The Government on Fri 5.4.2013, announced the following major superannuation reforms to end mounting speculation ahead of the 2013 Budget.
- Tax-free pension earnings capped – the Government will amend the law to cap the tax exemption for earnings on superannuation assets supporting income streams to the first id=”mce_marker”00,000 of future earnings for each individual. From 1 July 2014, future earnings (such as dividends and interest) on assets supporting income streams will only be tax-free up to id=”mce_marker”00,000 a year per person. Earnings above id=”mce_marker”00,000 will be taxed at the same concessional rate of 15% that applies to earnings in the accumulation phase. The proposed id=”mce_marker”00,000 threshold will be indexed to CPI and increase in id=”mce_marker”0,000 increments. Assuming an estimated rate of return of 5%, earnings of id=”mce_marker”00,000 would be derived from individuals with around $2m in superannuation, Mr Shorten said. The same treatment will apply to members of defined benefit funds, including federal politicians, by calculating the notional earnings each year for defined benefit members in receipt of a superannuation pension. Under current arrangements, all earnings (including net capital gains) on assets supporting income streams (superannuation pensions and annuities) are tax-free under Subdiv 295-F of the ITAA 1997. This is commonly referred to as exempt current pension income (ECPI).
- CGT Rules: 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 Government confirmed that the tax-free status of withdrawals from super for those aged 60 and over will remain unchanged.
- Concessional contributions cap – The Government will provide an unindexed $35,000 concessional cap to anyone who meets certain age requirements. The new higher cap will apply from 1 July 2013 for people aged 60 and over. Those aged 50 and over will be able to access the cap from 1 July 2014. Importantly, the new cap will not be limited to people with super balances below $500,000 ie there will be no balance cap.
- Excess contributions tax – The Government will allow all individuals to withdraw any excess concessional contributions made from 1 July 2013 from their superannuation fund. In addition, it will tax excess concessional contributions at the individual’s marginal tax rate, plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax.
- Deeming changes – The Government will extend the normal deeming rules to superannuation account-based income streams for the purposes of the pension income test to ensure all financial investments are assessed fairly and under the same rules. Standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules after 1 January 2015. All products held by pensioners before 1 January 2015 will be grandfathered indefinitely and continue to be assessed under the existing rules for the life of the product so no current pensioner will be affected, unless they choose to change products.
- Deferred lifetime annuities – The Government said it will encourage the take-up of deferred lifetime annuities, by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive. This will apply from 1 July 2014.
- Lost superannuation – The Government will further increase the account balance threshold from $2,000 to $2,500 from 31 December 2015 (and to $3,000 from 31 December 2016) above which inactive accounts must be transferred to the ATO.
Source: Treasurer and Minister for Financial Services and Superannuation, joint media release Nos 20, 21 and 22, 5 April 2013
[LTN 64, 4/4/13]
Treasurer says no further superannuation announcements in the Budget
Following the Government’s announced changes to superannuation on 5 April 2013, the Treasurer was questioned in an interview as to whether there would be any further announcements in the Budget relating to superannuation. Mr Swan was asked “Is this it now? There won’t be any further announcement in the Budget relating to super?”, to which he answered “No further announcements in the Budget”.
Source: Treasurer’s interview with Kieran Gilbert, Sky News, 5 April 2013
[LTN 65, 8/4/13]
Superannuation: no more “bad news” for investors in Budget: Minister
In an interview on Sky News on Tue 23.4.2013, the Minister for Financial Services and Superannuation: Bill Shorten, sought to allay concerns about possible further changes to superannuation in the 2013-14 Budget, backing-up previous statements by the Treasurer to that effect.
While Mr Shorten did not explicitly state there would be no further superannuation changes in the 2013 Federal Budget, he responded to the question “Can you give a guarantee there won’t be more bad news for superannuation investors?” by saying “Yes the Treasurer and I said that when we announced our package of reforms”. The Minister also added: “We’ve made it very clear that what guides Labor in superannuation is people’s life expectancy, making sure that we’ve got a sustainable system, making sure that people have a fighting chance to retire comfortably. That’s what matters and we really want to see superannuation out of the twenty-four hour press budget speculation, because we think that superannuation is a generational institution so that people don’t retire poor.”
Mr Shorten was further asked how long this assurance would last that the Government won’t make further superannuation changes? Mr Shorten said Labor wants to “depoliticise all the policy making in superannuation. We want to create a charter of superannuation principles and get a group of independent people to assess whoever’s the government of the day’s policies on super. So that’s our commitment. You don’t have to take one side or the other. We want to take it beyond or above politics.”
Source: Minister for Financial Services and Superannuation, interview with Sky News, 23 April 2013
[LTN 77, 24/4/13]