Superannuation review by government
Superannuation has recently been targetted for review and revision by the current Gillard Labor Government. With much speculation surrounding what that might mean for Australia's taxpayers, on Friday 5 April 2013 they released details of their plans. Outlined below is our summary of the major implications of their proposed changes:
1. Capping tax-exemption on earnings of pension supporting assets.
This applies from 1 July 2014 superfunds and the intention is to cap the tax-exempt income from assets supporting a pension to up to $100,000 per year per member. How will they do it? We suspect that superannuation funds will no longer receive a tax-exemption for any earnings on assets used to support a pension (no more pension actuarial certificates). This will also bring the capital gains back into the tax net as well.
Instead all income received by the super fund will be included in assessable income of the superannuation fund. The fund will then get a tax-deduction for the pension payments made to each pensioner, capped at $100,000. This will likely be limited to the taxed and untaxed components (that is the payout of a tax-free amount does not give rise to a tax-deduction for the fund). No doubt there will be anti-avoidance measures to prevent people having multiple funds and receiving the benefit in each fund – which we are thinking will be done similarly to the excess contributions tax.
2. Higher contribution caps
From 1 July 2013 a person aged 60 or more will have a contribution cap of $35,000 instead of $25,000. From 1 July 2014, those aged 50 or more will be able to access the cap. This cap will non-be indexed, and it is expected by 2018 that this concession will effectively cease when the normal cap is expected to reach $35,000 as well. There will be no means test on this such as the previously announced $500k member balance limit, i.e. it was to be limited to persons with a super balances of <$500k.
3. Changes to the excess contributions tax
There is still some uncertainty about what the changes are here but our interpretation is that they have scrapped the once-only limit on withdrawing the excess contribution and paying tax in your own return.
4. Aged Pension Deeming rules
Pensions in place prior to 1 January 2015 will retain the current deeming rules. For account based pensions this is basically the annual income less the purchase price (undeducted amount) divided by the life expectancy (of the pensioner or reversionary pensioner if one is nominated). Pensions started on or after 1 January 2015 will have the normal deeming rules applied. That is deemed income of 2.5% up to the deeming threshold (currently $45,400 for singles) and 4% on the rest. This measure basically applies the deeming rules to the tax-free portion of the account balance, and also applies deems an income irrespective of what is taken.
