New Superannuation Rules Revolutionise Retirement Planning

New Superannuation Rules Revolutionise Retirement Planning

The 2006/07 Budget Statement included a number of proposals to simplify and streamline superannuation rules in Australia. Some of the most important of these include:

An adjustment to the existing component based taxation system to allow tax free lump sum or pension superannuation benefits for people aged 60 and over if paid from a taxed fund after 1 July 2007. It doesn't come much simpler than tax free and this represents a real bonus for retirees in this age bracket.

Reasonable Benefit Limits (RBLs) are to be abolished meaning that you would be able to accumulate a larger concessionally taxed benefit in superannuation without worrying about paying penalty tax on exit.

Retirees need no longer draw their super should they cease work after age 65 and need no longer exit their superannuation fund at age 75. You will be able to remain in a fund for life drawing either a lump sum or pension when required.

In a press release issued 13 June 2006, the Government has decided to bring forward the removal of the payment rules for people aged 65 and over to 10 May 2006. This would allow people who are over 65 and no longer working and people aged 75 to defer cashing their superannuation benefits to take advantage of the new tax regime and flexible draw down rules applying from 1 July 2007.

Deductible contribution rules are also to change in an effort to encourage a higher level of superannuation savings from an earlier age with a new universal limit of $50,000 irrespective of an employee's age. This is higher than the current age based deductible limit for those under 50 but lower than the existing limit for those aged 50 and over. Transitional arrangements should apply to the latter allowing for deductible contributions of up to $100,000 until 2012 with the limit then reverting to $50,000. Employers will be allowed to make deductible super contributions for employees until they reach age 75. The deductible contributions cap of $50,000 will be indexed to AWOTE in increments of $5,000. The transitional cap of $100,000 will not be indexed. Contributions in excess of the deductible cap will be taxed at the highest marginal tax rate plus Medicare levy and will also count towards the undeducted contribution cap.

Existing deductible contribution rules for the self-employed are to be abolished with the self-employed to be treated the same way as employees. It is also proposed that the self-employed will have access to the Government co-contribution scheme under an adjusted income test.

For more information on current and proposed deductible superannuation contribution limits see maximising tax deductions on superannuation contributions.

The amount of personal contributions for which no tax deduction is available (post-tax or undeducted contributions) is now limited to $150,000 per annum subject to the following transitional arrangement.

On 5th September 2006, following a period of consultation, the Government announced a transitional cap of $1 million on undeducted (post-tax) contributions made between 10 May 2006 and 30 June 2007. This will be available to all individuals eligible to contribute to superannuation in the relevant year and will include any contributions already made during that period. A transitional arrangement also allows persons who were aged 64 between 10 May and 15 September 2006 to make personal contributions to superannuation up to 30 June 2007 without having to satisfy the work test and allow persons who were aged 74 between 10 May and 15 September 2006 to be able to make personal contributions to superannuation up to 30 June 2007 subject to meeting the work test. The annual cap on post-tax contributions of $150,000, and the ability to make larger contributions of up to $450,000, will commence on 1 July 2007.

Post-tax contributions made on or after 1 July 2007 will be subject to a cap of $150,000 in a financial year. Averaging provisions will allow $450,000 to be made for individuals under age 65 permitting larger once-off payments. Persons age 65 and over will be restricted to contributing $150,000 per financial year provided they satisfy the work test (40 hours in 30 consecutive days in the financial year the contribution is made). No contributions can be made from age 75.

If a cap is not fully utilised in any year then the unused amount cannot be credited to a future year. The cap excludes the CGT exempt component from the sale of a small business. The exemption applies to the proceeds from the disposal of assets that qualify for the small business CGT exemptions up to a lifetime limit of $1 million (indexed) in addition to contributions allowed under the cap.

Legislation has since been passed giving effect to these proposals.

'Referred from Invest.com.au'