Government announces changes to superannuation

zenLast Friday Treasurer Wayne Swan and Minister Bill Shorten announced a range of changes to superannuation aimed at making super fairer for all Australians.

Here are the key reforms:

1. Tax to apply on superannuation assets supporting income streams for high net worth individuals

Currently, tax does not apply to the earnings on assets supporting income streams. From 1 July 2014, tax of 15% will apply to assets supporting income streams where earnings exceed $100,000 pa. This is expected to affect 16,000 people (most of whom have super balances of $2m and over) and increase Government revenue by $350m over the next 4 years. The earnings on pre-existing assets (purchased before 1 July 2014) will be exempt from the $100,000 pa threshold until 1 July 2024 whereas earnings on assets purchased after 1 July 2014 will count towards the threshold immediately.

2. Progressive increases to the concessional contribution cap

All superannuation members currently share the same concessional cap amount of $25,000 pa. From 1 July this year, those aged 60 and over will be able to contribute $35,000 pa and those aged 50 and over will be able to contribute the same amount from 1 July 2014. It is expected that everyone else will gain access to the higher cap by 1 July 2018 but this has not been officially announced.

3. Changes to the tax treatment of excess concessional contributions

Right now, if you exceed your annual concessional contribution cap, the excess amount can be taxed at up to 93%. From 1 July this year, those who exceed the cap will be able to withdraw the excess amount but will have to pay income tax at their marginal rate. This means excess amounts will be taxed at a maximum of 46.5% (under current tax rates). However, there will also be an interest charge applied to the excess amount in light of the fact that tax on excess contributions is collected later than income tax.

4. No more concessional treatment for superannuation pensions from Centrelink

From 1 January 2015, Centrelink will assess all superannuation pensions under the same rules as other financial investments. This means there will no longer be an opportunity to maximise benefit payments by investing in superannuation. However, all existing arrangements before 1 January 2015 will be grandfathered indefinitely to ensure that existing pensioners are not affected. It should be noted that the above reforms have only been proposed at this stage (and will be included in the Government’s Federal Budget in a few weeks’ time). And with only a limited number of Parliament sitting days remaining until the election on 14 September, it’s (probably) unlikely any laws will change before then.

 


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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