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How much are the new super rules costing you?
In the last budget, the Rudd government announced some major changes to super rules. We have been affected by some of these changes and today I calculated the cost to us and it came up to a stunning $13,291 per year! For the past 2 years, Kingsley had been contributing the maximum $50,000 into super through salary sacrifice. From July 1, 2009 we can only contribute $25,000. The extra $25,000 that we cannot salary sacrifice will be taxed at 41.5% which is $10,375 or $6625 more when compared to being taxed at 15% if this money was in our super fund. The new rules also meant that we no longer qualified for any family tax benefit which, based on what we received last year amounts to $6666 and this brings the total cost to $13,291 per year.
Although we are officially poorer by $13,291, we will probably feel richer because Kingsley’s take home income will have increased by $14,625 ($25,000 – tax of $10,375) and even if we reduce that by $6666 which is the amount we will need to pay for the existing expenses which used to be covered by our family tax benefit payments, we will still have an extra $7,959 at our disposal. We have been thinking about what we should do with this money. There is little incentive to invest it as any investment income will be taxed at 41.5%. We could do an after tax contribution into super but after seeing how the government can change super rules as they like, we feel reluctant to let any more of our money get locked up in super, especially if there are no tax advantages in doing so. Our current plan is to leave this money in our mortgage offset account which will save us 5.11% of interest payment per year. This will take a lot of personal discipline as we could easily be tempted to increase our spending. I guess that is the ultimately what the Rudd government wants, which is for us to continue to stimulate the economy with increased consumer spending.
For now, everyone will be happy as we have more disposable income. The real cost will only be felt after we retire. If Kingsley continues to work for another 20 years or so, this means our super fund will have half a million dollars less ($25,000 x 20 years), even if we do not take into account any investment income which should be compounding over the 20 years. I sure hope the government in 20 years time will still be able to pay us a generous aged pension should we be unable to adequately fund our own retirement.
Last financial year we were all so happy to get $950 each from the government as part of the stimulus payments. Our family received close to $4000 in total. I don’t know where that money is now but I suspect we have done our share in saving the Australian economy from going into recession and achieving the healthy retail sales figures that have been reported 
. This reminds me of a joke I read about how Obama was going to pay for the stimulus package. He said “the rich will pay for it” but oops I forgot to tell you “btw, you are the rich”. Ouch, its really not so funny because it is so true.
I hope you have enjoyed your stimulus payment. Have you calculated how much the new super rules will cost you?
Note: Image by Ejilshay
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Nice albeit scary post Christina.
We’re in the same position. I decided to use the extra cash to buy more expensive alcohol to pleasantly dull the pain of this idiotic move.
The even scarier point is with a 10% annual return that $21,250 ($25k before tax) less a year will leave you with $1.2M less in your account.
[...] the May 2009 budget cost our family over $13,000 this financial year (for detail, see my blog post How much are the new super rules costing you?). As the government budget was still in deficit in 2010, we were bracing ourselves for more taxes [...]