The government’s most recent superannuation proposals have been widely described as good, bad and even reasonable. But what do they mean in practice for you and your clients?
Compared to those made in previous years, the most recent changes to the superannuation regimes have been relatively modest. It is to be hoped that these changes are the last for some time although, despite the Treasurer’s assurance that there will be no further adjustments to superannuation in the federal budget, it’s always possible that there are more to come.
However, it’s unlikely that any further changes will come into effect before the end of this financial year.
As a general strategy, therefore, advisers should continue with their current approaches for clients’ superannuation planning, but be prepared to review these strategies in the next financial year.
1. Super earnings tax
As announced by the government on April 5, earnings on assets supporting pensions above $100,000 per year will be taxed at a rate of 15 per cent. This is effective from July 1, 2014, so there is no immediate action required from advisers or their clients.
However, it’s likely that advisers will need to review the grandfathering rules over the next 12 months in order to best advise their clients on these:
- For assets purchased prior to April 5, 2013 the reform will only apply to capital gains that accrue after July 1, 2024
- For assets purchased between April 5, 2013 and June 30, 2014 individuals will have the choice of applying the reform to the entire capital gain or only that part that accrues after July 1, 2014
- For assets purchased from July 1, 2014 the reform will apply to the entire capital gain.
In addition, it is not yet clear how the tax will be administered by the Australian Tax Office. However, one thing is certain and that is the administration of the tax will increase member costs, especially for members of SMSFs.
Furthermore, the tax will add to the complexity of an already complicated regime. This may be boon for advisers in terms of work, but on the other hand things can also go easily wrong in terms of planning for and monitoring the three-tiered capital gains tax system, which can span over 10 years.
2. Concessional contributions caps
A more immediate change to superannuation is to the concessional contribution caps.
- From July 1, 2013 taxpayers aged 60 and over will have a $35,000-cap.
- From July 1, 2014 this cap will also apply to taxpayers aged 50 and over.
- For everyone else, the cap remains at $25,000.
While this doesn’t affect superannuation planning for this financial year, advisers could find it useful to start talking to clients about maximising their contributions from next financial year where possible.
3. Excess concessional contributions
In a very welcome change, the government has announced that it will allow people to withdraw any excess concessional contributions made to super, from July 1, 2013.
In addition, excess concessional contributions will be taxed at individual marginal rates rather than the current excess concessional contributions tax rate of a total of 46.5 per cent (including 15 per cent contributions tax).
With a number of people having been hit with significant tax penalties over the last few years, it is encouraging to see the government take a more reasonable approach to excess concessional contributions.
Unfortunately, the government did not go further with this reform and apply a similar concession for excess non-concessional contributions.
Andrew Yee is a superannuation specialist with accountants and advisers HLB Mann Judd Sydney