08 Apr 13 Treasurer announces changes to superannuation
In joint media release No 2013/020, issued 5 April 2013, the Treasurer, Wayne Swan, and the Minister for Financial Services and Superannuation and Minister for Employment and Workplace Relations, Bill Shorten, announced a number of changes to the taxation of superannuation.
- From 1 July 2014, earnings on assets supporting income streams 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.
For superannuation assets earning a rate of return of 5%, this change will only affect individuals with more than $2 million in assets supporting an income stream.
In joint media release No 2013/021, issued the same day, the Ministers said that the $100,000 threshold will be indexed to the Consumer Price Index (CPI), and will increase in $10,000 increments.
The Ministers also said that special arrangements will apply for capital gains on assets purchased before 1 July 2014:
- For assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;
- For assets that are purchased from 5 April 2013 to 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 that are purchased from 1 July 2014, the reform will apply to the entire capital gain.
This change will not affect the tax treatment of withdrawals. Withdrawals will continue to remain tax-free for those aged 60 and over, and be subject to the existing tax rates for those aged under 60.
- The Government will ensure that members of defined benefit funds, including federal politicians, are impacted by this new reform in the same way as members of defined contribution funds (i.e. that there will be a corresponding decrease in concessions in the retirement phase).
This will be achieved by calculating the notional earnings each year for defined benefit members in receipt of a concessionally-taxed superannuation pension. These calculations will be based on actuarial calculations, and will depend both on the size of the person's superannuation pension and their age. The amount of notional earnings each year will fall as a person grows older, in the same way that yearly earnings for people in defined contribution schemes fall over time as they draw down their capital.
- The Government will bring forward the start date for the new higher unindexed $35,000 concessional cap to 1 July 2013 for people aged 60 and over. Individuals aged 50 and over will be able to access the higher cap from the current planned start date of 1 July 2014. The general concessional cap is expected to reach $35,000 from 1 July 2018.
- The Government has decided not to limit the new higher cap to individuals with superannuation balances below $500,000 in light of feedback from the superannuation sector that this requirement would be difficult to administer.
- The Government will reform the system of excess contributions tax (ECT). The Government will allow all individuals to withdraw any excess concessional contributions made from 1 July 2013 from their superannuation fund. In addition, the Government will tax excess concessional contributions at the individual's marginal tax rate, plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax.
These rules will ensure that individuals are taxed on excess concessional contributions in the same way as if they had received that money as salary or wages and had chosen to make a non-concessional contribution.
- The Government will extend the normal deeming rules to superannuation account-based income streams for the purposes of the pension income test to ensure all financial investments are assessed fairly and under the same rules.
Under the change, standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules after 1 January 2015.
All products held by pensioners before 1 January 2015 will be grandfathered indefinitely and continue to be assessed under the existing rules for the life of the product so no current pensioner will be affected, unless they choose to change products.
- The Government will encourage the take-up of deferred lifetime annuities (DLAs), by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive. This reform will apply from 1 July 2014.
- The Government will further increase the account balance threshold, below which inactive superannuation accounts, and accounts of uncontactable members, are required to be transferred to the ATO, to $2,500 from 31 December 2015, and to $3,000 from 31 December 2016.
- 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. For more details about the Council, see the joint media release No 2013/022, also issued 5 April 2013.