Over the last three weeks there has been significant media commentary about mooted changes to the superannuation system.
Last Friday the Government ended speculation, and announced proposed changes to super that for most Australian’s is good news.
What were the changes?
Firstly, it must be said the proposed Government changes are not law and need to be passed by the Parliament. Finance Minister, Penny Wong, re-empahises that it is unlikely that this proposal will go to parliament before next election.
The major reform changes include:
- An age based increase for maximum superannuation contributions
- Easing of penalties for people who exceeded the super contribution caps
- Concessional tax treatment of non-super Deferred Lifetime Annuities
- Establishment of a Council of Superannuation Custodians and a Charter of Superannuation Adequacy and Sustainability, though no guidance as to when this will happen
- Introduction of a new tax on Superannuation Pensioners whose investments earn income of $100,000 or more
What do the changes mean?
If the proposed super reforms are passed into law most Australians with super will be better off due to:
- Aged based higher concessional super contributions available to everyone by 2018 with the previous $500,000account balance restriction removed
- Transition to Retirement strategies become more attractive
- People who inadvertently contribute too much to super will be treated fairer due to reduced tax and penalties
- Concessionally taxed non-super Deferred Lifetime Annuities become a tax efficient means to manage longevity risk
The one group of Australians who may be worse off are Super Pension recipients (probably members of SMSF’s) with large account balances or super accounts which have a large capital gain in the order of $700,000, or more (most likely property) and earn more than $100,000 in a tax year.
These super pensioners will be hit with a 15% tax on the account earnings and will create challenges to reduce the tax liability such as asset segregation, imputation strategies and share trading capital losses. Here is a summary and timeline of the proposed reforms and the changes to tax on super due to commence on 1 July 2013.
Summary of super changes and likely impact
|
Effective date |
Status |
Change |
Impact |
|
1/7/2013 |
Law |
Increase in tax on super contributions for high earners ($300,000+) from 15% to 30% |
Only effected if taxable income is $300k or more-most people not effected |
|
1/7/2013 |
Proposed |
Increase in super contributions to $35k for people aged 60 or more |
Previous $500K account limit removed and higher super contributions can be made for anyone aged 60 or more, may enhance benefits of a Transition to Retirement strategy |
|
1/7/2013 |
Proposed |
Excess contributions tax reform applies to people who breach the concessional contributions cap |
Provides a tax break for people who exceed the cap and a remedy to triggering the 3 year non-concessional bring forward rule |
|
1/7/2014 |
Proposed |
Increase in super contributions to $35k for people aged 50 or more |
Higher super contributions can be made, may enhance benefits of a Transition to Retirement strategy |
|
1/7/2014 |
Proposed |
Tax concession provides a level playing field for non-super Deferred Lifetime Annuities |
Tax removed on non-super Deferred Lifetime Annuities, provides a tax efficient way of managing longevity risk |
|
1/7/2014 |
Proposed |
New 15% tax imposed on super pension account earnings of more than $100,000 in a tax year |
A small number of people receiving super pensions could be worse off due to paying tax. Careful investment strategy and planning will be required to adapt to the new tax challenge. A number of technical issues have been identified and have to be overcome in order to collect the new tax |
|
1/7/2015 |
Proposed |
Account based pensions to be deemed for Age Pension purposes |
Age pension recipients could be worse off as the income test may apply and reduce their Age Pension payment |
|
1/7/2018 |
Proposed |
Increase in super contributions to $35k for people aged under 50 |
Higher super contributions can be made |
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