Superannuation Reforms

Superannuation Reforms AustraliaThis article was originally published in BloombergBNA’s Tax Planning International Asia Pacific Focus Journal (Vol.13, No.5, May 2013)

On April 5, 2013, the Minister for Financial Services & Superannuation, The Hon Bill Shorten, MP, announced several reforms around superannuation tax concessions.

The key reforms included are as follows:

1.    Taxation of pension earnings above AUS$100,000

Effective July 1, 2014, superannuation pension earnings in excess of AUS$100,000 per annum will be taxed at 15 percent. Currently all pension earnings are tax free.

Included in earnings are Capital Gains, however there are transition provisions that apply:

1)    For assets that were purchased before April 5, 2013, the reform will only apply to capital gains that accrue after July 1, 2024;

2)    For assets that are purchased from April 5, 2013 to June 30, 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after July 1, 2014; and

3)    For assets that are purchased from July 1, 2014, the reform will apply to the entire capital gain.  The reform will include ‘‘defined benefit’’ superannuation’s, and the AUS$100,000 threshold applies per person.

The proposed threshold of AUS$100,000 will be indexed to the Consumer Price Index (CPI) and will increase in increments of AUS$10,000.

It is estimated by Treasury that around 16,000 individuals, or 0.4 percent of the retiree population will be affected by the reform.

2.    Deferred annuities: Reformed concessional tax treatment

In an attempt to encourage the take up of deferred annuities, effective July 1, 2014, deferred annuities will receive the same concessional tax treatment as pension superannuation assets.

3.    Increase to concessional caps

Effective July 1, 2013, the concessional caps will increase to AUS$35,000 per annum for all individuals over the age of 60. This is not indexed.

Effective July 1, 2014, the concessional caps will increase to AUS$35,000 per annum for all individuals over the age of 50. This is not indexed.

Currently the general concessional caps are

AUS$25, 000 per annum for all individuals, and are indexed to CPI. It is expected the general concessional caps will reach AUS$35,000 in 2018.

4.    Withdrawal of excess concessional contributions

Effective July 1. 2013, individuals who inadvertently breach the concessional contribution limit of AUS$25,000, will be allowed to withdrawal the excess concessional contribution from the superannuation fund.

These withdrawals will be taxed at the individual’s marginal tax rate, plus an interest charge.  The current provisions allow for a one time refund, up to a maximum of AUS$10,000 per individual, of excess concessional contribution.

5.    Deeming rules to apply to account based income streams

Effective January 1, 2015, the Centrelink deeming rules that apply to financial investments, will include the asset value of account based income streams. This will affect the eligibility and quantum of the Age Pension received by individuals from Centrelink.

The current deeming rates are 2.5 percent on the first AUS$45,400 worth of financial assets for a single pensioner, or AUS$75,600 for a couple pensioner.  Assets above those limits are deemed at 4 percent.  Any superannuation account based income stream held before January 1, 2015 will be grandfathered, and the deeming rules will not apply to these assets.

6.    Increasing of the lost superannuation balance transfer threshold

Effective December 31, 2015, the balance transfer for lost superannuation’s to be transferred to the Australian Taxation Office will be increased from AUS$2,000 to AUS$2,500.

This will further increase to AUS$3,000 effective December 31, 2016.

7.    Establish a council of superannuation custodians

This Council is to be established as an independent body to ensure any future changes to the superannuation system by Government, be assessed against an agreed Charter of Superannuation Adequacy and Sustainability.  The Charter, which is yet to be finalised, will be developed against the principles of certainty, adequacy, fairness and sustainability. The Charter will clearly outline the core objects, values and principles of the Australian superannuation system.


While breaking earlier commitments to leave superannuation alone, these reforms were fairly restrained, compared to what the general industry was expecting.  The Federal Government is reviewing all areas of the budget in an attempt to increase revenue.  The reforms are estimated to save around AUS$900 million over the forward estimate period.  It has been suggested that these reforms will encourage superannuation funds, particularly self managed superannuation funds, to review their investment strategies, in an attempt to reduce their income when it is nearing the threshold. Strategies could include taking on borrowings within the confines of existing legislation, and could have unintended changes on the overall risk profile of the portfolio.