On 5 April 2013 the Government announced (here and here) proposed changes to taxation on superannuation which will:

• reduce the tax concession that people with annual income above $300,000 receive on their contributions from 30 per cent to 15 per cent;
• cap the tax exemption for annual earnings on superannuation assets supporting income streams at $100,000, with a concessional tax rate of 15 per cent applying thereafter, and apply the same treatment to defined benefit funds;
• Change the amount of the concessional contributions cap;
• Reform the treatment of concessional contributions in excess of the annual cap;
• Extend the normal deeming rules to superannuation account-based income streams;
• Extend concessional tax treatment to deferred lifetime annuities; and
• Further reform the arrangements for lost superannuation.

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

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

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.

This change will not affect the tax treatment of withdrawals. Withdrawals will continue to remain tax-free for those aged 60 and over, and be subject to the existing tax rates for those aged under 60.

Members of defined benefit funds, including federal politicians (but not state judges and politicians), will be affected by the change in the same way as members of defined contribution funds (i.e. that there will be a corresponding decrease in concessions in the retirement phase).

Concessional contributions cap
The Government will provide an unindexed $35,000 concessional cap to anyone who meets certain age requirements.

The start date for the new higher cap will be 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. The general concessional cap is expected to reach $35,000 from 1 July 2018.

The new higher cap will not be limited to individuals with superannuation balances below $500,000

The treatment of concessional contributions in excess of the annual cap
Under the current arrangements, concessional contributions that are in excess of the annual cap are effectively taxed at the top marginal tax rate (46.5 per cent) rather than the normal rate of 15 per cent.

The Government will allow all individuals to withdraw any excess concessional contributions made from 1 July 2013 from their superannuation fund. In addition, the Government will tax excess concessional contributions at the individual’s marginal tax rate, plus an interest charge.

Individuals will be taxed on excess concessional contributions in the same way as if they had received that money as salary or wages and had chosen to make a non-concessional contribution.

Extending the normal deeming rules to superannuation account-based income streams
Under the change, standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules after 1 January 2015.

All products held by pensioners before 1 January 2015 will be grandfathered indefinitely and continue to be assessed under the existing rules for the life of the product..

Extending concessional tax treatment to deferred lifetime annuities
The Government will provide deferred lifetime annuities with the same concessional tax treatment that superannuation assets supporting income streams receive. This reform will apply from 1 July 2014.

Changes to the arrangements for lost superannuation
In the 2012-13 Mid-Year Economic and Fiscal Outlook, the Government announced that interest will be paid from 1 July 2013 on all lost superannuation accounts reclaimed from the ATO (at a rate equivalent to Consumer Price Index inflation). It also announced that the account balance threshold below which inactive accounts, and accounts of uncontactable members, are required to be transferred to the ATO will be increased to $2,000.

The latest change will further increase the account balance threshold to $2,500 from 31 December 2015, and to $3,000 from 31 December 2016.