A federal budget would not be complete without changes to the rules for superannuation. This year the Government reconfirmed its intention to implement several reforms to the retirement savings system, all of which were outlined a few weeks ahead of the May announcement.
Importantly some of the following changes have been legislated, while a few are still only proposed at this stage.
Legislated changes: Lift caps
One change which has been legislated is the increase in the concessional contributions cap from $25,000 a year to $35,000 a year for older workers, which recognises that people may be in a better position to save more the closer they get to retirement age.
The higher caps will apply from 1 July 2013 for those aged 60 and above and from 1 July 2014 for those aged 50 and above.
The contributions cap includes the Superannuation Guarantee contributions paid by an employer – which has risen to 9.25 per cent from 1 July 2013 – salary sacrifice contributions and personal contributions for which you may claim a deduction.
Cuts to excess contributions tax
More good news for individuals making use of exceeded concessional caps. From 1 July 2013 the excess contributions can be withdrawn and taxed at the individual’s marginal tax rate.
It may mean a variation of the individual’s tax return and the payment of some interest to recognise the late payment of tax, but for most individuals it is less than the 46.5 per cent tax that previously applied.
Excess concessional contributions have automatically counted towards the non-concessional contributions cap which, if exceeded, attract a further tax.1
Tax benefits cut
It wasn’t all good news for those contributing to their super. From 1 July 2012 anyone with adjustable taxable income, including super contributions, above $300,000 will pay superannuation contributions tax of 30 per cent rather than 15 per cent.2
Proposed change: Tax to super pension earnings
In a move aimed at clawing back some of the tax benefits of super, the government proposes to tax from 1 July 2014 the future earnings, including interest, dividends and capital gains, in excess of $100,000pa,on assets supporting an income stream in the pension phase at 15 per cent. These earnings are currently exempt from tax.
Also announced were a number of special rules that will apply to the taxation of capital gains on assets purchased before 1 July 2014 to allow people time to restructure their superannuation arrangements if necessary.3 This measure is yet to be legislated.
Despite these proposed changes, super remains a worthwhile tax effective vehicle for retirement savings. Please call us if you would like to discuss the proposed changes in more detail.
In all cases, professional advice is recommended to ensure any new investment matches your changing risk profile as you age.
1 IPAC, ‘Federal Budget 2013-14’, 16 May 2013, http://ecm7.com/LiveAssets/images/77/federal_budget/FederalBudget2013_ipac.pdf p.2, viewed 28 May 2013
2 Colonial First State, ‘Government Superannuation Reforms Announced’, 5 April 2013, http://www.colonialfirststate.com.au/prospects/FirstTechSuperUpdate050413.pdf, viewed 28 May 2013
3 Colonial First State, ‘Government Superannuation Reforms Announced,’, 5 April 2013, http://www.colonialfirststate.com.au/prospects/FirstTechSuperUpdate050413.pdf, viewed 28 May 2013