The government has announced reforms to superannuation, including changes to the taxation of fund income, concession contributions caps and rules regarding excess concessional contributions. However, it is highly unlikely that these amendments will be legislated before the election later this year.
Pension tax exemption
Currently, the pension exemption provides that all income on assets supporting a pension is tax-free in the fund. From 1 July 2014, only the first $100,000 of income supporting a pension will be tax-free for an income year. Any income over $100,000 will be taxed in the fund at 15%. The $100,000 threshold will apply per person per year, and will be indexed.
This change to the pension exemption will also apply for any capital gains received by a fund on assets acquired after 1 July 2014.
For assets acquired before 5 April 2013, any capital gain made before 1 July 2024 will still be tax-free.
For assets acquired between 5 April 2013 and 30 June 2014, individuals will have a choice to apply the new pension exemption to either the:
- entire capital gain; or
- portion of the capital gain that accrued after 1 July 2014.
Concessional contributions cap
The concessional contribution cap will also be increased to $35,000 per annum:
- from 1 July 2013, for people over 60; and
- from 1 July 2014, for people over 50.
For people under 50, the concessional contribution cap remains at $25,000 per annum.
From 1 July 2013, any excess concessional contributions can be withdrawn from the fund and will only be taxed at the individual’s marginal tax rate plus an interest charge rather than at 46.5%.
However, the proposed reforms will only apply to any excess concessional contributions made on or after 1 July 2013.
Access to the aged pension
In addition to these changes, any account based income stream commencing after 1 July 2015 will be deemed to be included in the pension income test for determining whether that individual is entitled to the aged pension. This removes the current concessional treatment under the income test arrangements for the aged pension for account based pensions.
These rules will not apply to account based pensions that commence before 1 July 2015.
If you have any questions about any of these reforms, please contact a member of our tax and superannuation team.