Budget 2013 - the SMSF Perspective

From a purely SMSF perspective the 2013 Budget contained nothing of significance as the unpleasant changes had been previously announced on 5 April 2013.

A short summary of the principal changes is set out below:

Taxation of earnings of super assets supporting pensions
Announced 5 April 2013 and applies from 1 July 2014.  
Essentially, earnings on assets supporting pensions will be taxed at 15%.  However, for each member in pension phase the first $100,000 of such earnings per member per year will not be taxed.  The $100,000 is a global limit and applies to all pension interests of the member.

Temporary increase in the Concessional Contributions Cap for older super members
Announced 5 April 2013 and applies from 1 July 2013.
The concessional contributions cap will be $35,000 if you are aged 60 or more.  From 1 July 2014, the $35,000 concessional contributions cap will apply if you are aged 50 or more.  Otherwise, the $25,000 cap will apply.

It is likely that the $25,000 cap will (by reason of indexation) reach $35,000 by 1 July 2018.  Consequently, the $35,000 cap will apply to all, irrespective of their age.

Changed Excess Concessional Contributions arrangements
Announced 5 April 2013 and applies from 1 July 2013.
Excess concessional contributions made in respect of the 2013/14 or later financial years will be refunded to the member and taxed at the member’s marginal tax rate rather than the top marginal tax rate less 15% (as the fund has already taxed the contributions at 15%).  Additionally an interest component will be imposed.

This measure only applies to excess concessional contributions and not to excess non-concessional contributions.

The member will be able to choose whether to have the excess refunded. If not refunded, the excess will be taxed at 31.5% and counted as a non-concessional contribution.

Changed Centrelink income testing of pensions
Announced 5 April 2013 and applies from 1 July 2015.
Account based pensions (including transition to retirement pensions) which commence on or after 1 July 2015 will be Centrelink income tested using the “deeming rules” rather than the “deductible amount” method.  Pensions which commenced before 1 July 2015 will continue to be Centrelink income tested using the “deductible amount” method.

Abolition of maximum age limit for SG contributions
Announced 14 May 2013 and applies 1 July 2013
Currently, Superannuation Guarantee (SG) contributions are not required to be made for employees aged 70 or more.  From 1 July 2013 employees aged 70 or more will be entitled to SG contributions.

Changed franking credit rules
Announced 14 May 2013 and applies from 1 July 2013.
The tax rules as to when franking credits can be claimed will be tightened.  The current 45 day holding period rule will be changed and the “last in – first out” rule will be reviewed.  The intention is to prevent “dividend washing” by which taxpayers can (in certain circumstances) claim a double entitlement to franking credits.  The changes will apply to taxpayers who are entitled to more than $5,000 of franking credits.

Higher Contributions Tax
Announced 8 May 2012 and applies from 1 July 2012.
This proposed tax applies where super members have “adjusted income” of more than $300,000.  The tax will ensure that concessional contributions are taxed at 30% rather than 15%.

Minor technical or limited impact changes are proposed.

The higher contributions tax is considered in more detail later in this newsletter.

Government Low Income Superannuation Contribution
Announced 14 May 2013 and applies from 1 July 2013.
This Government contribution is intended to reverse the impact of contributions tax on SG contributions of low income super members (ie whose income is less than $37,000 pa).  Previously if the entitlement to the contribution was less than $20, no contribution was made.  Now entitlements (in respect of the 2012/13 and following years) to contributions of less than $20 will be paid subject to a minimum payment of $10.  

ATO Trusts Taskforce
Announced 14 May 2013 and applies from 1 July 2013.
The ATO has received funding to investigate compliance activity in respect of taxpayers who use complicated trust structures to conceal income, mischaracterise transactions or reduce or underpay tax.