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Summary of Proposed Superannuation Changes

Article By Adam Hurwood | | Accounting & Tax
On Friday, ahead of the May Budget Announcements, the Gillard Government released the details of its proposed changes to Superannuation that could affect your Superannuation Fund in the future.

The main points of this announcement are as follows:

Tax on Superannuation Earnings in Pension Phase
· The government has announced a restriction on the tax concessions available in pension phase. From 1 July 2014, future earnings (such as dividends and interest) on assets for accounts in pension phase will be tax free up to $100,000 a year for each individual. Earnings above $100,000 will be taxed at the same concessional rate of 15% that applies to earnings in the accumulation phase.
This $100,000 threshold will be indexed annually with CPI and will increase in $10,000 increments.

The government has indicated that this reform is expected to affect only around 16,000 Australians who have balances around or above $2,000,000.
Special provisions will apply to capital gains incurred on assets purchased prior to 1 July 2014.

For assets purchased prior to 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;

    • For assets purchased between 5 April 2013 and 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 purchased from 1 July 2014, the reform will apply to the entire capital gain.

Persons therefore have approximately ten years to determine how they will restructure their superannuation assets to account for the new reforms.

These changes will also apply to defined benefit funds.

These new reforms will not affect the taxation of superannuation withdrawals – these continue to be tax free after age 60.

Changes to Contribution Limits
The government announced an increase to the concessional contributions cap for those aged over 60 at 1July 2013 to $35,000 with this increase extended to those persons aged over 50 at 1 July 2014. Excess concessional contributions will be able to be withdrawn from the fund by the member and will be taxed at the individual’s marginal tax rate (plus an interest charge) not the top marginal tax rate.

As detailed above, these announced changes are only a proposal at this stage and have not yet been implemented into legislation. However it is worth considering your options now for future contribution strategies, particularly for self-managed superannuation funds. As the proposed tax on earnings is per each individual, where one member has a much larger balance compared to another, strategies such as drawing funds out of the larger balance account then re-contributing it to the lower balance account may potentially avoid a member earning more than $100,000 or reduce the amount of tax payable.

Please contact us to discuss your various options and strategies further to ensure you are not adversely affected once these proposed changes come into effect.