On Friday, 5th April 2013, the Government announced details of its proposed changes to the current superannuation legislation.
Whilst attracting significant media attention, it is important to note that at this stage, they are only proposals and must have legislation passed before they become law. This leaves some question over the final outcome – some of these proposed superannuation changes may not eventuate or there may be alterations to the application of the announcements.
It is more important than ever to ensure that you seek professional advice before making any changes relating to your superannuation. Our team of experienced financial planners and accountants can keep you up to date as further details are announced.
The following provides an overview of the most important proposed superannuation changes so far.
Tax on Pension Earnings
From 1 July 2014, the Government intends to cap the exemption for pension earnings to the first $100,000. Earnings over this threshold will be taxed at 15%. Currently, pension earnings are completely tax free. This threshold is for each member account, not aggregated for the Fund.
Higher Concessional Contribution Cap
From 1 July 2013, the Government has proposed to increase the concessional contribution cap for individuals aged 60 and over. The increase will take the cap to $35,000 per year.
Individuals aged between 50 and 60 will get the same increase one year later, on 1 July 2014.
For individuals aged under 50, the existing $25,000 cap will remain.
Excess Concessional Contributions
As of 1 July 2013, individuals who exceed their concessional contribution cap will be able to withdraw the excessive amount and potentially avoid paying tax at the top marginal rate of 46.5%. For taxpayers already at the top marginal rate, this proposal will not provide any relief.
Superannuation Pensions and Deeming
It has been proposed that from 1 July 2015, superannuation based income streams (account-based pensions) will be assessed for Centrelink purposes in the same manner as non-superannuation investments (such as bank accounts, shares and managed funds).
Instead of calculating the assessable income of a pension using a formula based on life expectancies, the pension will be deemed to earn a certain rate of income, regardless of actual returns.
This proposed change will only apply to new income streams commenced on or after 1 July 2015.
How to Take Advantage of the Proposed Changes to Superannuation
We reiterate that these proposals are not yet law and may not ever become law. The best strategy to benefit from any of these proposals is to stay informed. Contact our professionals now to discuss how your situation may be impacted by these proposed changes to superannuation.