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Date of article: 24 May 2013
Last updated: 24 May 2013

Tax exemption for pension asset earnings capped at $100,000

The Government announced on 5 April 2013 (Minister for Financial Services and Superannuation Media release No. 21) that the tax treatment of earnings on assets supporting superannuation income streams will be reformed.

Currently, all earnings on assets supporting superannuation income streams (including transition to retirement income stream) are tax-free.

From 1 July 2014, earnings on assets supporting superannuation income streams will be tax free up to $100,000 a year per person. Earnings above $100,000 will be taxed at a rate of 15 per cent, the same rate as the tax rate that applies to earnings in the accumulation phase.

The $100,000 threshold will be indexed to the Consumer Price Index, and will increase in $10,000 increments.

Capital gains will be included in earnings, and special arrangements will apply for capital gains on assets purchased before 1 July 2014:

  • For assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;
  • For assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and
  • For assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.

For assets that were purchased before 5 April 2013, the special arrangement will provide an opportunity to realise capital gains that are exempt income before the expiry of the 10 year period.

Who will be affected?

The new measure will affect anyone with high balances in their superannuation fund (if in accumulation phase at present, it will eventually apply when pension is commenced).

As the threshold is calculated on a per person basis, there are opportunities for couples with disproportionate level of superannuation, including superannuation contributions splitting, draw-down by one and re-contribute by the other.

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