Business Facts - Superannuation
by Richard Hill
In May last year, the Federal Government announced a range of measures designed to simplify the superannuation system.
Superannuation Reforms An Update When the Government brought down its the Budget on 9 May 2006, some of the most significant changes to be made to superannuation in over 20 years were announced. One of the surprise announcements was a series of changes to the way in which contributions to a superannuation fund would be handled. These included:
The introduction, from 10 May 2006, of a maximum limit on undeducted contributions (UDCs). Those made between 10 May 2006 and 30 June 2007, are limited to $1m per person. After 30 June 2007, the limit will be $150,000 per person, per financial year. Those aged under 65 will be able to bring forward up to 3 years contributions and make a single contribution of up to $450,000, with no contributions being able to be made in the next 2 financial years.
Abolition, from 1 July 2007, of a limit on the amount of tax deduction that may be claimed for superannuation contributions. This is to be replaced with a limit on the amount of contributions received by a superannuation fund to which the concessional 15% tax rate will apply. Tax deductible contributions that exceed $50,000 per person, per year, will effectively be taxed at the top marginal tax rate of 45%, plus Medicare Levy. For those aged 50 or over, the maximum concessionally taxed contribution will be $100,000 per person, per annum. This will apply for a 5 year period until 30 June 2012.
Currently, where a tax deduction may be claimed for contributions, it is limited to contributions made by or for people under 70 years of age. This will increase to age 75 for contributions made on or after 1 July 2007. The real winner to emerge from the Budget announcements is that superannuation benefits paid to people from age 60 will be tax-free where the benefit is paid from a taxed superannuation fund. A taxed superannuation fund is one that pays tax on contributions and on investment earnings. So, whether benefits are taken in the form of a lump sum payment or as a pension or regular income stream, the payments will be tax-free. Great news for those approaching retirement! While the Budget announcements were primarily directed at contributions and benefit payments, a number of other aspects of superannuation are also to change:
Eligible termination payments (lump sum payments from a superannuation fund) will be simplified from 1 July 2007;
Reasonable benefit limits are to be abolished;
The self-employed will be able to claim a deduction of 100% of contributions made to super (instead of the current complex system that allows a deduction of 100% of the first $5,000, and 75% of the excess over $5,000);
A new and simplified form of pension will be introduced from 1 July 2007.
The important thing to remember with the superannuation reforms is: people will be affected differently depending on their personal circumstances. With this in mind, it is important for readers to ensure they discuss the impact of these changes on their personal circumstances with their financial adviser before acting.
Contributions from Professional Investment Services