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Issue 8, September 2006
to Simplify Super
Super Concepts e-SuperUpdate provides you with technical tips and updates on Self Managed Superannuation Fund topics of interest.
A Plan to Simplify and Streamline Superannuation – Final Decisions
On 5 September the Treasurer released the final changes to the plan to ‘simplify and streamline superannuation' originally announced in the May Federal Budget.
This e-SuperUpdate provides a snapshot of key changes including transitional arrangements announced on 5 September, and should be read in conjunction with e-SuperUpdate Issue 4, June 2006 which discusses the original Budget proposals.
Click here to see e-Super Update Issue 4
Before the proposals in the Budget become law they must be passed by Parliament. It is expected that the legislation will be introduced into Parliament before the end of 2006.
Key Changes
Great News!Transitional arrangement – 10 May 2006 and 30 June 2007 Superannuation Contributions made from tax paid moniesThe amount of after tax contributions that can be made to superannuation between 10 May 2006 and 30 June 2007 have been increased to $1million. This provides a window of opportunity for people who were already in the process of financial planning or making large undeducted contributions including transferring investments to superannuation but had to review their situat io n because of the May Budget announcement. |
After Tax Contributions from 1 July 2007
The annual limit of $150,000 of after tax contributions will commence from 1 July 2007, after allowed transitional arrangements, rather than from 10 May 2006 as originally announced.
People who are younger than age 65 will be able to contribute up to $450,000 within a three year period irrespective of whether they are working or not.
This will allow people under 65 and nearing retirement to make an after tax contribution of up to $450,000 to superannuation.
A person who is between age 65 and 75 will be able to make after tax contributions of up to $150,000 as long as they are working at least 40 hours in 30 consecutive days in the financial year of the contribution.
Exemptions from the after tax contributions limit
There are two categories or payments which will be exempt from the annual after tax contributions limit. These are:
1) Proceeds from the sale of small business assets. As well as being able to take advantage of the transitional arrangements, business owners will be able to contribute a lifetime limit of up to $1million from the sale of small business assets.
This is great news for small business owners who have regarded their business as their super. The Government has accepted that there are business owners who as a legitimate financial planning strategy planned to transfer the proceeds of their business sale into superannuation.
The opportunity is enhanced for those business owners who pass the capital gains tax exemption rules – (those businesses owned for more than 15 years) and this may represent a once in a lifetime opportunity, as a couple running a small business could potentially contribute up to $4million into super during the next year.
2) Settlements for injuries resulting in permanent disablement. There is no limit to the amount that can be transferred to superannuation.
Excess after Tax Contributions
Where after tax contribut io ns in excess of the limit, have been made to superannuation, any excess will be taxed at the top marginal rate plus Medicare. The net amount will remain within superannuation.
This is a significant change to the previous proposal which required the fund to return the excess to the contributor and tax any earnings on the excess contributions at the top marginal rate.
The after tax contribution limits of $150,000 and $450,000 will be indexed to changes in Average Weekly Ordinary Times Earnings (AWOTE) in increments of $5,000, much easier for people to understand than previous calculations.
Co-contributions
The co-contributions system is to be extended to the self-employed from 1 July 2007.
Death Benefits
All lump sum death benefits paid to dependants after 1 July 2007 will be tax free.
Lump sums paid to non-dependants, such as children of the deceased who are over 18 and not dependent on the deceased for support, will be taxed at 15% plus Medicare.
Death benefits may be paid as pensions to a dependant child. However, when the child reaches age 25 the pension must be converted to a tax free lump sum except where the child is permanently disabled.
Where a death benefit is paid to a non-dependant it must be paid as a lump sum.
Payment of benefits Tax-free to Individuals aged 60 and over
Lump sums and pensions (other than death benefits) paid from ‘taxed superannuation funds' after 1 July 2007 will be tax free to anyone older than 60.
Conversion of Existing Allocated Pensions after 1 July 2007
From 1 July 2007 a new type of pension will be permitted. These pensions will provide a minimum pension payment but will have no maximum, except in the case of Transition to Retirement pensions which have a maximum drawdown equal to 10% of the pension balance.
Allocated pens io ns which commenced prior to 1 July 2007 can convert to the new type of pens io n without the need for a formal commutat io n and rollover.
Please note there will be some form of reporting required by the ATO.
With the changes to Superannuation as announced on 5 September now is the time to review your existing SMSF and make plans to ensure that you are utilising the most current financial planning strategies available to you. Alternatively if you do not have a SMSF now could well be the most opportune time to start one as we believe that these changes will make superannuation and self-managed funds an even more attractive proposition than it is today.
Contact us today. It's the surest way to put your mind at ease.
A must read for anyone wanting a plain English guide to self managed superannuation.
