Q. We have well over 2 million in our Self Managed Superannuation Fund and will earn well over $100,000 income each year within the fund.  I am 69 and my wife is 65.  We are both on Allocated Pensions.  I read that the Government plan to “Grandfather” our existing entitlements for 10 years.  Is this correct and if so could please explain how this works?

A.  On 5 April the government announced changes to Superannuation to take effect from 1 July 2014.  Currently all earnings on assets held in an Allocated Pension are tax free. This includes, dividends, interest and realized Capital Gains  From 1 July 2014, earning up to $100,000 per member will be remain tax free and the balance will be taxed at 15%.  This is the same rate that is applicable to Superannuation in the accumulation phase.

The government referred to this initiative impacting those with over $2 million.  This was misleading as the test is based on the income to the members Allocated Pension Account not the assets of the fund.

Grandfathering is applicable to Capital Gains on existing assets owned by the fund.  Assets purchased before 5 April 2013 will retain a full tax exemption for Capital Gains that accrue before 1 July 2024.  For assets purchased between 5 April 2013 and 30 June 2014, individuals will have the choice to include the entire Capital Gain or only that part that accrues after 1 July 2014.

The reforms will not affect the tax treatment of withdrawals (whether income or lump sums) from the Superannuation fund or Allocated Pension.  Withdrawals will continue to be tax free for those over 60.

It is early days and we will need more detail from the Government before understanding the full impact.  Legislation is not due before the Parliament until after the Federal election in September 2013.


Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.