Following much recent speculation regarding changes to the superannuation system (in an attempt to balance the Federal books), the Government has today announced a number of substantial superannuation reforms.

These reforms are not yet legislation. Given the current political climate and state of the superannuation industry, we expect significant discussion, clarification and, presumably, some amendments before these matters become law, if they ever do.

As predicted, the changes are targeted at those with higher balances in superannuation.

The more significant aspects are summarised below:

  • Tax free withdrawals from age 60 remain unchanged.
  • From 1 July 2014 the tax exemption applying to pension account earnings will be limited to $100,000 per individual with 15% tax applying on any excess. This cap will be indexed by the CPI in $10,000 increments. Similar arrangements will impact defined benefit funds.
  • 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.
  • The $25,000 concessional contribution cap remains but it increases to $35,000 (unindexed) for individuals aged 60 and over from 1 July 2013 and aged 50 and over from 1 July 2014.  The previous consideration to limit the higher cap to individuals with balances below $500,000 has been dropped.
  • Excess concessional contributions from 1 July 2013 can be withdrawn from the fund and taxed at marginal rates plus an interest component rather than retained in the fund and taxed at the highest marginal rate.
  • From 1 January 2015 all new account based super pensions will be assessed as income for income test purposes rather than benefit from a reduction based on the capital component. All existing pensions at that date will be grandfathered.

Next Steps

Should you wish to know more about these proposed changes, please contact Murray Howlett of our Taxation Services Division on (07) 3023 1300.