The government recently proposed significant changes to superannuation which are far reaching and intended to make the superannuation system more sustainable, efficient and equitable.
Although the new changes may not be passed until the next parliamentary sitting, it is worth being prepared if they do come into effect later this year. The changes include:
Limiting tax exemption on super income streams
The government proposes to limit earnings that support a pension, such as dividends and interest to $100,000 from 1 July 2014. This means that the first $100,000 earned will be tax free, and the subsequent amount over this limit be taxed at 15%.
These changes will only apply to earnings that support a person’s superannuation pension account and be taxed within the super fund, with pension payments and lump sum withdrawals remaining tax free.
Higher concessional contributions cap
The concessional contributions cap will be simplified, with those over 60 able to contribute $35,000 from 1 July 2013, and those over 50 able to contribute up to $35,000 from 1 July 2014.
Previously both age brackets were able to contribute up to $25,000. The cap changes will also now apply to everyone, regardless of their bank balance, with the government scrapping plans to restrict the cap to those with balances under $500,000.
Excessional contributions tax rules
Currently, excess concessional contributions which include employer contributions and salary sacrifice member contributions in excess of the cap are taxed at 46.5% instead of the marginal tax rate of 15%.
The new changes state that members who have made excess contributions from 1 July 2013 are able to withdraw the excess from their super fund and have the amount taxed at the marginal rate plus an interest charge.
Effectively members will be taxed on excess contribution amounts as though they had received an income, with there being no limit on the excess concessional contribution amount that can be withdrawn.
