Excess Contributions Tax (ECT) system

It is proposed that ECT will now be taxed at an individual’s marginal tax rate plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax. Further individuals will now be able to withdraw any excess concessional contributions from their superannuation fund. The measures are applicable to all excess concessional contributions made from 1 July 2013.

Deferred Lifetime Annuities

In order to encourage the take up of deferred lifetime annuities, the Government proposes to provide these products with the same concessional tax treatment applicable to investment earnings on superannuation assets supporting retirement income streams, with effect from 1 July 2014. Deferred lifetime annuities are annuities that are purchased for an upfront premium but where payments do not commence immediately. For example, the product might be purchased at age 60 with payments commencing at age 80 and continuing for life. As the existing law requires that income streams must make payments at least annually, a deferred annuity does not currently meet this requirement and therefore does not qualify as an income stream which would entitle it to concessional tax treatments.

Higher concessional contributions cap

A $35,000 concessional cap will be provided to anyone who meets certain age requirements and the start date will be brought forward to 1 July 2013 for people aged 60 and over. Individuals aged 50 and over will be able to access the higher cap from 1 July 2014. This higher cap will not be limited to individuals with super balances below $500,000 given the feedback from the Superannuation sector that this requirement would be difficult to administer. When the general concessional cap reaches $35,000 through indexation, it will apply to all individuals from that time forward. It is anticipated that this general concessional cap will reach $35,000 from 1 July 2018 based on current forecasts.

Reforming the tax exemption for earnings on superannuation assets supporting retirement income streams

From 1 July 2014, it is proposed that future earnings on assets supporting income streams will be tax free up to $100,000 a year for each individual. Earnings above the $100,000 threshold will be taxed at the same concessional rate of 15% that applies to earnings in the accumulation phase. It is proposed that the threshold will be indexed to the CPI and increase in $10,000 increments. For assets purchased before 5 April 2013, the measure only applies to capital gains that accrue after 1 July 2024. Capital gains that are subject to the tax will receive a 33% discount and will therefore be effectively taxed at a rate of 10%.