On 5 April 2013, the Government announced a number of proposed reforms to superannuation.  The proposed reforms include:

 
Change to tax free status of earnings on superannuation assets supporting pensionsFrom 1 July 2014, earnings (such as dividends, interest and realised capital gains) on assets supporting pensions will be tax-free up to $100,000 a year for each individual.

Earnings above $100,000 will be taxed at 15% in the fund.

Special arrangements will apply to realised capital gains on assets purchased before 1 July 2014:

• For assets purchased before 5 April 2013, the tax will only apply to capital gains that accrue after 1 July 2024;
• For assets purchased between 5 April 2013 and 30 June 2013, individual may choose to apply the tax to the entire capital gain or only the part that accrues after 1 July 2014;
• For assets purchased after 1 July 2014, the tax will apply to the entire capital gain.

Withdrawals from the fund, however, will continue to remain tax-free for those aged 60 and over.

Increase in concessional superannuation contributions capFrom 1 July 2013, the annual concessional contribution cap of $25,000 will increase to $35,000 for those aged 60 and over.  This increased cap will also apply to those aged 50 and over from 1 July 2014.

Change in treatment of concessional contributions in excess of the annual capFrom 1 July 2013, individuals will be able to withdraw any excess concessional contributions made from their superannuation fund.

In addition, excess concessional contributions will be taxed at the individual’s marginal tax rate rather than automatically at the top marginal rate of 46.5%.

We note that this reform does not extend to excess non-concessional contributions.

Change to government pension income deeming rulesThe government pension deeming rules will be extended to apply to superannuation account-based income streams (pensions) commenced on or after 1 January 2015 when applying the government pension income test.

Any arrangements in place before 1 January 2015 will continue to be assessed under the existing rules indefinitely.

Should you take any action?It is important to note that these reforms have only been proposed at this stage and may not become law in their current form or at all.  There is also a long lead time in terms of the application dates of many of these changes which allows time for proper planning before taking any action.

With or without the changes, superannuation is still a very tax effective investment.

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