The federal government has today announced changes to the superannuation system as it aims to save $900 million over four years, and $10 billion over ten years.
However, the government hasn't confirmed if the changes will be introduced into parliament before the September election, and the opposition has slammed the changes. Should the opposition win government, it appears unlikely that the changes will become law.
The proposed changes include a tax of 15% on earnings on superannuation assets supporting income streams of over $100,000 for each individual from 1 July 2014. Currently people pay no tax on gains in their super once they are drawing down the balance as a pension. The government estimates around 16,000 people will be affected by this new measure from 2014-2015.
The $100,000 limit will be indexed to inflation, and means that people with around $2 million or more in super earning 5% a year will be slugged with the new tax. Of course, if you have $1 million in super and earn more than 10% on your funds, you will also be liable for the new tax on any earnings over $100,000.
Australians currently pay a 15% tax on earnings in the accumulation phase of super.
The government also announced changes to the concessional cap. Currently if an individual contributes more than $25,000 to their super in any one financial year, they are liable for excess contributions tax. The cap is being lifted to $35,000 for those over the age of 60 from July this year, and will be extended to those over the age of 50 from next July.
The excess contributions tax is also being reformed. Under current arrangements, excess contributions are taxed at the top marginal tax rate of 46.5%. The government has stated that it will now allow all individuals to withdraw any excess contributions from their super fund, and individuals will only face a tax at their personal marginal tax rate, benefitting those facing a tax rate below the top rate.
Foolish takeaway
Most people don't have enough funds within their super to breach the $100,000 earnings limit, and are unlikely to be affected. However, the changes are likely to significantly affect people who receive capital gains from selling houses or property from within their super fund once they retire, and will likely reduce the attractiveness of buying property through self-managed super funds.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.
