The government has just confirmed changes to superannuation which has been causing people some grief. Below is a summary of reports however the reality is at first look the changes aren't daunting and in some cases are positive (see transitional concessional contributions cap). If it eventuates the deeming on account based pensions will have a detrimental impact on future retirees however with the grandfathering there is time to plan ahead for some people.
Tax treatment of earnings on superannuation assets supporting income streams – from 1 July 2014
From 1 July 2014 the Government proposes that future earnings, including interest and dividends, on assets supporting an income stream liability will be tax free up to $100,000 a year for each individual. Earnings above the $100,000 threshold are proposed to be taxed at the 15% tax rate that applies to earnings in the accumulation phase of super. The reality with this is that very few people will be impacted.
Currently, all income received by a super fund from assets supporting an income stream such as an account based pension, is completely tax free.
Special arrangements for capital gains on assets purchased before 1 July 2014
The Government has also announced that special rules will apply to the taxation of capital gains
on assets purchased before 1 July 2014 to allow people time to restructure their superannuation
arrangements where desired. These are:
Changes to apply to defined benefit funds
The Government has also announced the proposed changes will also apply to members of defined benefit funds in the same way that they apply to members of accumulation funds.
Concessional taxation for deferred annuities – from 1 July 2014
The Government will encourage the take-up of deferred lifetime annuities, by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive.
Introducing a new transitional concessional contributions cap
The Government had previously announced that it planned, from 1 July 2014, to allow individuals aged
50 and over, with superannuation balances below $500,000, to make up to $25,000 more in
concessional contributions than allowed under the standard $25,000 concessional contributions cap.
As part of the announcement, the Government will instead provide an unindexed $35,000 concessional
cap, regardless of the size of that person’s superannuation balance, and bring the start date forward to
1 July 2013 (for certain individuals) as follows:
− For people aged 60 and over, this new higher concessional contribution cap will apply for
contributions made from 1 July 2013; and
− For individuals aged 50 and over, this higher concessional contribution cap will apply from the
current planned start date of 1 July 2014.
This is essentially better for some worse for some... bit of a contradiction when the general theme was expected to be tax grabbing from people with higher balances.
Reform of excess concessional contributions tax arrangements
I'm yet to look into this in detail however on face value it looks like it will reduce the risk of excessive non-concessional contribution penalties.
Under the current arrangements, excess concessional contributions are effectively taxed at the top
marginal tax rate (46.5 per cent) once excess contributions tax is applied – rather than the normal rate
applied to these contributions of 15 per cent.
The Government has announced that it will allow all individuals to withdraw any excess concessional
contributions, made from 1 July 2013, from their superannuation fund.
In addition, the Government has announced that it will tax these excess concessional contributions at
the individual’s marginal tax rate, plus an interest charge to recognise that the tax on these excess
contributions is collected later than normal income tax.
Deeming on account based income streams – from 1 January 2015
This is something that will come under consideration leading up to 1 January 2015. It is measures such as this as to why Australian's are losing confidence in the super system as a whole.
The Government proposes extending to account based income streams the Centrelink deeming
rules that currently apply to financial investments such as bank deposits, shares and managed
funds.
Currently, the first $45,400 for a single pensioner and $75,600 for a pensioner couple of
financial investments is deemed at 2.5% pa. Any financial investments over these thresholds are
deemed at 4% pa.
Under the change announced, these standard Centrelink deeming rules would apply to
superannuation account based income streams from 1 January 2015. However, all such products
held before 1 January 2015 will be grandfathered and continue to be assessed under the
existing deductible amount rules indefinitely, unless the pensioner chooses to change to another
product.
Lost super changes
The account balance threshold below which inactive accounts, and accounts of uncontactable
members, are required to be transferred to the ATO was recently increased to $2,000.
The Government will further increase the account balance threshold to $2,500 from 31 December 2015,
and to $3,000 from 31 December 2016.
Council of Superannuation Custodians
If you know what this means please explain it to me however...
The Government will establish a Council of Superannuation Custodians to ensure that any future
changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.
The Charter will be developed against the principles of certainty, adequacy, fairness and sustainability.
The Charter will clearly outline the core objects, values and principles of the Australian superannuation
system.
The Council will be charged with assessing future policy against the Charter and providing a report to
be tabled in Parliament.
