15 May 2013
There were no surprises around superannuation policy in this year's Federal Budget, as Treasurer Wayne Swan confirmed a series of expected reforms to the Australian superannuation system.
High earners in the workforce, as well as retirees with over $100,000 in pension investment earnings a year, will feel the most impact.
So how will these proposed changes affect Australians' superannuation savings? Here are the main things you need to know:
1.) 15% tax on pension earnings over $100,000 per annum
Retirees will be subject to a 15% tax on their pension investment earnings over $100,000 per annum, effective from 1 July 2014. The tax will be levied on investment earnings of the pension account, regardless of whether or not this money is withdrawn. Currently, no tax is payable on pension investment earnings. According to Government estimates, these changes will only impact retirees with a current superannuation balance of $2m or more, estimated to be in the region of 0.4% or 16,000 Australians.
2.) 30% contributions tax for Australians earning over $300,000 per annum
Australians earning more than $300,000 a year may pay 30% tax on concessional super contributions (eg: employer, Superannuation Guarantee and salary sacrifice contributions). This is proposed to be effective from 1 July 2012, but has not been passed as law as at 15 May 2013.
Under the current legislation, concessional contributions within the concessional contributions cap are subject to 15% tax, regardless of the income earned by the individual.
3.) Higher concessional contributions cap
Some superannuation contributions, such as those made by an employer or salary sacrifice by an individual, receive tax concessions which enable Australians to save for retirement in a cost-efficient way.
Currently, the tax concession for concessional contributions is capped for everyone at $25,000 per year. As of 1 July 2013, the concessional contribution caps will be raised to $35,000 for those aged 60 or over. From 1 July 2014, the higher concessional cap will be raised for those aged 50 or over.
4.) Changes to the taxation of excess concessional contributions
From 1 July 2013, concessional contributions in excess of the concessional contributions cap will be taxed at the individual's marginal tax rate plus an interest charge. In addition, individuals will be able to withdraw those excess concessional contributions from their superannuation fund. Currently, concessional contributions in excess of the annual cap are taxed at 46.5% and individuals are only able to withdraw excess contributions the first time they make an excess contribution up to a maximum of $10,000.
5.) "Lost Super" balance threshold raised to $3,000
Do you have any "Lost Super" or small inactive super accounts lurking around? If so, and your balance is $2,000 or less, you could find from 1 July this year that it's been transferred to the Australian Tax Office for safe-keeping-part of the reforms introduced in the previous Federal Budget.
Amending the policy in this year's Federal Budget, Treasurer Swan announced the balance threshold for inactive accounts will increase in stages to $2,500 on 1 December 2015, and then to $3,000 on 1 December 2016 before Fund providers are required to transfer the "lost super" to the ATO. Until the superannuation is claimed, consumers will receive interest on the balance equivalent to that of the Consumer Price Index.
The proposals above are based on Government announcements but have not been passed as law as at the date of preparation. This means that these proposals continue to be subject to change until the legislation is passed.