On Friday 5 April, Australian Treasurer Wayne Swan and Minister for Financial Services and Superannuation, Bill Shorten, made an announcement which ended speculation over proposed changes to superannuation. It seems many will be affected and has implications for SMSFs as well. Most proposals may never actually be legislated, as it is unlikely the Government will be able to put the legislation through Parliament before the coming 14 September 2013 election.
Here is a summary of the main proposals:
- Income paid from superannuation account-based income streams will be subject to standard deeming rules under the income test for Age Pensions from 1 July 2015. And it may not be possible to change product. The Government said this was to ensure all financial investments are assessed fairly and under the same rules.
From 1 January 2015 the standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules.
All products held by pensioners before 1 January 2015 will be grandfathered indefinitely and continue to be assessed under the existing rules for the life of the product so no current pensioner will be affected, unless they choose to change products.
The Government has said it will ensure that members of defined benefit funds will be equally impacted by this change as members of accumulation funds. This will be achieved by calculating a notional earnings for each year a defined benefit member is in receipt of a concessionally taxed superannuation pension.
The measure grandfathers the CGT treatment of existing assets supporting income streams until 1 July 2014. This will cause the CGT treatment of assets supporting income streams to have a three tiered structure over the next 10 years so that for:
- Assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;
- 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
- Assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.
The measure is expected to save the Government $350 million over the next four year forward estimate period.
- Earnings over $100,000 or more from super will be taxed at 15 per cent for every dollar over that threshold. The government estimates that currently, based on a return of five per cent, this will affect only 16,000 people.
- Increased Concessional caps –
- From 1 July 2013 taxpayers aged 60 and over will have a $35,000 cap; and
- From 1 July 2014 taxpayers aged 50 and over will have a $35,000 cap.
- There is also a plan to increase the level of concessional contributions to $35,000 for everyone from 1 July 2018.
- Those with notional earnings of more than $100,000 from a defined benefits fund will be taxed at 15 per cent for every dollar over that threshold.
- From 1 July 2013, accidently paying more than your allowed contributions to super in any year, will mean you can withdraw excess contributions. These excess contributions will only be taxed at your marginal tax rate, rather than the current 46.5 per cent.
- A new balance threshold at which inactive superannuation can be transferred to the Australian Tax Office will rise from $2000 to $2500 from 1 December 2015 and $3000 from 1 December 2016.
- A Council of Superannuation Custodians will be established, to ensure that future changes to superannuation are consistent with a Charter of Superannuation Adequacy and Sustainability.
- Increased Concessional caps –
The Council will be responsible for assessing future superannuation policy changes against principles of certainty, adequacy, fairness and sustainability. The Council will provide an annual report to be tabled in Parliament.
Considerations to note –
The average superannuation balance of an Australian aged between 60 and 64 is approximately $198,000 for men and just $112,000 for women (from Challenger Retirement Income Research, April 2012). Many reports claim that the super funds of average Australians are being ‘raided’, by taxing those who have an annual income of $100,000 or more from super assets, and with such low average balances, the changes will affect 0.4 per cent of the taxpaying population, 16,000 of the country’s highest earners.
Apparently these figures are modelled on a return of five per cent on investments and that if these returns reverted to pre-GFC levels of 10 per cent, then 126,000 people with super balances of $1 million would be affected. So we are not talking about “your average Australian”.
The media release regarding all these changes can be found here.
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