Superannuation reforms
After the major reforms announced in the 2006 Federal Budget to ‘simplify’ the superannuation system (all of which have now been legislated), no major changes to the superannuation system were expected this year.
However, the following minor changes were announced.
One-off doubling of government co-contributions
The government has announced a one-off doubling of the level of co-contributions for eligible individuals from a 3:2 basis to a 3:1 basis. However, this is for eligible contributions made in the 2005-06 year only. In other words, nothing can be done today to qualify for the increased co-contribution.
If you qualified for the full co-contribution of $1,500, the government will now make an additional co-contribution of $1,500, to bring the total co-contribution to $3,000.
Over a period of 15 years, this additional co-contribution could amount to an extra $4,751 of retirement savings. Over 20 years, it adds $6,978 to a superannuation balance.
It is also important to be aware of the following changes that will impact the co-contribution entitlement from 1 July 2007:
- If you are self employed, you will be entitled to the co-contribution.
- The lower threshold to qualify for the maximum co-contribution entitlement (currently $28,000 for the 2006-07 year) will be indexed for the first time for the 2007-08 year. The new lower threshold is expected to be announced around 30 June 2007. The maximum threshold will remain at $30,000 above the lower threshold.
The effect of co-contributions on final retirement savings Assumptions: |
Transitional arrangements for personal contributions
Although previously announced through a press released in February, the budget introduced transitional rules for trustees of super funds to accept contributions for people who were aged 64 or 74 at any time between 10 May 2006 and 5 September 2006.
Under this measure, personal super contributions can be made from 10 May 2006 to 30 June 2007 by a person who:
- is aged 64 at any time between 10 May 2006 and 5 September 2006, without satisfying the work test
- is aged 74 at any time between 10 May 2006 and 5 September 2006, who meets the work test in either the 2005-06 or 2006-07 financial year.
If you fall into either of these categories, it will allow you to take advantage of the opportunity available until 30 June 2007 to contribute up to $1million in after-tax money to super.
Taxation of lump sum super death benefit payments to non-dependants of defence force personnel and police
Superannuation death benefit lump sum payments made to non-dependants of Australian Defence Force personnel and Australian police force members killed in the line of duty will be tax free after 1 July 2007. Currently, such payments are taxed. As a result of this change, non-dependants (such as children over 18) will receive the same favourable treatment as dependants (such as spouses).
This measure has been back-dated to 1 January 1999. Where lump sum death benefit payments have been made between 1 January 1999 and 30 June 2007 non-dependants will receive an ex-gratia payment to ensure the benefit was taxed the same as if paid to a dependant at that time. In essence, the ex-gratia payment will equal the additional tax paid.
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