The Government announced proposed changes to superannuation on 5 April 2013. These proposed changes are not law and have a long way to go before they become law. There has been a lot of media hype and discussion on what these announcements mean.

This brief note summarises the proposals that affect you.

Contribution Cap

Commencing 1 July 2013 individuals aged 60 and over will be entitled to a concessional contribution cap of $35,000. This is an increase from the cap of the last 12 months of $25,000.

Individuals aged 50 and over will be able to access the higher contribution cap from 1 July 2014. 

The general concessional cap for individuals aged under 50 is expected to reach $35,000 from 1 July 2018.

The proposal in last year’s budget, to limit the higher contributions cap to individuals with superannuation account balances below $500,000, will not go ahead.

Increased tax applicable to funds in pension mode

From 1 July 2014, funds in pension phase will pay tax on earnings above $100,000 per member at the superannuation rate of 15%. Earnings below $100,000 per member will remain tax exempt.

Capital gains on fund assets held at the announcement date of 5 April 2013 will be exempt until 1 July 2024. Any gain accrued after that date will be assessed under the new rules, thus requiring a valuation at that date.

Capital gains on fund assets acquired between the announcement date and 30 June 2014 will be exempt.  Any capital gains realised on fund assets acquired after 1 July 2014 will be included in the calculation of fund income and the $100,000 limit. Alternatively the whole gain from the announcement date can be included.

The Government considers that the $100,000 cap can be equated to a 5% average return on an individual’s $2 million superannuation interest.

Some good news is that the $100,000 tax free limit will be indexed to Consumer Price Index changes.

Pension payments for individuals over 60

No changes were announced to the taxation of pensions in the hands of individuals over 60 which will remain tax free.

Excess Contributions

Excess super contributions tax has been a contentious issue for a number of years, hurting taxpayers when minor errors occurred. The Government now proposes that individuals who contribute excess concessional superannuation contributions will be able to now withdraw all of the excess amount and have that income assessed to them personally at their marginal income tax rates plus interest. The interest rate, which was not announced, is a penalty imposed due to the fact that the superannuation fund has had the opportunity to invest the excess and in theory make money on the investment. This proposal does not include excess non-concessional contributions.

Higher tax for individuals with income over $300,000

In last years budget the government announced its intention to tax contributions of individuals whose income exceeds $300,000 at the higher tax rate of 30%, rather than the current rate of 15% applicable to superannuation funds. This announcement was to commence 1 July 2012, with legislation having not yet been finalised.

If you wish to discuss the proposed changes please contact one of the accounting team at Sullivan Dewing.