Proposed superannuation reforms – April 2013
From our perspective the key proposed changes are:
- Changes to the tax free status of earnings on superannuation assets supporting income streams (pensions) where those earnings exceed $100,000 per annum.
- The introduction of a higher concessional contribution cap for those above a certain age.
- Changes to the treatment of excess concessional contributions.
- The restatement of an additional tax on concessional contributions where the member’s assessable income exceeds $300,000 per annum.
Note: Concessional contributions are typically those made to superannuation by an employer (or personally by someone who is self employed).
Tax Free Earnings on Superannuation Assets Supporting an Income Stream
The government has proposed that from 1 July 2014 income from assets supporting superannuation income streams (pensions) will only be tax free up to $100,000 per annum. Income above $100,000 per annum will be taxed at 15% (the same rate that applies to an accumulation superannuation account).
The important point to note here is that it is the earnings from the Superannuation assets that are being measured, not the account balance.
Obviously there is considerable detail that would need to be made clear in order to fully assess the impact of this proposal.
Concessional Contribution Cap
The government has proposed to introduce an unindexed $35,000 concessional contribution cap to anyone who meets certain age requirements. The proposed start date for the new cap is 1 July 2013 for people aged 60 and over. From 1 July 2014 the $35,000 will apply for those aged 50 and over.
For everyone else the current concessional contribution cap of $25,000 continues to apply.
These changes would be welcomed as we believe that the current concessional contribution cap is too low and as a result does not provide sufficient opportunity for Australians to accumulate sufficient retirement savings.
Excess Concessional Contributions
The government has proposed that concessional contributions made from 1 July 2013 that are in excess of the concessional cap will be permitted to be withdrawn from superannuation. Excess contributions that are withdrawn from superannuation will be taxed at an individual’s marginal tax rate plus an interest charge to recognise that the tax on excess contributions is collected later than tax withheld by the PAYG system.
Additional Tax on Concessional Contributions
The Government has restated their intention that from 1 July 2012 individuals with income greater than $300,000 per annum will incur an additional 15% tax on their concessional contributions. This proposal applies to the current financial year (2012/13).
It appears that this proposal is in effect a re-introduction of the now-defunct superannuation surcharge. The superannuation surcharge was dropped essentially as the cost of operating the surcharge arrangements were greater than the revenue being raised. We wonder what has changed this time around.
Also in the announcement were proposals concerning the introduction of “deeming” on superannuation income streams, extending the concessional tax treatment of deferred lifetime annuities, the payment of interest on lost superannuation accounts and the establishment of a new Council of Superannuation Custodians.