New Superannuation Rules Revolutionise Retirement Planning

The 2006/07 Budget Statement included a number of proposals to simplify and streamline superannuation rules in Australia effective 1 July 2007. Some of the more 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.

Reasonable Benefit Limits (RBLs) have been abolished meaning that you can now 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 can now remain in a fund for life drawing either a lump sum or pension when required.

Deductible contribution rules have changed 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. Transitional arrangements apply for those over 50 allowing for deductible contributions of up to $100,000 until 2012 with the limit then reverting to $50,000. The deductible contributions cap of $50,000 will be indexed to AWOTE in increments of $5,000. The transitional cap of $100,000 is not indexed. Contributions in excess of the deductible cap are taxed at the highest marginal tax rate plus Medicare levy and will also count towards the undeducted contribution cap.

Prior deductible contribution rules for the self-employed have been abolished with the self-employed now treated the same way as employees. For more information on 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. Averaging provisions will allow $450,000 to be made for individuals under age 65 permitting larger once-off payments. Persons age 65 and over are 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.

If you would like to speak to a financial planner to learn how you can be optimise your retirement plans to capture the most benefit from the new superannuation rules simply follow this link: Enquiries and mention "New Superannuation Rules".

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