You may have heard the Government recently announced a number of proposed changes to the superannuation system, including the way certain aspects of super are taxed.

It is important to note that these are proposals only at this stage, and while they are intended to be legislated prior to the federal election in September some of the fine detail is still unknown and changes may be required in order for the final legislation to be passed.

Outlined below is a summary of the main proposed changes.

Tax on pension earnings over $100k

Currently all earnings (including dividends, interest, rent and capital gains) on assets supporting a superannuation income stream are tax free.

From 1 July 2014 the government has proposed that future earnings will be tax free up to $100,000 a year for each individual.  Earnings above this threshold will be taxed at 15%.  Special rules will apply in the case of realised capital gains, depending on the date the asset is acquired.

The government will also ensure that members of defined benefit funds are impacted by this new reform in the same way as members of accumulation funds.

Increase to concessional contributions cap

The government has announced that the concessional contribution cap will increase from its current limit of $25,00 per annum.

For people aged 60 and over the cap will increase to $35,000 from 1 July 2013.

For those aged 50 and over the cap will increase to $35,000 from 1 July 2014.

Excess contributions tax reforms

Under the current arrangements contributions in excess of the $25,000 cap are effectively taxed at 46.5%.

The government has proposed allowing any excess contributions made after 1 July 2013 to be withdrawn.  Also any excess contributions will be taxed at the individual's marginal tax rate.

Account based pensions to be deemed

Under the current Centrelink means testing rules, income received from an account based pension is treated more favourably than income from other investments.

It has been proposed that the normal deeming rules will be extended to apply to new account based pensions commenced after 1 January 2015.  Existing account based pensions will continue to receive the favourable treatment indefinitely.

We will continue to monitor the progress of these proposals and will be in contact with you when future developments arise.