory superannuation guarantee (SG) contributions in respect of each directorship may have been combined to exceed the concessional (pre-tax) cap which, in turn, would have affected the non-concessional cap. If directors exceeded the non-concessional contribution cap, the amount in excess of the cap could have been taxed at up to 93 per cent. In October 2012, the Australian Institute of Company Directors made a submission to Treasury to express its significant concerns about this.

For directors who rely on the SG, the government unexpectedly deferred its rise by an extra year from 1 July 2021 to 2022. It was originally going to pause the SG at 9.25 per cent for two years and then scale it to reach 12 per cent in 2021. However, Treasurer Joe Hockey says the SG will now go to 9.5 per cent next year (1 July 2014) and will then freeze at that rate until 30 June 2018. The SG charge will then rise by 0. 5 per cent each year until it reaches 12 per cent in 1 July 2022.

Deloitte national superannuation leader Russell Mason says: “Although this does of course mean that it will take longer for people to build up their super – especially when you consider that the previous Labor government had flagged 2019 as the 12 per cent SG date – the long term impact on superannuation savings individually will be minimal.” 

In addition, the Association of Superannuation Funds of Australia has welcomed the government's infrastructure package which includes spending of about $50 billion over the next six years on roads, rail and ports.

Its CEO Pauline Vamos says superannuation funds have a long history of investing in infrastructure and a strong appetite for further investment in this asset class. She notes that the current average asset allocation of super funds to infrastructure is around 7.5 per cent.

"But as the superannuation system continues to mature and more people move from accumulating super to taking income streams, stable, long-term and income-producing assets such as infrastructure will become more attractive and more suitable investments for super funds. Many of the public assets potentially earmarked for sale would be an ideal match for the risk-return profile desired by super funds in this changing demographic environment."