The Federal Government has today announced changes to superannuation which have been speculated over the last few weeks.
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, the federal government has announced. Note that these are not yet legislated so may change once finalised.
Announcing long-awaited changes to superannuation in Canberra on Friday, Treasurer Wayne Swan the measures would only impact on those with super assets of more than $2 million, or about 16,000 individuals.
The government has been under pressure to detail any changes to superannuation planned for the May budget, with ongoing speculation that it would increase taxes for high earners. Under existing 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.
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 five per cent, earnings of $100,000 would be derived from individuals with around $2 million in superannuation.
These changes 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.
Contribution Limit Proposals
The Government has decided to scrap the $50,000 concessional cap linked to super balances under $500,000. This will be replaced with an unindexed $35,000 concessional cap. From 1 July 2013, this will apply to all individuals aged 60 and over. From 1 July 2014 this will apply to individuals aged 50 and over.
Excess Contributions Tax
Reforms to the operation of excess contributions tax with excess concessional contributions to be included in an individual’s taxable income and will be taxed at the individual’s marginal tax rate regardless of their income or the cause of the breach. The individual will be able to choose to pay the tax bill from their own sources, or use their superannuation monies to pay for this change in tax, or fully release the after-tax excess concessional contribution from superannuation.
Other Reforms
An extension to the transfer of small lost accounts to the ATO as unclaimed monies. The threshold will be increased from $2,000 to $2,500 from 31 December 2015, and then from $2,500 to $3,000 from 31 December 2016.
Revised tax treatment of deferred annuity pensions. From 1 July 2014, deferred lifetime annuities will be given status as superannuation pensions and will receive the concessional tax treatment applying to investment earnings on assets supporting pensions.
The Government also made an announcement regarding the establishment of a Council of Superannuation Custodians to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.
If you would like to discuss the impact on your situation in more detail please contact our office.
Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.
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