Ending the Super Speculation

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The Federal Government has ended the seemingly neverending speculation on what changes they propose for the superannuation system. We round up the main changes, highlighting those that may affect investors.

Higher Concessional Contribution Cap
From 1 July 2013, for those aged 60+ there is a proposed higher concessional contributions cap of (unindexed) $35,000. This will be extended to those aged 50+ from 1July 2014. Those with super balances less than $500,000 there will be no change other than the general concessional cap of $25,000 for all individuals is forecast to reach $35, 000 by July 1 2018

Excess Contributions Tax System changes
The system of excess contributions tax will be changed to allow all individuals to withdraw any excess contributions made from 1 July 2013 from their superannuation fund. Excess concessional contributions will be taxed at the individual’s marginal tax rate, plus an interest charge to recognise that excess contributions tax is collected later than normal income tax.

These rules ensure that excess concessional contributions are taxed in the same way as salary or wages. About 59,000 people on the top marginal tax rate will have a slightly larger tax liability because of the interest charge. Treasury estimates in 2013-14, around 41,000 people will have a reduced tax liability by an average $1300.

Threshold on Tax Exemption Status for Pension Accounts
From 1 July 2014, tax exemption on super earnings supporting pensions and annuities will be capped at $100,000, anything above will be taxed at 15%.

Under existing arrangements, all earnings on assets supporting income streams (superannuation pensions and annuities) are tax-free, in contrast to earnings in the accumulation phase of superannuation, which are taxed at 15%.

The Government reflect this was never the intention of the superannuation system left in place by the Labor Government in 1996. That system included ‘Reasonable Benefit Limits’ designed to limit tax concessions. Had these limits not been abolished a person taking more than half of their superannuation as an income stream the limit would today be set at around $1.8 million in superannuation assets.

The $100,000 threshold will be indexed to the Consumer Price Index (CPI), and will increase in $10,000 increments. Assuming a conservative estimated rate of return of 5%, earnings of $100,000 would be derived from $2 million in superannuation.

Capital Gains on Assets
Assets purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;

Assets 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;

Assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.

These transitional arrangements ensure people who have already purchased superannuation assets have ten years to restructure their superannuation holdings, before their capital gains start to be affected.

For more information call 02 6686 4144.

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