New changes to Superannuation in summary for SMSF Trustees


Firstly nothing to scary but some stings in the tail.    Tax Reform

Mr Swan and Superannuation Minister Bill Shorten fronted announced a tax exemption on superannuation earnings supporting pensions and annuities will be capped at $100,000, and anything above that level taxed at a rate of 15 per cent from 01/07/2014.

Based on a 5% earnings rate that would only impact on those with super assets of more than $2 million. Remember this is per account so for a couple each of them could have $2,000,000 without paying tax on their pension

The $100,000 threshold will be indexed to the Consumer Price Index (CPI), and will increase in $10,000 increments.

Special Treatment for Capital gains on Assets purchased before 01/07/2014 ( Did not proceed)

-  For existing assets (such as property or shares) that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;

-  For new 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 new assets that are purchased after 1 July 2014, the new limits will apply to the entire capital gain.

Higher concessional cap for people aged 60 and over brought forward

Accordingly, the government will bring forward the start date for the new higher concessional cap of $35,000  to July 1 for people aged 60 and over. Concessional includes employer SGC (9-12%) and Salary Sacrifice.

Individuals aged 50 and over will be able to access the higher concessional cap of $35,000 from the current planned start date of 1 July 2014.

The general concessional cap is expected to reach $35,000 from 1 July 2018 for those under 50.

Excess contributions tax to be reformed

Mr Shorten said the government will reform the system of excess contributions tax (ECT) that was introduced by the former government in 2007, to make it fairer and give individuals greater choice.

Under the current arrangements, concessional contributions that are in excess of the annual cap are effectively taxed at the top marginal tax rate (46.5 per cent) rather than the normal rate of 15 per cent.

Now you will pay tax on the excess contribution to match what you would have paid at your marginal tax rate. for example if you are on the 37% tax bracket you would pay ECT at 22% rather than 30% if you had to pay it on the top marginal rate of 45% (plus Medicare).

Income Streams will be Deemed like non-superannuation assets

Under the change announced today, standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules after 1 January 2015.

Instead of the concessional treatment of Account Based Pensions currently for those accessing an Aged Pension, they will be deemed like normal assets. This will affect those on the borderline of $55K income for a single person and $80K for a couple who previously benefited from deductible amounts on their account based or allocated pensions.

Extending concessional tax treatment to deferred lifetime annuities

The Government will encourage the take-up of deferred lifetime annuities (DLAs), by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive. This reform will apply from 1 July 2014.

Mr Swan also announced the Gillard government will establish a Council of Superannuation Custodians to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.

Here is the link to the full press release “A fairer superannuation system”

As always please contact me if you want to look at your own particular situation and we will break it down in plain English for you. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AdvDipFS

Financial Planner & SMSF Specialist Advisor™

 Follow SMSFCoach on Twitter  Liam Shorte on Linkedin  NextGen Wealth on Facebook 

NextGen Wealth Solutions

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

Liam Shorte is a partner in NextGen Wealth Solutions, Corporate Authorised Representative of Genesys Wealth Advisers Limited, Licence No 232686, Genesys Wealth Advisers Limited ABN 20 060 778 216.

Important information :

The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Genesys and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

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6 Comments

  1. peter shanahan

     /  April 6, 2013

    On the announced changes to the pension deeming rules, if these go ahead and apply to pension income streams from January 2015, what about people who currently have both pension and accumulation accounts?

    As I understand it, these pensions are often commuted on an annual basis with the funds from the accumulation account added to what then becomes a a new super pension.

    This surely will be a trap after January 2015 because the new pension (even thought it is mostly made up of money from the commuted pension) will be caught by the new deeming rules.

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    Reply
    • Hi Peter

      Well pointed out. It will be a case of not re-consolidating but having an extra pension account for Post 2015 Amounts. This is not difficult and would simply mean having one pension account for all pre-2015 pensions and not changing that in any way. For post 2015 you still continue to consolidate these each year to ensure you do not have more than 2 pensions in your fund

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  2. Oliver

     /  April 5, 2013

    Good summary, Thx
    Correction req’d?
    “Special Treatment for Capital gains on Assets purchased before 01/07/2014

    -  For existing assets (such as property or shares) that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024”

    Like

    Reply
    • Hi Oliver, thank you for the feedback. The info is correct. There will be Pre 5/4/13 rules, 5/4/13-01/7/14 rules and post 01/07/14 rules. Any assets held by the fund before 05/04/13 will be exempt from the reforms until 2024. This is to ensure people have time to hold a property for a decent term rather than feeling forced to sell early to avoid a tax they did not know about when entering the contract.

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  3. Im very curious to see how capital gains will be treated in pension phase. If the gain is assessable income the LRBA strategies could quickly become alot less beneficial.

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    Reply
    • I have updated the blog to include the details of how the Capital Gains on assets supporting a pension will be treated. It will be important for those considering moving a Business Property into the fund to now consider if better to hold outside and use CGT small business concessions under the 15 year exemption or for assets worth less than $2m. Thanks to SPAA’s technical team for pointing this out.

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