Budget impact on superannuation funds
Prior to the last election, the now Prime Minister promised there would be no negative changes to superannuation. However, in the event of a second term of office for the current government, superannuation trustees should anticipate changes that could negatively impact upon their funds.
Superannuation Guarantee Changes
Superannuation Guarantee contributions will increase from 9.25% of Ordinary Times Earnings to 9.5% of Ordinary Times Earnings on 1 July 2014. It will then be frozen at that rate until 30 June 2018. From 1 July 2018 it will increase by 0.5% increments until it reaches 12% in 2022 -2023
Excess Non-Concessional Contributions
If a fund member has made excess non-concessional contributions after 1 July 2013, the member may request a refund of the excess and any associated earnings. The earnings will be taxed at the member’s marginal rate. If the excess contributions are left in the fund, they will be taxed at the top marginal rate in the fund. There are no details of how to determine the “associated earnings” and we will have to wait for the legislation to be able to give further clarity to this measure.
Account Based Pensions to be included in deeming from 1 January 2015
From 1 January 2015, the untaxed income from any new pension will be subject to deeming for the purposes of both the Age Pension and the Commonwealth Seniors Health Card (CSHC). Note that pensions in existence at 1 January 2015 will be grandfathered. However, if a pension is commuted to accumulation and a new pension commenced after that date (for example if contributions have been made to the fund and an increased capital amount is available for the pension), this will count as a new pension. It is not clear whether the balance of the interest will be included or only the taxable portion. We will have to wait for the legislation to give further clarity to this measure.
In addition, the Deeming Rate Thresholds will be reset from 1 September 2017, to $30,000 for a single and $50,000 for a couple (down from $46,600 and $77,400 respectively), meaning that eligibility for the Age Pension and the CSHC is being significantly tightened. Fringe benefits for pensioners such as telephone and utility allowances have been cut and funding for state governments to provide travel allowances has also been cut, so it is possible that travel allowances will also be cut for pensioners.
Freeze to income and assets test thresholds
From 1 July 2017, the income and assets test thresholds for Age Pension and the income test threshold for CSHC will be frozen for 3 years. Indexing of the Age Pension will also be linked to the Consumer Price Index from 1 September 2017, instead of the more generous Male Total Average Weekly Earnings. Over time this will significantly erode the Age Pension and increase reliance on superannuation pensions.
Medicare levy increased
Although not specifically a budget measure, the Medicare Levy will increase to 2% from 1 July 2014. This additional levy will affect any applicable tax on superannuation benefits when received.
Corporate tax rate cut from 1 July 2015
From 1 July 2015, the corporate tax rate will be cut by 1.5% - this means that franking credits on dividends received will reduce and this will impact upon the tax payable by superannuation funds.
Conclusion
Although the 2014 – 2015 Budget did not specifically make any direct changes to the taxation of superannuation funds and their members, the indirect changes will impact upon the planning process for members, especially those with lower balances and at or near retirement. This Budget emphasizes the value of consulting a qualified adviser in the lead-up to and during the retirement phase. It is likely that the Budgets in the second term of this Government will introduce changes to the concessions currently afforded to superannuation funds and members.