In a nutshell, as expected the government seems to be squeezing a few more dollars out of the super system.
Tax treatment of earnings on superannuation assets supporting income streams – from 1 July 2014
From 1 July 2014 the Government proposes that future earnings, including interest and dividends, on assets supporting an income stream liability will be tax free up to $100,000 a year for each individual. Earnings above the $100,000 threshold are proposed to be taxed at the 15% tax rate that applies to earnings in the accumulation phase of super. The reality with this is that very few people will be impacted.
Currently, all income received by a super fund from assets supporting an income stream such as an account based pension, is completely tax free.
Special arrangements for capital gains on assets purchased before 1 July 2014
The Government has also announced that special rules will apply to the taxation of capital gains
on assets purchased before 1 July 2014 to allow people time to restructure their superannuation
arrangements where desired. These are:
- For assets purchased before 5 April 2013, the proposed changes will only apply to capital gains that accrue after 1 July 2024
- For assets purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the proposed changes to the entire capital gain, or only that part that accrues after 1 July 2014
- For assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.
Changes to apply to defined benefit funds
The Government has also announced the proposed changes will also apply to members of defined benefit funds in the same way that they apply to members of accumulation funds.
Concessional taxation for deferred annuities – from 1 July 2014
The Government will encourage the take-up of deferred lifetime annuities, by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive.
Introducing a new transitional concessional contributions cap
The Government had previously announced that it planned, from 1 July 2014, to allow individuals aged
50 and over, with superannuation balances below $500,000, to make up to $25,000 more in
concessional contributions than allowed under the standard $25,000 concessional contributions cap.
As part of the announcement, the Government will instead provide an unindexed $35,000 concessional
cap, regardless of the size of that person’s superannuation balance, and bring the start date forward to
1 July 2013 (for certain individuals) as follows:
− For people aged 60 and over, this new higher concessional contribution cap will apply for
contributions made from 1 July 2013; and
− For individuals aged 50 and over, this higher concessional contribution cap will apply from the
current planned start date of 1 July 2014.
This is essentially better for some worse for some... bit of a contradiction when the general theme was expected to be tax grabbing from people with higher balances.
Reform of excess concessional contributions tax arrangements
I'm yet to look into this in detail however on face value it looks like it will reduce the risk of excessive non-concessional contribution penalties.
Under the current arrangements, excess concessional contributions are effectively taxed at the top
marginal tax rate (46.5 per cent) once excess contributions tax is applied – rather than the normal rate
applied to these contributions of 15 per cent.
The Government has announced that it will allow all individuals to withdraw any excess concessional
contributions, made from 1 July 2013, from their superannuation fund.
In addition, the Government has announced that it will tax these excess concessional contributions at
the individual’s marginal tax rate, plus an interest charge to recognise that the tax on these excess
contributions is collected later than normal income tax.
Deeming on account based income streams – from 1 January 2015
This is something that will come under consideration leading up to 1 January 2015. It is measures such as this as to why Australian's are losing confidence in the super system as a whole.
The Government proposes extending to account based income streams the Centrelink deeming
rules that currently apply to financial investments such as bank deposits, shares and managed
funds.
Currently, the first $45,400 for a single pensioner and $75,600 for a pensioner couple of
financial investments is deemed at 2.5% pa. Any financial investments over these thresholds are
deemed at 4% pa.
Under the change announced, these standard Centrelink deeming rules would apply to
superannuation account based income streams from 1 January 2015. However, all such products
held before 1 January 2015 will be grandfathered and continue to be assessed under the
existing deductible amount rules indefinitely, unless the pensioner chooses to change to another
product.
Lost super changes
The account balance threshold below which inactive accounts, and accounts of uncontactable
members, are required to be transferred to the ATO was recently increased to $2,000.
The Government will further increase the account balance threshold to $2,500 from 31 December 2015,
and to $3,000 from 31 December 2016.
Council of Superannuation Custodians
If you know what this means please explain it to me however...
The Government will establish a Council of Superannuation Custodians to ensure that any future
changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.
The Charter will be developed against the principles of certainty, adequacy, fairness and sustainability.
The Charter will clearly outline the core objects, values and principles of the Australian superannuation
system.
The Council will be charged with assessing future policy against the Charter and providing a report to
be tabled in Parliament.
In a nutshell, as expected the government seems to be squeezing a few more dollars out of the super system.
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