Simpler Super

Significant changes to the superannuation system are proposed by the Federal Government. The Explanatory Memorandum issued by the Treasurer on 7 December 2006 states "Simplified Superannuation will sweep away the raft of complex tax arrangements and restrictions that apply to superannuation benefits. These amendments will improve retirement incomes and increase incentives to work and to save."

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Key Changes
Taxation of Benefit Payments
Crystallised pre July ’83 component
Tax File Numbers
General Advice Warning

Key Changes

Key changes announced by the Government include:

From 10 May 2006:

Ability to make personal contributions of up to $1 Million in the period 10 May 2006 to 30 June 2007;
Abolish compulsory cashing requirements for people aged 65 and over;

From 1 July 2007:

Abolish tax on lump sums and pensions paid from taxed superannuation funds for those aged 60 and over;
Abolish reasonable benefit limits (RBLs);
Abolish age based deduction limits for contributions;
Allow employers to claim a full tax deduction for contributions to superannuation on behalf of employees up to age 75;
Allow the self-employed to claim a full tax deduction for contributions to superannuation up to age 75;
Limit the level of concessional contributions to superannuation (deductible contributions) to $50,000 per person per financial year;
Concessional contributions in excess of the $50,000 limit will be taxed at an additional 31.5 per cent. The additional tax will be imposed on the individual;
A 5 year transitional cap of $100,000 concessional contributions per person per year will apply for people aged 50 and over;
Limit the level of non-concessional contributions to superannuation (personal contributions from a person’s post-tax income) to $150,000 per financial year;
Non-concessional contributions in excess of $150,000 will be taxed at 46.5 per cent. This tax will be imposed on the individual;
People under age 65 can bring forward two years of future entitlements to non-concessional contributions giving them a cap of $450,000 over three years;
Concessional contributions in excess of the limit will count towards the non-concessional limit.

From 20 September 2007:

Asset Test for Aged, Service, disability support, wife and widow B pensions, carer payment and bereavement allowance is halved (from $3.00 to $1.50 per fortnight for every $1,000 of assets above the relevant threshold);
The 50% assets test exemption for complying income streams will not apply to any complying income stream purchased on or after 20 September 2007.
All income streams purchased on or after 20 September 2007 will have new minimum standards.

Further information may also be obtained from the Government SimplerSuper website.

Taxation of Benefit Payments

Over age 60

Benefits paid from a taxed superannuation fund to a person after age 60 will be tax free whether paid as a lump sum or as a pension. This benefit is not assessable income and is not exempt income – it is tax free.

Under age 60

Benefits paid from a taxed superannuation fund to a person aged below 60 will comprise two components:

A tax free component;
A taxable component.

The tax free component is generally made up of a person’s personal contributions (made from post tax income) and by an amount which represents the portion of a superannuation benefit that accrued before 1 July 1983. This portion (previously called the Pre-July ’83 component) will be crystallised as at 30 June 2007.

The taxable component of a superannuation benefit is the total value of the superannuation benefit less the tax free component.

The taxable component of a superannuation lump sum benefit paid to a person who has:

reached their preservation age but is less than age 60 is assessable income and any amount greater than the low rate cap (initially $140,000 indexed annually) is taxed at 15 per cent (plus medicare levy).
not reached their preservation age is assessable income and is taxed at 20 per cent (plus medicare levy).

The following table summarises the new taxation of benefit rules. Note – the tax free component is always tax free:

Age	Superannuation Lump Sum taxable component	Superannuation Pension taxable component
Aged 60 and above	Tax free (not assessable, not exempt income)	Tax free (not assessable, not exempt income)
Preservation age to age 59	Zero per cent tax up to low rate cap (initially $140,000 indexed annually) Any amount above low rate cap is subject to 15 per cent tax (plus medicare levy)	Marginal tax rates and 15 per cent tax offset
Below preservation age	Taxable component is subject to 20 per cent tax (plus medicare levy)	Marginal tax rates (no tax offset except for disability)

Crystallised pre July ’83 component

Currently, superannuation lump sum benefits paid from a taxed source comprise up to eight different components that are each subject to different taxation arrangements. Where a member has an Eligible Service Period start date before 1 July 1983 (joined an employer before 30 June 1983) their benefit is split into two components, based upon the relevant number of days:

pre July’83 component, and
post June’83 component

After 1 July 2007 and before 30 June 2008, Superannuation funds will be required to calculate a crystallised segment as at 30 June 2007. Any members with an Eligible Service Period start date before 1 July 1983 will have their pre-July ’83 component crystallised. Their pre-July’83 component will be frozen at that point in time.

Where members have multiple superannuation accounts it is quite probable that each superannuation fund will have a different eligible service start date. It is therefore important that multiple superannuation accounts be combined before 30 June 2007 in order to gain the use of any earlier start dates on the total benefit accrued as at 30 June 2007.

Simply complete and return a Rollover Authorisation form to combine any multiple accounts.

Tax File Numbers

Greater emphasis is being placed upon the collection of tax file numbers (TFN) for superannuation purposes.

Where an employee quotes a TFN to an employer for employment purposes it will automatically be taken that they are authorising their employer to provide their TFN to their superannuation fund.

Where a superannuation fund does not hold the member’s TFN the following will apply:

Taxation of benefits

The superannuation fund is required to withhold tax at the top marginal rate (plus medicare levy) on the taxable component of any lump sum benefit.

Contributions

Superannuation funds will not be allowed to receive non concessional contributions (personal contributions made from a person’s post tax income) unless a TFN is held for that member.

Concessional contributions (generally made by an employer) will be taxed at 46.5 per cent where the superannuation fund does not hold the member’s TFN.

This later point is of major concern to the superannuation industry as many hundreds of thousands of members have not supplied their TFN, nor has their employer.

It is therefore critical that members provide their TFN to their superannuation fund in order to avoid massive penalty tax.

You can check whether your TFN has been advised to your fund by logging on-line to your member account, if registered for Member On-line, or by checking your last statement.

If you have not advised your TFN, please complete and return the TFN Declaration form.

General Advice Warning

This information is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. You may like to consult a licensed financial adviser. You should also refer to member handbooks (Product Disclosure Statements) and the fund's Financial Services Guide before making a decision.