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Wealthy super now taxed May 21, 2013

Posted by Meike Suggars in Superannuation.
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Prior to the May Budget, the Gillard government announced one of its changes to super for 2013: its intention to start taxing the super of Australia’s wealthy retirees.

In this case, “wealthy” is defined as those with superannuation earnings over $100,000pa.

Taxing super

Image courtesy Images_of_Money

It’s important we also clearly define “earnings” in this situation as being the income generated by the investments in a pension super fund (eg. dividends, interest or rent), NOT the pension income stream drawn from that fund by the retiree. This means any tax liability is paid by the super fund, not by the retiree. The income generated by the investments in an accumulation super fund (ie. the super funds of all working Australians into which super contributions are paid) is already taxed in this way.

 

To be generating $100,000pa investment income at 5% return, the retiree would need a super balance of $2,000,000. Another way to generate investment income of that amount is to sell assets within the fund that have generated a large capital gain.

Now, it’s only income above the $100,000 that is taxed so another way to look at it is the tax-free threshold increases to $100,000pa at retirement. That’s per person too so couple’s super could earn $200,000pa before tax was due. And the tax rate is 15% compared to 37% for a worker earning $100,000 in wages (excluding levies, 2012-2013 tax year).

So yes, the government is raiding the super pot because they’re spending too much, but in reality it’s a small portion of the population that will be affected. You’ll be one of those affected if:

  • you’re at retirement age (55) AND
  • you’ve converted your accumulation super fund into a pension super fund AND
  • you’re drawing a pension income stream from your super AND
  • the investments in your pension super fund generate over $100,000pa income

Don’t forget, it’s the super fund that pays the tax so the Aussie retiree can still pull their $100,000pa out of super tax free if they’re over 60 years old.

If you need more information about how super is taxed talk to your financial adviser or call Suggars and Associates. You can also read about the 2013 Budget here.

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