Follow on effect of the deficit levy

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The Government will, temporarily, impose a 2% levy on high income earnings. This means that the top marginal tax rate of 45% (which applies to that portion of taxable income in excess of $180,000) will effectively be 47% for the three financial years during which the levy applies. When the 2% basic medicare levy is added the effective top marginal tax rate will be 49% for the three levy years.

This increase will also apply to the non-complying superannuation funds (and other non-complying super entities) and to the non-arm’s length income of a complying superannuation fund. For the three levy years (being 2014/15, 2015/16 and 2016/17) the tax rate applying to non-complying superannuation funds will be 47% (rather than 45%) and the tax rate applying to non-arm’s length income will also be 47% (rather than 45%). Any non-TFN contributions income of a superannuation fund will also be subject to tax at 47% (rather than 45%).

Additionally, for the three levy years, any excess non-concessional contributions tax, imposed for the three levy years will be 49% rather than the current 46.5%. After the three levy years the rate will reduce to 47% (ie equal to the top marginal tax rate plus the basic medicare levy of 2%).

The effect of the levy can be reduced by an affected member increasing their concessional superannuation contributions up to $35,000 (for those aged 50 or more at any time during the 2014/15 financial year) and $30,000 (for other members). However, the effect of the levy cannot be reduced by substituting fringe benefits for assessable salary as the fringe benefits tax rate will also increase to 49% for the fringe benefits tax years corresponding to the levy years.