We are pleased to provide a summary of the major announcements, including those made on 5 April, below:
 

Superannuation measures announced 5 April 2013

Changes to the tax exemption for earnings on superannuation assets supporting income streams

From 1 July 2014, earnings on assets supporting income streams above $100,000 per year will be taxed at a rate of 15 per cent.  This is in contrast to the current rules where all earnings from assets supporting superannuation income streams are tax-free. 

The Government has said it will ensure that members of defined benefit funds will be equally impacted by this change as members of accumulation funds.

The measure grandfathers the CGT treatment of existing assets supporting income streams until 1 July 2014.  This will cause the CGT treatment of assets supporting income streams to have a three tiered structure over the next 10 years, so that for:

• assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;
• 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
• assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.

Increasing the concessional caps for certain superannuation members

The concessional contribution cap will be increased so that:

• From 1 July 2013 taxpayers aged 60 and over will have a $35,000 cap; and
• From 1 July 2014 taxpayers aged 50 and over will have a $35,000 cap.

This will replace the Government’s previous proposal of a higher cap for over 50s with balances under $500,000.  The Government abandoned this proposal due to industry criticism that the proposed measure was too complex and difficult to administer.

The general concessional cap is expected to reach $35,000 by 1 July 2018.

Reform of the Excess Contribution Tax treatment of excess concessional contributions

The new Excess Contribution Tax (ECT) regime for concessional contributions will allow taxpayers who have exceeded their concessional contribution cap after 1 July 2013, to withdraw the excess contribution from their superannuation fund with the excess contribution being taxed at the taxpayer’s marginal rate.  In addition, an interest charge will be levied on the excess contribution to recognise that tax on excess concessional contributions is collected at a later date than normal income tax.

Council of Superannuation Custodians

The Government has proposed to establish a Council of Superannuation Custodians to ensure that future changes to superannuation are consistent with a Charter of Superannuation Adequacy and Sustainability.

Extending normal deeming rules to superannuation account based income streams

For Centrelink income test purposes, superannuation income streams are concessionally treated as a result of the calculation of a deductible amount that reduces the income amount assessed for benefit calculation purposes.

This concession will continue indefinitely for existing income streams. However, new superannuation account-based income streams starting on or after 1 January 2015 will be assessed under deeming arrangements applying to other financial investments. 
 

Changes announced in the Budget

Minimum Pension Payments

In response to the downturn in global financial markets, the government provided pension drawdown relief in 2008-09, 2009-10 and 2010-11 by halving the minimum payment amounts. This relief was extended in 2011-12 and 2012-13 by reducing the minimum payment amounts by 25 per cent.

It is expected that the minimum payment amount is to return to normal in 2013-14.

Reduction of higher tax concessions for contributions of high income earners – technical amendments

The Government has made minor amendments to the 2012-13 Budget measure which reduces the tax concession for concessional contributions for those earning over $300,000, by exempting certain contributions for Federal judges and state higher level office holders.  This will be managed by using a similar definition of income as used for Medicare levy surcharge purposes and refunding former temporary residents tax paid under the measure.

Low Income Superannuation Contribution – technical amendment

The Government is amending the low income superannuation contribution (LISC) eligibility rules to pay individuals with an entitlement below $20. Previously, LISC was not paid if entitlements were below $20.  This amendment will cost $15 million over the next four years.

Supporting seniors who downsize their home

The Government will trial a program that supports Age Pensioners and other pensioners over pension age who want to downsize their home without it immediately affecting their pension.

Eligible pensioners who have lived in their home for at least 25 years and want to downsize will need to put a minimum of 80% of excess sale proceeds from the sale of their former home into a special account, up to a maximum of $200,000.  The funds in the special account will not be counted under the pension income and asset test for up to ten years, or until a withdrawal is made from the account.

Medicare Levy to increase

The Medicare Levy will increase by 0.5% to 2% of taxable income from 1 July 2014.

Net Medical Expenses Tax Offset phase out

The government will phase out the net medical expenses tax offset (NMETO) with transition arrangements for those currently claiming the offset.

The offset (NMETO) will be available for out of pocket medical expenses relating disability aids, attendant care or aged care expenses until 1 July 2019.

Reforms to work-related self-education expenses

The Government will cap work-related self-education expense deductions through an annual $2,000 cap from 1 July 2014. 

Protecting corporate tax base – preventing ‘dividend washing’

The Government will close a loophole that enables sophisticated investors to engage in ‘dividend washing’ from 1 July 2013.

Currently, sophisticated investors can engage in ‘dividend washing’ to, in effect, trade franking credits. This can result in some shareholders receiving two sets of franking credits for the same parcel of shares. This measure will ensure that when an investor engages in ‘dividend washing’ by selling shares with a dividend and then immediately buying equivalent shares that still carry a right to a dividend, they will only be entitled to use one set of franking credits. The changes will be targeted to the two-day period after a share goes ex-dividend.

While it was pleasing that the Government did not announce any further changes to Superannuation, other than those announced on 5 April 2013, there are still a number of measures that may impact your situation. If you have any queries relating to the Budget please do not hesitate to contact your adviser.