05 Apr 2013

The Government today made an announcement regarding reforms to the superannuation system.

NB: Please note that these announcements will need to still proceed through the normal political process before they become law

A summary of the announced reforms include:

Superannuation Income Streams

  • The tax free status of retirement phase earnings will be retained, but capped at $100,000 (indexed by CPI) attributed to each individual member. Annual earnings above $100,000 will be taxed at a concessional rate of 15 per cent, in the hands of the fund.
  • Similar treatment will apply to (notional) earnings for those in defined benefit schemes (this includes defined benefit schemes for politicians).
  • Capital gains tax will apply to assets (in pension phase) if purchased after 1 July 2014. 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.
  • 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.

Contribution Caps

  • 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.

From the FPA Alert.

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