SMSFs face higher future tax bills after super changes

Property laden self-managed super funds face the prospect of higher tax bills following super changes announced by Superannuation Minister Bill Shorten last week.

Mr Shorten announced that super income streams over $100,000 will be taxed at a concessional rate of 15% from July 1, 2014.

For people with more than $2 million in super assets (such as investment property) supporting income streams, the reform will affect assets earning a rate of return of 5%.

The most recent ATO figures for 2011 show that 28% of SMSFs now have account balances of at least $1 million.

"From  July 1, 2014, future earnings (such as dividends and interest) on assets supporting income streams will be tax free up to $100,000 a year. Earnings above $100,000 will be taxed at the same concessional rate of 15% that applies to earnings in the accumulation phase," said Federal Treasurer Wayne Swan in a joint statement with Mr Shorten last Friday.

Treasury announced that 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 gains.

"These generous transitional arrangements will ensure that people who have already purchased superannuation assets will have ten years to decide whether they want to restructure their superannuation holdings, before their capital gains start to be affected," reads the statement.

The reform will not affect the tax treatment of withdrawals.

"Withdrawals will continue to remain tax-free for those aged 60 and over, and face the existing tax rates for those aged under 60."

The government also announced that for people aged over 60, concessional caps will be increased from $25,000 to $35,000 from July 1. This concession will be extended to those aged 50 and over from July 1 next year.

Prior to the announcement, the capital gains proposals were slammed by small business leaders.

"As small business owners, our lives are based around our assets," Council of Small Business of Australia chief executive Peter Strong said. "It's almost an attack on small business."

The supposed plan would see capital gains tax charged when properties move into the pension phase of an account, meaning SMSF owners would be charged more money as they near the point where they are able to draw funds.

"When you have an asset like a property and it's an integral part of your business, it seems unfair to change the rules and then dictate when you can retire."