One of the most unpopular changes to the superannuation sector has been the halving of the superannuation contributions caps handed down in last year’s budget.
From 1 July 2009, concessional contribution limits for individuals under the age of 50 were set at $25,000 a year, with those aged over 50 still having a limit of $50,000 until 30 June 2012.
At the same time, non-concessional contributions were capped at $150,000 a year.
The government thought the impact of these changes would be miniscule, estimating only 2000 individuals would be affected.
At last count the Australian Taxation Office had prepared assessment notices for 35,000 people who had already breached the concessional caps for the year.
This being the situation, and with many people facing enormous tax penalties as a result of contributions cap breaches, a large proportion of industry experts and practitioners were hoping the government would see the light and take the opportunity in this year’s budget to raise the caps back to their previous levels.
As we all know, this did not happen and we are stuck with the current limits for the time being.
However, one small piece of ground was given up by those in charge: the concessional contribution cap of $50,000 for those over the age 50 will no longer be dropped to $25,000 from 1 July 2012.
In doing so an additional caveat was placed on this group and that was that for them to qualify for the higher limit they had to have a superannuation balance of less than $500,000.
This move was an olive branch and aimed at potentially giving some lower income earners the ability to boost their retirement savings pool in the lead-up to their retirement.
The reality is though that it could end up opening a whole new can of worms for superannuation fund members, especially those in the self-managed space.
As with anything in this world, if there is a window of opportunity on offer most people will try to take advantage of it.
That means we are likely to see more inventive and perhaps creative methods of asset valuations for superannuation assets, especially for individuals who are borderline cases in regard to the $500,000 threshold.
The question then has to be asked: will this lead to even further regulation regarding the valuation of assets? Could it also mean even more people will be caught out and penalised for breaching the contributions caps as a result of incorrect asset valuations?
The change could also see another required adjustment to superannuation contribution strategies with a return of contribution splitting, something that hasn’t been seen since the removal of the reasonable benefit limits.
This slight change to the rules has all the hallmarks of a half measure and with any of these types of changes a whole raft of other issues arise.
