The government is set to raise $820 million over the next four years through a suite of changes to the superannuation system, including higher concessional contribution caps and changes to retirement income streams.
But the government will also spend $60 million in alleviating the rules regarding excess super contributions.
The changes, which were originally announced in April, are part of a suite the government believes will help make the tax system fairer.
In his budget speech tonight, Treasurer Wayne Swan said the government will begin “better targeting superannuation tax concessions to improve the system’s fairness, sustainability and efficiency”.
Tonight’s budget clarified several of the government’s superannuation measures:
The budget will make an amendment to a previously announced measure which will reduce tax concessions for very high income earners.
In the 2012-13 budget, the government said it would reduce certain tax concessions for the rich. In addition, it will exempt federal judges from these concessions.
The government will also use a similar definition of income for limiting these concessions in line with the Medicare levy surcharge and will refund former temporary residents the tax paid under the measure.
Over the next four years, these changes are expected to raise $25 .2 million.
In the only measure in which the government is spending money on superannuation changes, $60 million will be provided to change current excess contributions rules.
These rules have been controversial among superannuation industry members for some time as they usually target anyone who contributes over their annual caps, regardless of intention.
Any superannuation member hit by excess contributions tax is charged 46.5% regardless of their marginal tax rate. Now, the changes will see excess contributions taxed at an individual’s marginal tax rate, plus an interest charge.
However, individuals will be allowed to withdraw any excess concessional contributions from their fund.
The government estimates the changes will affect 41,000 people in 2013-14, by about $1,500 on average.
Deferred lifetime annuities
The government will attempt to encourage the adoption of deferred lifetime annuities by providing them with the same concessional tax treatment which applies to investment earnings on super assets supporting retirement income streams.
A deferred lifetime annuity is an annuity which is bought for an up-front premium, although payments don’t begin immediately.
However, because these payments aren’t made annually, they don’t qualify as income streams and so don’t have access to the same concessional tax treatment.
The new change will amend this.
Higher concessional contributions caps
The government will raise $366 million over the next four years through the administration of higher concessional contribution caps.
A new $35,000 cap will apply to anyone in certain age requirements. Anyone aged over 60 from July 1 2013 will be subject to the new cap, although anyone aged over 50 will be subject from 1 July 2014.
The government says the higher cap won’t be limited to individuals with balances below $500,000. The general cap is expected to reach $35,000 by July 1, 2018.
Retirement income streams
Current tax exemptions for earnings on super accounts supporting retirement incomes will be better targeted, the government says.
Future earnings on assets supporting income streams will be tax-free up to $100,000 a year from July 2014, with earnings above the $100,000 threshold to be taxed at the same concessional rate of 15% as in the accumulation phase.
Currently all earnings on assets supporting income streams are tax-free. Under the changes, the $100,000 threshold will be indexed to the Consumer Price Index, and then increase in increments of $10,000.
For assets which were bought before April 2013, the changes will only apply to capital gains which accrue after July 2024.
Both of these changes will earn the government $313 million over the next four years.
Lost member accounts referred to the ATO
The government will increase the threshold below which inactive accounts and those accounts with uncontactable members are required to be transferred to the Australian Tax Office.
The threshold will be increased from $2,000 to $2,500 from December 2015, and will increase to $3,000 from December 2016. This change will raise $118.4 million over the next four years.
The ATO is also set to receive $4.6 million over the next four years in order to administer the changes.
“Together with the strategies the ATO has in place for reuniting lost members with their super, the measure is expected to see a further reduction in the number and value of lost accounts,” the government said in the budget.