Recently, Treasurer Wayne Swan announced a reform of Australia’s superannuation system.  This reform involves a number of key changes, which affects most Self Managed Super Funds.

Why the Reforms?

The Government claims that the reform will “improve the fairness, sustainability and efficiency” of the current superannuation system. Expect to be bombarded with Government Information ads over how positive these changes are over the coming weeks. The final legislation is yet to be enacted, so keep a close eye on this space.

What are the key changes?

The Good:
Concessional Caps for certain superannuation members will be increased.

Currently the concessional contribution cap for individuals is $25,000. This cap will be increased so that:

1. From 1 July 2013, taxpayers over 60 will have a concessional cap of $35,000.
2. From 1 July 2014 taxpayers over 50 will have a concessional cap of $35,000.

It is expected that by July 2018, the general concession cap will reach $35,000.

The new reforms will replace the Government’s previous proposal to increase concessional caps for taxpayers over 50 who have balances under $500,000. Arguably the new reforms are simpler and easier to administer.

The Bad:
Earnings on superannuation assets supporting income streams above $100,000 will no longer be tax free.

As of 1 July 2014, all earnings on assets supporting income streams above $100,000 per annum will be taxed at 15%.  This change will affect approximately 16,000 of Australia’s wealthiest superannuants- who are all estimated to have superannuation balances of over $2,000,000. The change will not affect how withdrawals are taxed. For those over 60, withdrawals will continue to remain tax free and tax concessions will still apply for those under 60.

The Ugly:
Excess concessional contributions will be taxed differently.

Well, fund accountants may enjoy getting their teeth into this, but we are not sure that this change simplifies things. From July 2013, taxpayers that have exceeded their concessional contribution cap will be permitted to withdraw excess contributions from their super fund and only be taxed at the marginal rate. Additionally, an interest charge will be levied on the excess concessional contribution. Put simply- excess concessional contributions will be taxed in the same way as non-concessional contributions. The reforms extend the current concessions available which only allow up to $10,000 to be taxed at the marginal rate.

Gold and Platinum members read on for the other changes, including the proposed changes to Capital Gains Tax on Superannuation Assets.

Of course, none of this is yet law, and as is often the case in an election year, the issue is sure to become a political football so nothing is set in stone. LawCentral will advise members of changes as they become law and how they may impact on SMSFs. If you are not already a member, then click here to join for free to keep up to date with the latest changes.

Build these documents now:

• Self Managed Superannuation Fund Deed
• Investment Strategy for Self Managed Super 12/13
• Pension Pack for Self Managed Super