Government Announces Proposed Changes to Super
5 April 2013
Those with more than around $2 million in superannuation will lose some tax concessions under changes to the superannuation system announced today by Treasurer Wayne Swan.
Included in a raft of measures detailed by the Treasurer, a tax exemption on superannuation earnings supporting pensions and annuities will be capped at $100,000, and anything above that level taxed at a rate of 15 per cent.
Reforming the tax exemption for earnings on superannuation assets supporting income streams
Under current arrangements, all earnings on assets supporting income streams (superannuation pensions and annuities) are tax-free, in contrast to earnings in the accumulation phase of superannuation, which are taxed at 15 per cent.
From 1 July 2014 earnings (such as dividends and interest) on assets supporting income streams will be tax free up to $100,000 a year. Earnings above $100,000 will be taxed at the same concessional rate of 15 per cent that applies to earnings in the accumulation phase.
The $100,000 threshold will be indexed to the Consumer Price Index (CPI), and will increase in $10,000 increments. Assuming a conservative estimated rate of return of 5 per cent, earnings of $100,000 would be derived from individuals with around $2 million in superannuation.
Special arrangements will apply for capital gains on assets purchased before 1 July 2014:
- For assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;
- For assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and
- For assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.
The transitional arrangements mean people who have already purchased superannuation assets will have ten years to decide whether they want to restructure their superannuation holdings, before their capital gains start to be affected.
This reform will not affect the tax treatment of withdrawals. Withdrawals will continue to remain tax-free for those aged 60 and over, and face the existing tax rates for those aged under 60.
Members of defined benefit funds, including federal politicians, will be impacted by this reform in the same way as members of defined contribution funds (i.e. that there will be a corresponding decrease in concessions in the retirement phase).
Increase to the concessional contributions cap
The Government will increase the concessional cap to $35,000 for anyone who meets certain age requirements.
The start date for the new higher cap will be 1 July 2013 for people aged 60 and over. Individuals aged 50 and over will be able to access the higher cap from the current planned start date of 1 July 2014.
The Government has decided not to limit the new higher cap to individuals with superannuation balances below $500,000 in light of feedback from the superannuation sector that this requirement would be difficult to administer.
Reforming the treatment of concessional contributions in excess of the annual cap
Under the current arrangements, concessional contributions that are in excess of the annual cap are effectively taxed at the top marginal tax rate (46.5 per cent) rather than the normal rate of 15 per cent. This outcome is achieved through the imposition of Excess Contributions Tax. This is a severe penalty for individuals with income below the top marginal tax rate.
The Government will allow all individuals to withdraw any excess concessional contributions made from 1 July 2013 from their superannuation fund. In addition, the Government will tax excess concessional contributions at the individual’s marginal tax rate, plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax.
These rules will ensure that individuals are taxed on excess concessional contributions in the same way as if they had received that money as salary or wages and had chosen to make a non-concessional contribution.
Further changes announced today, include:
- Extending the normal deeming rules for government pensions to superannuation account-based income streams;
- Extending concessional tax treatment to deferred lifetime annuities; and
- Further reform to the arrangements for lost superannuation.
Mr Swan did not commit to legislate all of the changes announced today by the time the Parliament rises ahead of the September 14 election.
For more information please contact your local Boyce Director or our Specialist Superannuation Strategist, Elizabeth Timmins on 6452 3344 or email firstname.lastname@example.org.