As part of the 2014 Federal Budget, the government has proposed to make the following changes to superannuation. Note that at this stage it is only a proposal. These changes will become law when it has been passed by the parliament.
Delaying superannuation guarantee contribution increase to 12%
The gradual increase of the superannuation guarantee rate (SG) to 12% has been amended again, delaying it by another 2 years. Initially, the SG rate was to be increased to 12% by 2019. However, last year the government delayed this increase so that it would reach 12% in 2021
The SG rate will now be increased to 12% by the following years:
Financial year SG rate
Withdrawing excess non-concessional contributions
From 1 July 2013 (2014 financial year), you will have the option to withdraw non-concessional contributions in excess of the cap and any associated earnings. The amount withdrawn will not be subject to any tax as you have already paid income tax on it; however, related earnings will be taxed at the individual’s marginal tax rate.
If you choose not to withdraw the excess amount, you’ll pay 46.5% tax. This will increase to 47% from 1 July 2014 due to the medicare levy increasing by 0.5%.
Non-concessional contributions are personal contributions made by you from your after tax money (you have already paid income tax). The maximum non-concessional contributions you can contribute a year is $150K. However, if you’re under 65 you can contribute $450K over a 3 year period. This is called “bring forward provision”. If you contribute more than $150K in a financial year, the bring forward provision will be automatically triggered. If you’re over 65 but under 75, the bring forward provision does not apply and the maximum you can contribute is $150K.
Under the current rule, if you exceed the cap you’ll pay an additional tax of 46.5% on the excess amount. Potentially, you could pay up to 93% tax. So it is fairer under the new rule that you have the option to withdrawal it if you inadvertently exceed the cap.
Abolition of First Home Saver Accounts Scheme
The First Home Saver Accounts (FHSA) will be abolished from 1 July 2015 due to the low take up rate. If you open a new FHSA account from 13 May 2014, you’ll not be eligible for concessions and the government contributions into this account will cease from 1 July 2014.
From 1 July 2015, existing account holders will be able to withdraw their account balances without restriction.
FHSA was designed especially to help people save for a house deposit with the government assistance. This includes the government making a co-contribution, no tax on interest earned, you don’t have to pay tax when you withdraw, etc.
Eligibility test for Seniors Health Card
From 1 July 2015, payments from a superannuation pension will be included in the eligibility test for new recipients of the Commonwealth Seniors Health Card, in the same way as the assessment for the Age Pension.
This new rule will not affect anyone who held the Seniors Health Card prior to 1 July 2015.
Superannuation Laws – miscellaneous amendments
The government has indicated that it will make a series of minor but unspecified amendments to the taxation and superannuation laws to correct technical defects, remove anomalies and address unintended outcomes which have recently been identified.
Age pension eligibility age
One of the most significant changes that is not related to superannuation is the gradual increase of the age pension eligibility age from 67 to 70, by 2035. This will not impact anyone born before 1 July 1958.
The following table sets out the age pension eligibility age by date of birth:
Date of birth between Your Age pension age
1 July 1952 and 31 December 1953 65.5
1 January 1954 and 30 June 1955 66
1 July 1955 and 31 December 1956 66.5
1 January 1957 and 30 June 1958 67
1 July 1958 and 31 December 1959 67.5
1 January 1960 and 30 June 1961 68
1 July 1961 and 31 December 1962 68.5
1 January 1963 and 30 June 1964 69
1 July 1964 and 31 December 1965 69.5
1 January 1966 and later 70