SUPERANNUATION CHANGES AS AT 30 June 2007
* SUPERANNUATION CHANGES *
TAX DEDUCTIBLE SUPERANNUATION CONTRIBUTIONS
* PRIOR TO 1 JULY 2007
Prior to 1 July 2007, tax deductible contributions are subject to the following limits:-
Age Employed Persons 1 Self-Employed Persons including Investors
Under 35 $ 15,260 $ 18,680
35-49 $ 42,385 $ 54,847
50 and over $105,113 $138,484
1 Entitled to claim a tax deduction for the first $5,000 plus 75% of the balance.
* FROM 1 JULY 2007
All contributions made by either employers or self-employed persons will be fully tax deductible. However, there will be limits on the contributions that will be concessionally taxed within the superannuation fund.
The amount of concessionally taxed contributions will be limited to $50,000 per annum per person. Transitional arrangements will increase this limit to $100,000 per annum for persons aged 50-74 between 1 July 2007 and 30 June 2012. Contributions in excess of these limits will be taxed at the top marginal tax rate for individuals.)
Persons aged 65-74 must satisfy a work test in the year that contributions are made.
UNDEDUCTED CONTRIBUTIONS (FROM 10 MAY 2006 – 30 JUNE 2007)
A limit of $1 million per person applies to undeducted contributions made from 10 May 2006 to 30 June 2007. Undeducted contributions are those superannuation deductions where no tax deduction is claimed. For persons aged between 65 and 74 they must satisfy a work test in the year of contribution.
The benefit of making undeducted contributions is that the earnings are taxed at a maximum rate of 15% during the period prior to retirement and tax free after retirement. The disadvantage of making undeducted contributions is the lack of access to the funds prior to retirement (depending on the age of a person).
* FROM 1 JULY 2007
Undeducted Contributions will be limited to $150,000 per annum or $450,000 every three years for persons aged 64 years old or less. For persons aged 65-74 they will be limited to $150,000 per annum subject to working for at least 40 hours in a period of 30 consecutive days during the year of contribution.
2TAX TREATMENT OF WITHDRAWALS
If you are aged 60 or over, super withdrawals and pensions will be completely tax free from 1 July 2007. These withdrawals will not be included in your annual tax return.
If you are aged between 55 and 74 after 1 July 2007 it may be possible to make withdrawals and receive pensions whilst still working and also to make tax deductible contributions. Note however that the amounts that can be withdrawn and the tax status of the withdrawals vary with age and other factors.
2 This does not apply to Government and Non Taxed super fund members.
Please note that Death Benefits paid to financial dependants, ie surviving spouse or minor children, will be tax free. Death Benefits paid to non-financial dependants will be subject to tax.
ASSET TEST – AGE PENSIONS
FROM 20TH SEPTEMBER 2007
Prepare for the new social security rules that will apply from 20 September 2007. These will remove a 50 % assets test exemption for new complying super pensions and halve the so-called assets test taper rate, so anyone eligible for the government age pension will lose only $1.50 per fortnight for every $1,000 of assets, rather than $3. These changes will greatly improve age pension entitlements for retirees. A couple with about $803,000 of assets apart from their home is likely to be entitled to a part-government pension compared with the $516,500 cut-off now. These pensions don’t allow lump sum withdrawals, but the trade-off is a higher income benefit.
You may be entitled to receive up to $1,500 from the Government to match personal superannuation contributions you make.
How does the co-contribution work?
The maximum $1,500 co-contribution is received if your total income is less than $28,000 and you invest $1,000 into super. This co-contribution phases out if your total income is between $28,001 and $58,000. The actual amount of co-contribution you can receive depends on your income, age, sources of income and level of personal contributions made during the year.
From 1 July 2007 this also applies to self employed persons.
REQUIREMENT TO COMMENCE WITHDRAWAL
From 9 May 2006 non working persons aged 65 years and over may retain their superannuation intact indefinitely subject to the individual’s cash flow requirements. i.e. where you don’t need to withdraw funds from super you can continue to benefit from a lower rate of tax within the superannuation fund – 15%.
REMOVAL OF REASONABLE BENEFITS LIMIT
These limits will be removed from 1 July 2007.
Benefits of this change are:
Ø Greater life cover possible through super funds.
Ø No additional tax on withdrawals from super which exceeds certain levels.
All material contained in this schedule is written by way of general comment to clients of MACARTHUR’S MSVDH. No material should be accepted as authoritative advice and any reader wishing to act upon the material contained in this schedule should first contact us for properly considered professional advice which will take into account each client’s own specific conditions.
No responsibility is accepted for any action taken by readers, based on the material contained herein, unless they have obtained further specific advice from our alliance partner, Financial Centre .at 215 Argent Street Broken Hill NSW 2880