Superannuation Legislation Update
Recent Superannuation changes announcement by Labour.
In early April the federal government announced various changes to how superannuation will be managed, taxed and paid over the coming years – however some of the changes are not coming into effect until 2024 subject to them being legislated.
The main changes announced were:
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.
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.
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Excess concessional contributions from 1 July 2013 can be withdrawn from the fund and taxed at marginal rates plus an interest component rather than retained in the fund and taxed at the highest marginal rate.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.
The changes announced if they become law will only impact significantly on a small number of people’s situations. For those that do have to pay more tax under the changes, the benefits of retaining money in the Superannuation environment will still be significant in most cases however the decision for those over age 55 of whether to remain 100% in Pension phase or to commute some pensions and roll back to superannuation will need to be revisited.
We would also suggest people rethink any intended property purchases in the Superannuation environment due to the potential capital gains changes.
It is important to remember that these changes will not come into effect until they are passed by both Houses of Parliament and receive the Governor General’s assent. In most cases, if this takes longer than a proposed start date, ie. if it takes more than three months to pass these changes then the start date may be backdated to 1st July 2013.
As the opposition does not support many of these measures it is likely these measures won’t be passed before the next federal election and will therefore not come to pass.
There has been much public debate and media attention placed on these proposed changes, particularly in association with the upcoming election. Until we know however the changes have become law there is no need for action.
The direction the Labour party policy is moving in with respect to Superannuation does reinforce a long held view of ours that in most situations evening up the Superannuation balances between spouses or defacto partners where possible may in many circumstance be a good idea for long term tax planning. Of course all client circumstances are different and individual advice should be sought before taking action as Superannuation legislation is highly complicated.