Possible benefits for couples of splitting super assets

Last week’s announcement of changed taxation arrangements for retirees receiving superannuation pensions in excess of $100,000 per annum has removed the possibility of major adverse changes in the May budget.

This was welcome news to older Australians concerned about possible reductions in their living standards. Nevertheless, until the federal election is decided in September, there will be no changes to the superannuation arrangements other than outstanding measures announced in the May 2012 budget. These include an additional 15 per cent contributions tax on assessed incomes in excess of $300,000-a-year, for which the legislation has not yet been released.

There’s no bilateral agreement or support for any of the measures announced last week. The Coalition parties, at least at this stage, aren’t prepared to commit to any changes. It’s likely this situation won’t change dramatically in the lead-up to the election.

Presumably the government, if re-elected, will move to implement the changes already announced. These will increase the tax payable on superannuation pensions earning in excess of $100,000 p.a. in income, including those received by defined benefit fund members. However, there will be winners in the proposed changes.

These include a refund of contributions tax on taxpayers earning less than $37,000-a-year and an increase in the deductible contributions limit to $35,000 for people aged 60 or more and subsequently to the over 50s.

The Coalition parties could ultimately decide these changes are desirable. Taxpayers and the Australian Taxation Office would similarly welcome action to remove the harsh penalties on fund members who breach annual contributions tax limits.

At a practical level, once the May budget details are announced, superannuation fund members can rely on having considerable time to adjust their strategies to accommodate any changes enacted by the next government.

One course of action may be worth considering. The changes announced increase the incentives for couples to ensure that their superannuation assets are, to the extent possible, split equally between them. The proposed $100,000 annual income threshold for the new tax applies to each superannuation pensioner. This means a higher tax burden on pensioner couples where all or the majority of the income is earned by one partner. The limit, as announced, is $100,000 per person, not $200,000 per couple.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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