The Federal Government has today announced further proposed changes to superannuation. It is important to note that the changes announced will not be introduced into Parliament before the Federal Election (scheduled for 14 September, 2013) but will form part of the Labor Party’s election platform.
Summary of Announcements
Tax on pension income from super
Investment earnings in super for retirees drawing a pension from their account are currently tax free. From 1/7/13 a 15% tax will apply on any pension phase investment earnings (including for Defined Benefit funds) above $100,000 per year. The first $100,000 of investment earnings will remain tax free. The $100,000pa amount will be indexed to CPI in $10,000 increments. The tax free treatment on lump sum withdrawals for those over age 60 will remain unchanged.
Concessional Contributions Limits (or “caps”)
The “cap” changes to $35,000pa from 1/7/13 for those over age 60 (currently $25,000pa) and $35,000pa from 1/7/14 for those over age 50 (currently $25,000pa). The $35,000pa threshold will not be indexed. The Federal Government were proposing to increase the “caps” to $50,000pa for those over age 50 from 1/7/14 but this has been abandoned. Similarly, the Federal Government were to limit the “caps” to $25,000pa for those with super account balances greater than $500,000 and this too has been abandoned.
Excess Contributions Tax (ECT)
Currently, if you exceed your Concessional Contributions Tax Limit (or “cap”) (currently $25,000pa), you are taxed on the excess at a rate of 31.5% – which, when added to the tax already paid on these contributions (i.e. 15%) generates a total tax of 46.5% – which is the same as the highest marginal tax rate. If you earn less than $180,000, this is more than what you would have otherwise paid had you received this money as salary or wages. From 1/7/13, it is proposed that excess contributions be taxed in total to the individual’s marginal tax rate (plus an interest charge to recognise the fact that the tax is being collected later than it would normally be). Currently, excess contributions are automatically taxed to a total of the highest marginal tax rate of 46.5% (with no interest charge). The Government also proposes to allow individuals to withdraw any excess concessional contributions made to their super fund from 1/7/13.
Changes to “Lost Super”
The Federal Government announced in their 2012/13 Mid-Year Economic & Fiscal Outlook, that “inactive” super accounts less than $2,000 will be claimed by the Australian Tax Office (and refunded back with CPI once claimed by the member owner). It is proposed that this threshold be increased to $2,500 from 31/12/15 and $3,000 from 31/12/16.
Council of Superannuation Custodians
The Federal Government proposes to establish a “Charter of Superannuation Adequacy and Sustainability” (“…developed against the principles of certainty, adequacy, fairness and sustainability”) and that a “Council of Superannuation Custodians” be formed to ensure any future Government changes to super are consistent with it. The Council will be charged with assessing future Government policy against the Charter and providing a report to Federal Parliament.
Other Proposed Changes
Pensions
The Federal Government propose extending normal deeming rules to new superannuation accounts based income streams for the purpose of the pension income test from 1/7/15. Further, it is proposed that from 1/7/14, the same concessional treatment afforded to normal superannuation income streams will also apply to Deferred Lifetime Annuity products.
References
This newsletter is Harvest’s reading of the 5 April announcements. We have referred to the following:
- Joint Media Release by Treasurer, Wayne Swan and Minister for Superannuation, Bill Shorten,
- Bloomberg,
- “Govt Announces Changes to Superannuation” – 5 April 2013 – AAP News Release
We expect to see more details and analysis on these proposals in coming weeks. There may also be further announcements in the May Federal Budget.
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