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Changes to pension tax treatment

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Under the current rules, any earnings from superannuation assets used to fund a pension are tax-free. 

Tax imposed on pension earnings

From 1 July 2014, earnings on pension assets will be tax-free up to $100,000 a year for each individual. Pension earnings above $100,000 will be taxed at 15% on the excess amount.

This change does not affect the way that pension payments are taxed in the hands of the recipient.

The new tax will impact anyone with a high super fund account balance drawing a pension. Treasury modelling indicates that assuming an earning rate of 5%, this move would only impact around 16,000 Australians with a pension account balance of $2 million or more. 

However, it’s likely that more people with a lower account balance could be affected if superannuation fund investments backing pensions continue to perform strongly. 

The government has indicated that special arrangements will apply for capital gains on assets purchased before 1 July 2014.

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