Federal Budget 2014 – Key changes to superannuation

The Labor Government recently announced the details of their federal budget that will come into effect should they be re-elected.  While we encourage you to have a look at the whole summary, we thought it would be worthwhile to highlight a couple of the changes to superannuation and how they may affect you, particularly if you are a farmer or small business owner.

Increase of the concessional contribution caps for certain members

The concessional contribution cap has been proposed to be raised from $25,000 to $35,000 for people over 60 from 1 July 2013 and people over 50 from 1 July 2014.

This is a welcomed change, particularly for baby boomer farmers that have the ability to make large deductible contributions into their super each year.

For everyone else, the concessional cap remains at $25,000 although it is expected to increase over time through indexation.

The Coalition has indicated support for this measure which means there is the possibility it could be legislated before the election.

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

Currently, all earnings (such as dividends, interest and capital gains) on assets supporting income streams (such as superannuation pensions) are tax-free.

This is in contrast to earnings in the accumulation phase of superannuation which are taxed at 15 per cent.

The Government proposes from 1 July 2014, earnings on assets supporting income streams will be tax-free up to $100,000 per year. Earnings above $100,000 per year will be taxed at a rate of 15 per cent.

Earnings will include interest, dividend and rental income but special rules will apply to capital gains depending on when the asset was acquired.  Special arrangements will apply for capital gains on assets purchased before 1 July 2014.

How could this affect me?

For the majority of people who are receiving a pension from their super, this change won’t affect them year to year, as the earnings within the fund need to exceed $100,000.  However, those who have lumpy assets in their super, such as property or farm land need to be aware that this could trigger capital gains tax upon the sale of the asset.  We are still waiting for the Government to clarify many of the details of this change.

This should not necessarily be a cause for panic as superannuation is still the most tax effective environment to hold an investment.  There is no substitute for quality advice in this area

Daniel Budreika
Planning for Prosperity

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